Looking for advice on rental analysis for suited unit (Canada)

[Nick Hazelwood]

Hi everyone,

This will be my first rental property that I am looking at purchasing in Grande Prairie, Alberta.  I am considering this property because it has dropped 40-50k in the passed year and these types of homes are no longer being built. The seller bought the property at a presale 2 years ago for 406k than it shot up and than sunk again with oil prices. With the separate garages I think they will rent better than without in the future. The rent rates have dropped 15-20% in the passed year so using these lower rents, I hope that if I can make it work today than it will cashflow awesomely in a year or two because the units used to be rented for 1650 and 1400.

Purchase price = 410,000 (conservative)

1.5 year old house, Upper unit is 3/1, lower is 2/1. Separate utilities, laundry and each has a one car garage with individual access. The basement is leased for 6 months at $1150/month.

I can get a 5% down mortgage for a primary residence so this would be after living in the unit a couple months and than changing it into a rental. 

Up front costs would be down payment and closing costs = $24, 600

Monthly Expenses

Mortgage payment (including CMHC)=$1850

Property taxes = $333

Insurance = $100

Tenant pays utilities. (common in this area)

Rounded a bit, this is $2283/month.

Income

Upper Unit = $1450 (realtor said a conservative estimate would be 15 but I think that this would be more accurate although it is not rented out yet.)

Lower Unit = $1150 (leased for another 4 months)

Total= 2600$

Income-Expenses= $317

To be safe I have always been told to have a security margin, usually 10% of the income in case of vacancies or other issues.

$317-$260= $57

Is this the correct way in analyzing this property? BEFORE my safety net of 10% income, it looks like I should get a ROI of 15% which I really liked but now after the safety net it is closer to 3% and no longer looks like a good deal. As this is a new home in a nice area I think that it has GREAT potential for the upcoming years, both for growing equity and cashflow, but I don't think that is the right way of thinking as it is being a speculator.

As of today, what does bigger pockets think of this deal?

Thank you so much for any help that is offered!

[Samuel Sedore]

Buying in Alberta could be risky with the economy, extra due diligence would be key. 

The 1% does not always apply in Canada like it does in the states, In Ontario anything I have seen in my market following the 1% rule is actually a bad investment because they are usually in towns with negative to no growth. Think Chatham, Windsor, Welland etc. If the 1% was to be constantly followed My market along with Toronto and Vancouver would technically be terrible investments, while historically they have been very profitable.

If you shoot me a PM I will send you a basic spreadsheet geared towards the way I evaluate. Determine and breakdown your ROI with and without appreciation, as well your monthly cash flow, and expenses multipliers.