Cashflow still exists even with high BC real estate prices.

[Jason Ridout]

If you're looking to invest in real estate on the West coast of BC, you're probably assuming that house prices have been pushed beyond a point that allows cashflow with a traditional 80% LTV mortgage.

It is getting more difficult to find cashflow, but I thought I'd share my recent experiences to reduce some of the discouragement that investors are experiencing.

If you're using quick math (like the 1% rule) to analyze properties, I suggest doing the long math on a few properties to see if you're writing off properties too quickly. For those of you unfamiliar with the 1% rule, it suggests if you can get 1% of the purchase price per month, it'll cashflow. However, I'm finding cashflow even lower than 0.5%. 

I've worked on 3 deals in the last month that were very expensive houses and most people would assume at the high purchase price, there's no way they would cashflow. The purchases were in the Nanaimo area on Vancouver Island. The prices were $840,000, $870,000 and $953,000.

I'll use the $870,000 property as an example. The house was built in 1993 and is in good condition in a good area (B neighbourhood). It's a 2 story house with a basement suite. (2,600 sqft). 

The vacancy rate is extremely low and rents in the area have climbed drastically in the last year. The top floor, with access to the garage will generate $2,600/m + utilities and the suite will generate $1,600 + utilities.

$4,200 total income
-$500/ property tax
-$200/m insurance
-$150/m maintenance
-$100/m city utilities (water/sewer)
-$210/m 5% vacancy (even 5% is overkill)
-$2,500/m mortgage ($700k @ 2%)

=$540/m cashflow - Even if you wanted to have a property manager at 10% the property would still be cashflow positive.

This property only generates 0.47% of the purchase price per month (nowhere near the 1% rule) but still cashflows. 

There are still obstacles buying in a market where many houses are nearing the $1m mark. The required downpayment is more than many people can afford. There's also the large mortgage payment you'd need to be able to float if the property sits empty for a month or two.

The advantage to the high price market is you can invest a large amount of capital in one investment which mean less maintenance/tenant management. Buying 2 houses with suites for $450,000 each means 4 tenants to manage, 2 roofs, 4 sets of appliances etc. You'll be paying off a $700,000 mortgage in one asset instead of buying two or three houses for cheaper to get the same amount of equity accumulation.

Real estate prices are climbing and a lot of investors see the houses they used to buy for $500k-$600K go up to $700k-$800k and think there's no way the deals can work with the higher prices. 

I'm just here to say, don't give up! Rents have increased and cashflow deals still exist!