Moving to Canada - which city should I choose?

[Gaurav Dhir]

Hi

I have just joined BiggerPockets and am amazed at the amount of information available and the way members are helping each other out. Thanks to everyone taking time out to reply to queries.

I am a recent Canadian Permanent Resident and I will be moving to Canada in a month. I have the following cities as options to move to - Calgary (AB) or Saint John (NB). I am looking at this from a strictly real estate investment point of view as I plan to get into it full time. My wife's work is location independent (online) and we have a 1-and-a-half year old.

I have the following goals:
Year 1 - Buy my first rental investment positive cash flowing property
Year 3 - Start making at least CAD 1,000 as positive cash flow from rental properties (after all expenses and reserves)
Year 5 - Start making at least CAD 5,000 as positive cash flow from rental properties (after all expenses and reserves)

I want to follow house hacking strategy to begin with. I plan to look for a duplex, triplex or a 4-plex to buy, rehab (if required), live in 1 apartment and rent out the others for positive cashflow. Post that, I want to invest in a BRRRR strategy buy buying, rehabbing and renting single family or multi family apartments.

Currently, the big question for us is whether it will be Calgary or Saint John. Saint John seems to be better priced with much better rental yields. Thus, I presume, that it will be easier to buy cash flowing properties. Am I missing anything?

It will be great if people can give their opinion/experience with these markets. Where do you suggest I should move to?

Thanks a bunch!

[Brianne H.]

I can't speak to Saint John, but I can chime in for Calgary. 

+ lots of people, businesses, and houses, so your rental and stock pool is not limited

+ The general feeling is that we've just turned the corner and probably the worst of the recession is over. Probably over the next 5 years or so we will see healthy market appreciation. 

Now for the negatives:

- Though the feeling is we've rounded the corner, there are still A LOT of people out of work. Businesses and anyone in the oil industry is being quite cautious about rehiring people. There are still layoffs happening (ex: SAIT, though it's a post secondary school, the economy affects everything.) 

- Although house prices have dipped a fair bit over the last 3 years, they are still quite high and for an investment property, you will need 20% down for a conventional mortgage. Unless you plan to house hack and live in one unit? In which case you'll need minimum 5% and will pay a CMHC or Genworth insurance premium which can be as high as 4% of purchase price. 

- Along with house prices, rental prices have dropped as well and haven't bounced back to where they were about 4 years ago. 

- You're unlikely to find a single family home that you could get to cashflow unless it's an absolutely incredible deal. Even duplexes, 3- and 4-units are tough as the prices are quite high. A quick look on MLS shows me that the lowest priced 2+ unit property is $569,000.

If you're intent on Calgary, probably the best thing to look for would be a suited SFR that has a main floor and basement suite (bonus for a garage too). If you can find one that was built before 1972 and has had the basement suite since before then, it could fall under grandfathered rules, which as long as it has windows of proper egress size, interconnected hardwired smoke alarms, and a private entrance, doesn't require much else in the way of upgrades or zoning. But even then, you may not have great cashflow, if you can get it to cashflow at all.

For example, I had a house in Marlborough NE that we bought for $333,000. It needed $26,000 of renovations, and at the time we owned it (2015/2016, had we not sold it) we rented the basement suite for $750/m, including utilities. We lived upstairs, but I ran the numbers on if we were to keep it as a rental. Let's say we drop the basement rent to $700/m and get them to share the cost of utilities with upstairs, and we could rent the upstairs for probably $1200. It also had a double detached garage. Let's say $200/m for that. All together, cash flow would be $2100/m.

Let's also say we had 20% equity in the property, $359,000 total costs, and 20% = $71,800, plus closing costs. If we had a 5 year fixed mortgage at the going rate of around 3.5%, the mortgage would be $1434/m. The tax rate on $359k is $2334, or $195/m. House insurance is probably going to be at least $125/m. 

Mortgage = $1434

Taxes = $195

Insurance = $125

Vacancy (let's go low and say 5%) = $105

Cap Ex (let's also say 5%) = $105

Subtotal = $136/m cashflow. That's also not including management, snow/landscaping costs, or any other unexpected costs. 

Are you married to the idea of these 2 cities? I hear Edmonton is doing really well right now for everything from flips to buy and hold. It has similar rents to Calgary, but much lower cost of entry. In Calgary from what I've heard from others, the strategy that makes sense is rent-to-own, and everything else is doing rather poorly.