All Forum Posts by: Brad Dillman

@Blair Russell The only time I've used AirBnB as a customer was a work trip to Boston (well, Cambridge). Wow hotels are expensive there, any time of year! I'm planning to stick with AirBnB for future Boston trips (and I'll investigate others). If you're considering renting out, I'd say you have a lot of pricing room for Boston AirBnB vs. Boston hotels.

If you're correct, I hope I'll get even more for my money in the winter; but I don't expect hotel prices to go down in the winter.

Numbers: I paid about $1,800 USD for 6 nights for a nice 2BR last trip (I wasn't travelling alone). Next trip (alone) I got a 1BR for $1,400 USD for 6 nights. Much cheaper than the Best Western Tria, which is nice but not fancy, and it's a hotel room not an entire apartment.

As for Ottawa, I'd look at hotels.com etc. to gauge price and demand. I think you might get a nice premium for a good (walking) location.

Well, here's how I've been doing it (still learning):

cap rate = NOI / purchase price

where NOI = (gross revenue) - (all expenses excluding financing, e.g taxes, insurance, hydro)

NOI = Net Operating Income (e.g. what's left from revenue after expenses)

Because everyone has different financing costs, but everyone would have the same revenue and expenses... until they change something e.g. renovations, etc. but that's a different analysis.

So cap rate is a rough estimate at how much you'd earn with no financing costs and no appreciation, compared to taking the same purchase price and investing it for interest. E.g. a cap rate of 5% would yield 5% of the purchase price after expenses. If you bought a $500k property with a cap rate of 5% you'd get an NOI $25k/year, equivalent to getting interest of 5% on a $500k investment.

Then you subtract your financing costs from the NOI, and that would be your cash flow. E.g. if I had a $400k mortgage on that $500k property at 3%/30 years, the P+I would be just over $20k, so $25k NOI - $20k P+I = $5k left over.

I don't mean to talk down to anyone, I just wanted to make sure I understand this myself. If I make a mistake I'd prefer to be corrected than to lose money, eh?

So, I'm still a little uncertain what expense fall within the NOI and which don't. Clearly property tax does, and financing doesn't. I don't think property management would, and I'm not sure about insurance - these are things that would vary between owners, and I think the point of the NOI and cap rate is to compare properties without depending upon who owns it.

Since I'm looking to buy-and-hold a rental property that can carry its' own cash flow, I'm concerned with the cap rate. If that's possible.

I'm just learning to analyze deals, etc. and I understand cap rate (haven't started investing yet, no down payment).

I've been looking at 2/3/4-plexes in Ottawa. What are some typical cap rates I should expect?

Using data I can find from the internet such as prices from MLS, advertised rents, etc. I usually find cap rates around 3%-4.5%, but it seems like there's not much profit until cap rate is 5%+. I've found a few, including 2 with cap rate 6%+.

I'm just doing analysis in a spreadsheet, so I'm skeptical about high cap rates too, either a) the price is low for a reason, or b) rents expectations are inflated. Before I'd ever purchase I'd do a lot of due diligence.

@Andy Welmers yes, I have a large RRSP, about 1/2 is LIRA. I'm casually interested in how to access it, but I don't think I want to touch it. My reasoning: diversification. If my REI flops, I still have my RRSP. OTOH, because I have the RRSP as plan B, then I can be more 'fearless' and aggressive in REI.

I have some TFSA money and I'm saving more, plus I'll soon have some home equity.

I'm taking 2-3 years while saving down payment to learn the REI business. I've owned several (6) homes (sequentially) over the years, but not much emphasis on investing, more concerned with family (3 kids). I own a newer home in Kanata, but less than 20% equity (getting close though).

These days I'm playing with spreadsheets to understand how things work, things like cap rate, taxes, CCA, etc. Other things on my list to learn are: 

How does property appraisal work (detailed)?

How do I qualify or credit check a tenant? Or, what would a property management company do if I hired them?

How does rent-to-own work? (not really enthusiastic about it, but I might have a one-time peculiar application for this) This is lower priority right now, more of a curiosity. 

How to estimate rent (without using cap rate)? Right now I just look at comparables, but I'm wondering if there are other rules-of-thumb, or other sources of info, etc.

When I was younger I worked in new home construction (my dad is a recently retired plumber), and still make small repairs. I don't intend to use much sweat equity, but when I look at a house or read a home inspection report I have a good understanding of it, etc. So I feel more comfortable understanding costs than I do revenues.