Canadian Real Estate - First Property

[Brody Swanson]

Hey All,

I am looking to purchase my first investment property (Canada) and was wondering everyone's thought on the deal as I am not sure whether this is good or not the best. I was hoping to get it for around $300,000 which I know the buyer will take as my friend is the real estate agent of this property. This is a multifamily home with 2 bed, 1 bath, kitchen, living room, and laundry on each floor (upstairs and downstairs). The house was built in 2015 and has A/C and furnace. The house almost always has tenants renting and it sounds like rent for the whole house is $2,500/month ($1,250 per floor). I have cash for the $60,000 down payment. The economics I came up with look as such (please let me know if there is something I am missing or forgetting about):

Monthly Mortgage Payment (assuming 5.5% @ 30 year amortization): $1,353

Monthly Property Taxes: $246

Monthly Insurance: $200 (was not sure what to use here)

Monthly Maintenance: $100

Monthly Rental Income: $2,375 (assuming a 5% vacancy rate - normally rent is $2,500/month)

Monthly Free Cash Flow (assuming no major maintenance): $476/month = $5,712 annually

ROI: 9.52%

Cap Rate: 7.8%

Side Questions:

How long of an amortization period should I use?

Should I use a fixed or variable rate right now with interest rates increasing dramatically?

[Zorya Belanger]

Hi Brody,

I agree with Michael, that after adding in property management, and higher maintenance costs, looks like it will just break even, which is not uncommon when using such a high interest rate. Do the tenants pay for utilities?

If you put 20% down, you can get a 30 year am. 

A very important factor you are not sharing is the market. I cannot tell you if this is a good purchase if I don't know what city and neighborhood it is in. Are people moving there? Are jobs growing? Does it have a diversified industry? What kind of tenants will it attract? Is there rent control? Landlord-friendly laws? What is the likelihood that rents will increase? Do you have money for closing costs?

I would still consider it, just need some more information.