1st timer not sure if SFH in hot market is ok

[Chris O.]

Been trying for over a year to lock down my first place. Made a few offers that lost out. I'm in a very hot market (Vancouver Island) where sub 5 cap rates are the norm. The 1% rule does not exist, 0.5% is a possibility. 

I've found a small rancher, 30 years old, in good condition. About 1300sq ft on a decent size lot in a nice town. $425-$430K CDN should nab it. I can get $2K/M rent for sure, maybe $2.1k. It's a small town where the local wages don't support the prices (not uncommon today). 

I'd have to HELOC the DP as my investments are all locked up in stock/RRSP's. After accounting for everything but not maintenance or vacancy- I'm about $50 negative a month in cash flow (but accounts for me paying $350/m in interest on my DP).

Without having the DP in cash, I'm behind the eight ball on every property in terms of having to make cash flow. At 3% annual increase in property tax and insurance, but 0% increase in rent and appreciation, I'd take home $42K after closing costs in 10years. Maintenance and vacancy will eat into that but hopefully offset by increases in rent/appreciation (even 1% a year). 4% cap on this deal.

I am too nervous trying to get my first house to look anywhere but local - I'd like to be able to go there to address anything that needs to be fixed/done. 

Is this just too hot of a market and I should just stop looking until a down turn? I missed out a few things I could have bought last year that have gone up since, I'm sure that's fueling me here to pull the trigger. 

[Jason Ridout]

Hey Chris, not sure exactly where you are on the island, but there are lots of smaller submarkets that can work. You might need to drive 30 minutes or an hour from where you live to make it work, but it is still manageable. Even if it's 2 hours away, it can still be worth the effort.

I'm in the Parksville area and have found deals that work not too far from me. If you are up this way and want to chat about places that might work, feel free to contact me. If you are down further south in Victoria, Randy is your guy.