HI @Akshay Bhaskaran, all is not lost :)
If you follow @Conner Olsen's example, and assuming that $1700 is net of all real and budgeted expenses then you'd be up about $500 in your case. Not bad, miles better than being negative, but a big repair or replacement could wipe out a year or more of income. However, as David Greene from the BP podcasts like to advise, while cashflow is important when you're starting out, appreciation is the key to building real wealth in the long run (The Real Estate Investing Podcast | BiggerPockets). So as long as you're not counting on that cashflow for living, and you can accept net zero or a little bit negative in some years, then I think it's valid to count on appreciation for your area. Considering that Samsung and Tesla are already there, chances are good that other high paying companies will follow, more people will come and home values will appreciate. Be conservative with your underwriting and assume 5% appreciation, and include the other expenses listed on BP calculator. And also include the fact that rents will increase every year.
Another thing that David advises is to find the worst property in the best area that you can afford, and fix it up to a standard that will attract high quality tenants/guests who are willing to pay more to stay there. $80k isn't much of a budget for buying and fixing, so you could look into getting a seller credit in exchange for a higher purchase price in order to finance a rehab. A lot of experienced investors say they still find good deals on the MLS, but you might consider driving for dollars and checking foreclosure listings. Look for properties where you could hack the floorplan to add rooms/bathrooms, thereby forcing the appreciation even more. Even better would be one with a big drive way or extra parking space where you could buy a car or RV for car sharing through Turo or some such, as another stream of income. Lots of people do very well from that, and it's not complicated.
Lastly, consider trading up your current place for a bigger one and house hacking.
There are 4 benefits to this investment strategy. First, you can use a conventional mortgage, which have the lowest interest rates. Second, primary residences require a lower percentage down payment. Third, any profits from selling the property aren’t taxed. And fourth, you'll learn many of the important skills that you'll need for future investments (analyzing properties, evaluating a property's 'best use', working with realtors & mortgage brokers, screening and managing tenants, hiring & working with contractors, understanding tax implications, etc). You have to live somewhere, anyway, so why not make your home a part of your investment strategy?
If the reason you're not currently house hacking is because you don't have any spare rooms, then consider trading up to a bigger place, or see if you can hack your floorplan to add an extra room. The cost of buying a bigger place could be offset by the rent that you'll get. Renting by the room is usually more profitable than getting a house with a rental suite. Also, some lenders will even include rents as part of your mortgage calculations. Later, if you sell, you’ll get the full benefit of a higher price for having bought a bigger place, along with any value appreciation. Bonus: look for a house with a hackable floorplan for adding rooms/bathrooms - ie. forced appreciation, in investor speak.
Other than money, there are a few things to consider when house hacking. Most important is the fact you’ll be living with your tenant (surprise! you are now a landlord). This can actually be a benefit if you did a good job screening the applicants – you might even become friends, or a nightmare if you didn’t. Your best friend may not be your best tenant if they have different standards of cleanliness, for example. Screening tenants and then dealing with them after they move in is both part art and part science, and it’s a critical skill to learn if you plan on owning rental properties as part of your investment strategy. Having bad tenants can ruin your investment goals, especially at the beginning of your investing journey when you only have a few properties and not much cashflow to fix any problems they might cause.
Taxes are another important consideration for house hacking. Rental income must be declared and is taxable. Unfortunately, any expenses associated with improving/maintaining the property for rental purposes aren’t deductible since it is your primary residence. However, if you later sell the property for more than you purchased it, either due to appreciation or improvements, you won’t be taxed on the profit because it’s your primary residence.
Serial house hacking is a great way to build your real estate portfolio, but it does involve the inconvenience of having to move frequently. The idea is that you start with one house hack to save for either a bigger property or an additional property as your new primary residence, move in to that one and house hack it for a year or more, and then do it again. The amount of time you have to stay depends on your local tax rules, and the amount of money that can be saved from hacking that property. Your old properties are then reclassified as investments, against which you can deduct appreciation and other expenses, like mortgage interest and repairs. David likes to say he thinks everyone should be house hacking at least one property every year, which of course assumes that rents and/or appreciation from existing properties are enough to fund your next purchase.
So, it's not impossible to invest in the area you want with the budget you have, but it will take a bit more time and effort, and maybe an adjustment to your strategy.
HI @Jason Yong, nice to see a fellow Canuck here :)
I think your attitude of 'what can I bring to the community' is a great start. I'd really like your input on a crypto project I'm working on, but I'll leave that to the end. I'm in a similar situation as you, living in an overpriced metro (Vancouver) and getting started on my REI journey. I'm currently house hacking and would urge you to reconsider this strategy.
There are 4 benefits to this investment strategy. First, you can use a conventional mortgage, which have the lowest interest rates. Second, primary residences require a lower percentage down payment. Third, any profits from selling the property aren’t taxed. And fourth, you'll learn many of the important skills that you'll need for future investments (analyzing properties, evaluating a property's 'best use', working with realtors & mortgage brokers, screening and managing tenants, hiring & working with contractors, understanding tax implications, etc). You have to live somewhere, anyway, so why not make your home a part of your investment strategy?
If the reason you're not currently house hacking is because you don't have any spare rooms, then consider trading up to a bigger place, or see if you can hack your floorplan to add an extra room. The cost of buying a bigger place could be offset by the rent that you'll get. A room in nice home goes for about $1000 in Vancouver, so it must be similar in Toronto. $1000/m works out to about $200k more 'house' that you could buy (20% down @ 5% for 25 years). Also, some lenders will even include rents as part of your mortgage calculations. Later, if you sell, you’ll get the full benefit of a higher price for having bought a bigger place, along with any value appreciation. Bonus: look for a house with a hackable floorplan for adding rooms/bathrooms - ie. forced appreciation, in investor speak.
Renting by the room is usually more profitable than getting a house with a rental suite. For example, a 2 BR basement rents for almost $3k, but it has the same space as 4 BR, which could rent for about $4k. However, you'll have to check local bylaws about how many unrelated persons can live in one house.
Other than money, there are a few things to consider when house hacking. Most important is the fact you’ll be living with your tenant (surprise! you are now a landlord). This can actually be a benefit if you did a good job screening the applicants – you might even become friends, or a nightmare if you didn’t. Your best friend may not be your best tenant if they have different standards of cleanliness, for example. Screening tenants and then dealing with them after they move in is both part art and part science, and it’s a critical skill to learn if you plan on owning rental properties as part of your investment strategy. Having bad tenants can ruin your investment goals, especially at the beginning of your investing journey when you only have a few properties and not much cashflow to fix any problems they might cause.
Taxes are another important consideration for house hacking. Rental income must be declared and is taxable. Unfortunately, any expenses associated with improving/maintaining the property for rental purposes aren’t deductible since it is your primary residence. However, if you later sell the property for more than you purchased it, either due to appreciation or improvements, you won’t be taxed on the profit because it’s your primary residence.
Serial house hacking is a great way to build your real estate portfolio, but it does involve the inconvenience of having to move frequently. The idea is that you start with one house hack to save for either a bigger property or an additional property as your new primary residence, move in to that one and house hack it for a year or more, and then do it again. The amount of time you have to stay depends on your local tax rules, and the amount of money that can be saved from hacking that property.
If I still haven't convinced you about house-hacking, then you might consider buying in the Kitchner-Waterloo area. A 4 BR house can be had for less than $1M, but they're surprisingly small, so not much chance for floorplan hacking. Or look for a cheaper, spacious 3 BR that you could hack into 4. Renting out is easy because of the nearby universities, younger population and good jobs in the area. Rental income from 4 BR probably won't cover the mortgage, taxes and maintenance, but you could claim rental deficits, mortgage interest, depreciation and other expenses against your personal income because it's an investment property (check with a real estate accountant).
Unfortunately, there's really no such thing as 'passive' REI, especially in the beginning, not if you want to get the maximum benefits. Even if you hire a manager, you'll still have to manage the manager, unless you're super lucky and they're really good (in which case you'll probably have to pay them more). There are stories aplenty where managers sign bad tenants, ignore maintenance, don't collect rent for months, etc.
REITs might seem like passive REI, but I think they have 4 significant disadvantages:
The closest thing to passive REI is joining a syndication. And even then you still have to do your homework on the deal analysis, and carefully vet the partners involved. You're also trading convenience for a lower return on investment.
I hope at least some of this advice was helpful.
Here's the part where I ask you for your input about my crypto project. I'm building a community site where people get paid for writing reviews about products and services. For example, imagine shopping at Amazon, Airbnb, Tripadvisor, Best Buy etc. if there were no customer reviews. User reviews contribute to business profits, so people should get paid for helpful reviews, right? In addition to getting paid from the site's advertising revenue, community users can also get a token with their demographic details which advertisers can pay to access. How many developer hours would you guess is needed to create a token like that? Also, how about a 'coin' which gets awarded to users for helpful reviews, and that they can use for voting on community projects?
Please let me know if you'd like to discuss my advice or project offline.
Cheers
Hi @Chimi Sakamoto, as a new investor, I highly recommend you listen to the Bigger Pockets podcasts, especially the 'seeing Greene' episodes. Even though they talk about the US market, the majority of their advice is applicable everywhere. To answer your question, it is pretty much impossible nowadays to get a positive ROI on a condo in Vancouver because of the high purchase prices, the rental income won't cover the mortgage unless you bought it at least 10 years ago. Even if you could buy one for cash, it wouldn't be a good return on your cash. There are a couple of cash-only buildings on Broadway with units for about 'half price' because they are leaky condos, but you'd be taking a big risk buying in one of those.
If you currently own a property, you might want to consider getting a bigger place with your investment money and do house hacking. Mostly that means renting out a room if you have an empty one, or you could also modify your floor plan to create a new room and then rent that out. Have you considered becoming a homestay host? It's more money and more work, but it could also be more personally rewarding.
Otherwise, you could look into long-distance investing, becoming a private money lender, REITs, syndicating or wholesaling.
The effect of higher interest rates is pretty clear: sales down 47% in ON, down 43% in BC. Plus more rate hikes to come. Some people who will feel like buying now in order to lock in rates before they go higher, but I think most people like you and me are going to wait-and-see, thereby pushing sales and prices down even further.
However, interest rates are a reaction to inflation, and the current causes of inflation, one-time stimulus and supply shocks, are short term (another 1 or 2 years at the most). In fact, I'll put forth in a separate thread that the world is actually facing deflation in the long term.
Instead of focusing on interest rates, I would urge you to consider other factors when choosing a market to invest in: vacancy rates, population growth, and unemployment rates. Vacancy (CMHC): Calgary 4.9%, Vancouver 1.2%, Toronto 4.5%, Montreal 3.0%
Population growth 1961-2021 (StatsCan)
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Unemployment percent 2001-2019 (StatsCan)
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Conclusions:
* AB is the only one where unemployment is trending higher (oil based economy)
* QC has the most significant reduction in unemployment, a combination of high job creation and relatively slower population growth
* despite having the most population growth, ON still manages to produce a lot of jobs for people going there
REI is a long term endeavor, so it's worth the upfront time in doing some analysis to increase your chances of success in the future. All the podcasts I follow say that it's better to do something instead of nothing, but all the speakers are people who have succeeded in REI. They never invite the multitudes of people who have failed at it to talk about how they failed and never tried again, just like no one joins BP to brag about how they tried but failed, and then gave up forever :)
Hi @Sam Su, you'd be better off looking just a little outside of Calgary, like Airdrie or Lethbridge, better bang for your buck. I listen to several Canadian REI podcasts, and it sounds like a lot of experienced investors have been flocking to Calgary as of late. And given the recent rate rises, with more to come, it's going to be tough to compete directly with them. If you're thinking of investing remotely anyway, then also consider the Atlantic provinces, and dig deeper into which places have the most potential business & population growth. Wherever you end up choosing, it'd be best to add some healthy repair & vacancy contingencies into your underwriting. Here's a good discussion about landlord friendly provinces
Whats the best province to Invest in real estate in canada (biggerpockets.com)
Btw, did you get any good leads from Anthony? I'm surprised he doesn't outright post all the properties that he thinks are investor-friendly. As a realtor, that should be a great way to make oneself stand out and attract clients.
Be conservative with your expectations, don't be dazzled by numbers like $1500/m - that's probably from a property that was purchased 10 years ago. Even with $300/m, a hot water tank replacement or furnace repair could wipe out a few years of income. So decide clearly if you need the rental income, or if you're building equity by having other people pay down a mortgage for you.
HI Sam, distance is just a mindset :) It's all just a phone call away. Or if (once) you have a good system and team in place, then not even many phone calls. You could probably get 2 properties in NS for the price of one in AB, spread out your risk a little, but more time up front to set up. Another thing to consider is the likely appreciation. To my mind, the performance in NS is a nice steady climb, whereas AB is more dependent on the economy, so pick your preference. Here's a price chart (ignore 2020-21)
CREA | Try the MLS® HPI Tool
I'm currently looking in Vancouver (and Burnaby) because I want to move my family out of our condo in New West. I'm looking either to trade up to a house for $1.6M or less, or buy another condo ($600k or less) and rent out my current one. House hacking is part of the plan in both cases. The house would have to be fairly turn key with rooms for renting out, or another condo would also have to be live-in ready with the potential to add value through floor plan hacking. So, yeah, I have pretty specific requirements.
You're right about rentals not making sense anymore in Vancouver, you can only get about half of the monthly mortgage cost, unless the property was purchased more than 5 years ago. And even short term rentals don't work if you follow the 30 day limit. I don't know how strictly the city enforces that limit, but it's pretty easy to see how many nights were booked on the airbnb app. The only rental strategy that still kind of works is house hacking. Some rough numbers for you to consider: values have doubled almost exactly every 10 years in Vancouver since 1980, so if you rent out a room for $900/m of a 2br $600k property, you'd get about $100k income plus another $600k appreciation in 10 years. And in about 5 years, there should be about 200k of equity to use for investing elsewhere. No guarantees, of course, but even 75% of that would be quite good. It would be very optimistic to expect even half of that in either AB or NS. That's why I'm going to find ways to stay around Vancouver.
Thanks for clarifying. I'm currently living and looking in Vancouver, but I have family and friends in Calgary, so I'll definitely keep you in mind.
Hi @Sam Su, you'd be better off looking just a little outside of Calgary, like Airdrie or Lethbridge, better bang for your buck. I listen to several Canadian REI podcasts, and it sounds like a lot of experienced investors have been flocking to Calgary as of late. And given the recent rate rises, with more to come, it's going to be tough to compete directly with them. If you're thinking of investing remotely anyway, then also consider the Atlantic provinces, and dig deeper into which places have the most potential business & population growth. Wherever you end up choosing, it'd be best to add some healthy repair & vacancy contingencies into your underwriting. Here's a good discussion about landlord friendly provinces
Whats the best province to Invest in real estate in canada (biggerpockets.com)
Btw, did you get any good leads from Anthony? I'm surprised he doesn't outright post all the properties that he thinks are investor-friendly. As a realtor, that should be a great way to make oneself stand out and attract clients.
Be conservative with your expectations, don't be dazzled by numbers like $1500/m - that's probably from a property that was purchased 10 years ago. Even with $300/m, a hot water tank replacement or furnace repair could wipe out a few years of income. So decide clearly if you need the rental income, or if you're building equity by having other people pay down a mortgage for you.
Hi @Jason R. Besanceney, got a few suggestions for you.
1) how about how combining JV with house hacking? In other words, find some other beginner investors in your area with low capital and buy a place together AND live in it with them with a contract exit of maybe 5 years. If you just want to 'get your foot in the door' without wanting to become a fulltime investor in the future, then this is your only real option (considering your financial situation). I've never actually heard of anyone doing this, but I don't see why it's not possible.
pros: part of a deal is better than no deal, and if you're living in an expensive area then chances of appreciation after 5 years are very good
cons: You'll have to learn the details of JV'ing, and finding similar investors in your area will be challenging (maybe join/start a local investors group, or even on your campus)
2) I second @Jason R. Besanceney's idea of getting a side gig. Combine @Matthew Cervoni's Ubering idea with becoming a wholesaler, and literally drive for dollars :) Become the expert in your area, learn about: population & business growth, where developers/businesses are buying land/properties in the area, who are the best contractors/brokers/agents in the area, etc. Getting all this knowledge will help you when you're ready to buy, and it will make you an expert that other investors will want to talk to.
The best bit of financial wisdom that I heard recently is that wealth from saving is finite (though important), but wealth from earnings potential is infinite. I've been a serious saver my whole life, having come from humble beginnings, and even I can see the power of that change in perspective. Saving is only good up to the point where it starts to feel like a burden, then you should focus more of your time on how to make more money, either from your current job (lots of 'Seeing Greene' episodes touch on this) or from new streams of income (the new 'On the Market' gets into this a lot).
3) Practice underwriting deals that you see on MLS and either just post them online for everyone, or send them to an active investor in the area with the only expectation that people will give you feedback about your underwriting. It'd great if people actually buy properties based on your analysis (as long as they tell you), because then you'll know you're on the right track, and you'll be building your reputation. You can't afford anything right now, so you're not losing out at all.
4) OPP - other people's money. Check out some podcasts - lots of 20-somethings are buying dozens or hundreds of properties using OPP (hard/private lenders). But first you'll have to build up your credibility (see #2 & #3)
Let me know if you'd like to discuss further.
Clearly, I need to up my advice game. Allow me to have another go at it. I second Chris' suggestion to talk with a broker. In fact, it's generally suggested that people starting out should talk to at least 3 brokers to find one they're comfortable working with and who can get them the best mortgage for their investment goal. A mortgage is more than just the rate. Keep in mind that each time a broker checks your credit, it goes down by 25, but recovers after 6 months. Try running the numbers for a few properties and have 1 or 2 ready to discuss with the brokers you're vetting. I haven't checked recently, but I think Kelowna is now out of the "healthy cashflow" radar, unless you go the airbnb route (in which case check the city and strata limitations). Or find one that's undervalued because it needs a lot of work, fix it up, then rent it.
Regarding the HELOC, I just found out yesterday to my unhappy surprise that it doesn't really matter how much a property's value has gone up, the main limitation is still going to be personal income level. That's with Scotiabank, I got way less than the "80% minus outstanding mortgage" that I had heard about. I'll be talking to some brokers next week. Happy investing.
Hi Benji, REI isn't hard, but it does require a lot of knowledge and determination to be successful. I'm in the same situation as you - Vancouverite, bought a condo a few years ago that's appreciated a lot, and now looking to invest. After having listened to BP and other REI podcasts for the past half year and reading various books, I can tell you that asking for 'tips' is too broad for people to give you any meaningful help. Oh wait, I guess my tip is to learn more about what your options are, and then ask more specific questions :) I'm going to try rounding up a "BP Vancouver" group for knowledge sharing, motivation, discussing ideas/perspectives, etc... let me know if you'd like to be included. Cheers, Khai