All Forum Posts by: Stevo Sun

Quote from @Neil Gin:

Hi,

First time looking to buy a rental property in Calgary alberta canada!

Any tips, for someone with no experience and where to start?

 Are you local or out of province? If you are local you probably know the areas you want. If you are out of province then you probably should get a good real estate agent that can guide you. @Anthony Therrien-Bernard is an agent you can reach out to, he's in Calgary and quite knowledgeable.

Once you get some idea of the areas you want and the type of property you want, I would visit them in person to get a feel for the neighborhood and stuff. Then you can go from there.

Quote from @Sangeet Mahat:

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $395,000
Cash invested: $125,000

I've always wanted to get into real estate investing and the Temple markets are selling at affordable rates. There are challenges with this market (crime, students in eLearning) but I am excited for my first rental.

 Good luck!

Quote from @Taimur Khan:

Quote from @Stevo Sun:

Welcome to BP! I'm located in Calgary and our market has definitely gone up a decent amount with last run with everyone else. From a price standpoint we are still a lot cheaper than Vancouver and Toronto. But at the same time we also do not generate the same rents as those cities. 

Alberta's economy is quite cyclical since our main industry is oil and gas. If you are betting on high appreciation then it might be a bit of a roller coaster. I think condo prices just got back to what the peak prices were in 2014. That's a lot of time without any appreciation (if you consider inflation, then you actually have depreciation).

I would be conscious of these things before making any investment decisions. Alberta is starting to diversify its economy, but it is still heavily dependent on oil and gas which is of course cyclical. 

Don't know the future, but there are definitely some risks associated with Alberta. Personally I have a few properties here but I'm not actively seeking deals right now. However just like in any market, if you could find a good deal it can work.

DM me if you want to grab a coffee or something when you get into Calgary, always happy to chat real estate

 Thank you Stevo! Truly appreciate your input as an investor in Calgary. Question; how have the rate hikes affected the local market/perspective in Calgary both for newcomers and those seeing their mortgage payments increase? Are sellers less willing to let go due to costs of a new mortgage? Is there a significant fear of defaults forcing sales? 

Mortgage rate hikes impacts all debt holders the same way. It doesn't really matter if you are in Vancouver, Toronto, or Calgary. We don't have 30yr mortgages in Canada, so everyone will renew their mortgage some time. The rate increase will impact everyone if they stay higher and for longer. I don't think there is a significant fear of defaults, the mortgage amounts in the Calgary local market is not as high as Vancouver or Toronto due to the lower price points for the properties. The higher loan balance you have the more impact rate increases will have on your portfolio.

People in Calgary have been underwater from the 2007 peak and 2014 peak, but they were able to hold on to the properties. As long as people can afford the payments it is unlikely we'll see defaults. Personally I think price corrections can occur, but defaults are unlikely. I also think that markets where prices are much higher (aka. more debt) will crack first under the pressure of rate increases.

Welcome to BP! I'm located in Calgary and our market has definitely gone up a decent amount with last run with everyone else. From a price standpoint we are still a lot cheaper than Vancouver and Toronto. But at the same time we also do not generate the same rents as those cities. 

Alberta's economy is quite cyclical since our main industry is oil and gas. If you are betting on high appreciation then it might be a bit of a roller coaster. I think condo prices just got back to what the peak prices were in 2014. That's a lot of time without any appreciation (if you consider inflation, then you actually have depreciation).

I would be conscious of these things before making any investment decisions. Alberta is starting to diversify its economy, but it is still heavily dependent on oil and gas which is of course cyclical. 

Don't know the future, but there are definitely some risks associated with Alberta. Personally I have a few properties here but I'm not actively seeking deals right now. However just like in any market, if you could find a good deal it can work.

DM me if you want to grab a coffee or something when you get into Calgary, always happy to chat real estate!

Quote from @Paul Sverdlin:

Quote from @Ryan Thomson:

@Paul Sverdlin thanks for the lesson on Canada! Was in house hack mode and didn't even think about lending policies in different countries. 

Great idea: let's review a student rental next to University of Toronto as an example. Those go for $1.5-$3 million. Let's see what $1.5M smaller place would look like. I am actually curious.

Canada does not allow 5% down on anything >$1M, it must be 10% down then (only $500k purchase qualifies for 5% down). Any mortgage has to have 20% down, otherwise the mortgage must be insured with our government agency at a cost of 4% of the mortgage amount (think of it as Freddie or Fannie). For the example sake lets imagine that 5% is allowed.

On a $1.5M purchase we are looking at $75k down (5%) and a loan of $1.425M which means 4% * $1,425,000 = $57,000 will be added to the mortgage balance as a mortgage insurance. Round it off to $1.5M total loan after all said and done. 

Mortgage payment alone on $1.5M is $9500/month. Taxes will be around $1000, insurance another $300. Say we are talking $11,000/month cost to carry without vacancies, maintenance, issues with tenants that may not pay rent (eviction takes 8 month easy around here). Of course the place is rented from day 1 with no empty time to find tenants. 

On revenue side I see a 3-bed basement in that area renting for $3600. That would leave us another $6k for upstairs which I also see up for rent in the area. Say we net out $9-10k. That's again, no maintenance, no vacancy, no bad tenants, not living in it yourself, all runs smoothly. 

In that case we are down $1-2k per month which we can recoup through mortgage paydown. Sounds like a zero-sum game bet on appreciation. Which is ok for some people and may not be ok for a student without savings who also needs to live somewhere else (we rented the whole house). Also keep in mind that we looked at $1.5M home while rentals that I found were likely in $2.2M range. Those houses are 100 years old. Likelihood of something going wring from capital expenditure perspective is huge. And that's a student rental with all its usual maintenance issues that we can think of. And he is self-managing this property spending his time. And tenants pays all utilities. I am almost writing it in a sarcastic tone since most of the assumptions above will go out the window in a real world in my experience.

Again, nothing necessarily wrong with the overall approach. However I wouldn't count this as an opportunity, and certainly not for a new student who has no experience, no cash and no credit.

Thoughts on the above?

 One other thing Paul didn't mention is that in Canada we also don't have 30yr fixed rate mortgages. Typically the mortgage term is 5yrs and that means you are also exposed to interest rate fluctuations. This is a big factor since you are not fully protected like the US investors. I really wish we had 30yr fixed rates, it would make real estate investing in Canada much less risky.

Another side note is we also don't have 1031 exchanges, so you will have to pay taxes on disposal which will cut into your appreciation.

Quote from @Stevo Sun:

Quote from @Coban Scott:

Does anybody have an idea on the best places in Canada for a new real estate investor to start out? I have heard Calgary is a good place because of prices but does anybody have any insight on where you can get the best deals?

I don't think there's a single source to get good deals. But the most accessible is obviously the MLS. You can look at Zillow, Realtor.ca, etc to filter through the listings. I'm in Calgary and the best deal I got was from the MLS. I have also bought from a neighbor and such but unless you have some boots on the ground, your best bet would be finding a realtor you like and/or search the MLS.

Edmonton is 300km from Calgary and colder 😉

 I also disagree with the assessment on price. Calgary (Alberta in general) is not land locked. The prices in AB will increase but will almost always be cheaper than Vancouver and Toronto. 

Quote from @Coban Scott:

Does anybody have an idea on the best places in Canada for a new real estate investor to start out? I have heard Calgary is a good place because of prices but does anybody have any insight on where you can get the best deals?

I don't think there's a single source to get good deals. But the most accessible is obviously the MLS. You can look at Zillow, Realtor.ca, etc to filter through the listings. I'm in Calgary and the best deal I got was from the MLS. I have also bought from a neighbor and such but unless you have some boots on the ground, your best bet would be finding a realtor you like and/or search the MLS.

Quote from @Cora Hunchak:

Quote from @Stevo Sun:

Quote from @Cora Hunchak:

Quote from @Nicholas L.:

have you looked into DSCR loans? requirements will be tighter on income and likely 25% down. but DTI won't be a factor

I have not looked into that!  Im in Canada, so I will see if that's an available option.  Thanks for the idea Nicholas! 

DSCR is a commercial loan and usually for 5+ doors. The reason you are feeling stuck is because that's how the Canadian banking system is designed. We have stress test and such to help manage leverage and debt levels in the market. 

Also the reason the banks don't like STR is because the income can fluctuate greatly and that is a risky asset for them to securitize. As an investment property (the mortgage is not insured) the bank will have to carry it themselves so it will require them to hold the property/loan on their books. If they do that they carry a lot more risk when things go wrong. If the property is insured they don't have to carry it on the books because they will get paid out full from mortgage insurance. So it basically risk free (very low risk). 

Thanks Stevo. Yes, that all makes sense and is how our mortgage broker has explained it to us as well. 

we may have to go the route of finding a co signer possibly. Or  just continue to save $$$, for a bigger dp.  

Or maybe do something in a partnership with someone! We work in construction, so we can do all the work and we can also bring funds. I also excel in design/ decor... so we have a ton of skills to offer a partner. That may be the next step! 

 Ya sounds like you are at the stage where the next phase in your investing is with partners. 

Quote from @Cora Hunchak:

Quote from @Nicholas L.:

have you looked into DSCR loans? requirements will be tighter on income and likely 25% down. but DTI won't be a factor

I have not looked into that!  Im in Canada, so I will see if that's an available option.  Thanks for the idea Nicholas! 

DSCR is a commercial loan and usually for 5+ doors. The reason you are feeling stuck is because that's how the Canadian banking system is designed. We have stress test and such to help manage leverage and debt levels in the market. 

Also the reason the banks don't like STR is because the income can fluctuate greatly and that is a risky asset for them to securitize. As an investment property (the mortgage is not insured) the bank will have to carry it themselves so it will require them to hold the property/loan on their books. If they do that they carry a lot more risk when things go wrong. If the property is insured they don't have to carry it on the books because they will get paid out full from mortgage insurance. So it basically risk free (very low risk). 

I think you have all the information you need on BP for the two questions you are asking. There are some nuances in Canada that are different than the US, but most of the information would apply when it comes to the numbers, property conditions, etc. I'm in Calgary, AB so feel free to reach out if you want to chat specifics. Good luck!