KW, Ontario Cashflow?

Question

Hello,I'm a new investor looking to buy near home (Kitchener-Waterloo). I've been getting properties for the past month from a local realtor, but it seems that achieving a cash flow positive rental property is unrealistic in this area given that prices on properties are quite high within a saturated market.I have looked at properties in nearby towns (~1 hour away) and it seems that there is more potential with regards to achieving cash flow, but likely with less appreciation given the area.What are peoples thoughts on this? From my (new to real estate investing) perspective, cash flow for a rental property is one of the most appealing parts of the investment. Appreciation is of course something to factor into it as well. Do people in these saturated markets still invest when they are cash flow negative for the potentially higher appreciation gains?Appreciate any and all input. Thanks.

Chris Baxter · Answer

@Jake Alsemgeest Welcome to BP! Singles and condos won't cashflow in KW without underleveraging (i.e put a larger down payment); they used to and I had several local properties (sold the last one in July... there is no way that it would cash flow for the new owner at the sale price). Since nobody has touched this part of you question " Do people in these saturated markets still invest when they are cash flow negative for the potentially higher appreciation gains?" I'll chime in.... this strategy isn't investing, it's gambling. Can you make money banking on appreciation? Sure... but what happens if appreciation slows or reverses? Also, your debt-ratios will be out of whack and you won't be able to float additional properties.

Roy Cleeves · Answer

@Jake Alsemgeest Hi Jake - I invest here in KW and am a Realtor here as well. And for sure - we cannot find cash flowing properties here for singles. You have to look for a duplex or triplex. As a new investor, you might be limited by funds for the price of the property. You can also build onto a single-family home to turn it into a duplex. If you get a chance drive past 175 Oxford Street, Kitchener and you will see my addition being built. The cost is only $200,000 and when done I can rent it for $2000 per month. That is a nice return - the 1% rule. Of course, I did already own the bungalow on the lot from 6 years ago. And if you want to stick with singles then consider looking in London, St. Thomas, Ingersoll, Chatham, Windsor, etc. And look at both appreciation and cashflow and pick the town/city with the best combination.Investors - especially Toronto investors seem to be fine to invest in a cash flow negative property in Kitchener Waterloo. They are going for appreciation instead. Good luck!

Owen Lennox · Answer

@Nelson Ellingham I agree, hard to find a good cashflowing turnkey sfh in this area. I have found it beneficial if you can convert those properties into duplex or triplex. Then the value is there to take the funds back on on refi and still cashflow well.

Chris Baxter · Answer

@Jake Alsemgeest There is nothing scary about investing away from where you live. My closest property is 5,824 km from my house, and I've never owned property in the same market I live in. While some investors find comfort in being able to drive by their assets, I derive comfort knowing that I have a team of professionals looking after my investments and I don't have the day-to-day job of property management.

Jake Alsemgeest · Answer

@Chris Baxter, that sounds great. I'll be sure to do that once I get closer being able to make my first purchase.Thank you!

Jake Alsemgeest · Answer

@Owen Lennox, I think to start I'd like to learn myself with a property in able to go in on myself for now. I could see getting investors for larger properties, but that's out of my scope right now at least.That makes sense regarding the exit strategy. I assume with enough experience you can calculate an after reno evaluation fairly accurately.

Owen Lennox · Answer

@Jake Alsemgeest Do you have any investors that would partner with you if you are able to do the management, of the property and finding the right properties? I have worked with other investors that put down some initial investments. As far as the refi yes I know what our after repair value should be before we purchase the property and do any renovations. That is part of the reason we do the investment we have multiple exit strategies in place before we make the offer. Let me know if you have any other questions.

Chris Baxter · Answer

Jake Alsemgeest · Answer

@Chris Baxter, that's fair. I certainly would like to be able to be as passive as possible when it comes to property management. Do you have any tips and tricks for finding a good property management company to go with? @Owen Lennox, that sounds great, thanks. I think as a new investor this area is a bit pricey right now. I could certainly see when I have the funds to buy and add a second unit, but it's likely not in the cards right now. When it comes to refinancing after a reno to duplex/triplex, how confident are you going into it that you would be able to make your money back from the refinance? @Nelson Ellingham, wow, that's some pretty great cashflow. Yeah, I'd prefer a duplex+ if possible. I think SFH would be fine as well, but only if I could get decent cash flow for it.

Nelson Ellingham · Answer

Single family homes are hard these days, especially for a nice cash flow. My duplex cashflows $1500/m after all bills are paid and I hope to have that close to 2k/m after some renos and tenants move out. My sfh cashflows $400/m. I rather buy a duplex + and flip sfh, or at least have a sfh with 2 units (basement and main floor) to make it worth it