Calgary downtown condos

[Huntingwhale]

I almost choked on my cream of wheat reading that. Thank you Fotze.

[Boblobla]

Originally Posted by Huntingwhale

I almost choked on my cream of wheat reading that. Thank you Fotze.

Gross.

[Huntingwhale]

Originally Posted by Boblobla

Gross.

Boy is it ever. This is the first time I've ever bought a box to eat for breakfast and the last time. I can't cook it right either. I've tried using hot water to start. Turned out lumpy and hard. Today I put in cold water/milk first and then microwaved it. It was slightly creamier but still was pretty lumpy.

[Boblobla]

Why not just have instant oatmeal?

My wife loves cream of wheat, it makes me gag.

Also:

[burn_this_city]

You have to cook it on the stove top with milk.

[bizaro86]

Originally Posted by ranchlandsselling

It's all a cost benefit/opportunity cost equation.

20% down, taxes, R&M, condo fees, insurance, time invested, lost rent (tenants flake out) less monthly rent.

Let's say you're spending $350k
You need $70k down
Condo fees of $250
Taxes of $150
Insurance $60
R&M $200 (yes, you do spend at least this much over time)
Mortgage $1,382

Total $2,042

So, according to CMHC's average 1 and 2 bedroom rents of $1,130 and $1,357 for downtown.... I'm thinking it's a bit of a waste of money. But, lets say your place is nicer and you get $1,500 per month. Great, you're still paying $500 per month over your mortgage or $6,000 per year. Sounds like an awful start. But let's say your place is really nice so it's $1,900 per month. Still, total headache and you've tied up $70k over the next 5 years to some ###### who likely doesn't give a crap about your place.

But, let's say you buy some shares of boardwalk and earn 3.4% over the next 12 months and not have to worry about managing a stupid apartment condo.
On top of returning a nice dividend boardwalk could also have some capital gains. $2,600 a year, or a permanent headache. That you're trapped in for 5 years. But wait, you're going to have to pay $10,000 to sell the place. vs. $9.99 for the boardwalk shares.

Boardwalk has also more than doubled over the last 5 years. I don't think buying a condo 5-years ago would have yielded anything close to that type of return.

Plenty of other options. The boardwalk one is just easy because I'd bet they're more competent property managers than the average person who decides to buy a condo. Also you get to enjoy the benefits of diversification, economies of scale, and experience.

Bunk did mention covering the carrying costs - which buying now, isn't easy. Nor does it account for and lack of capital growth in a time when many think housing prices are frothy, Canadian economy is looking weak and regardless that we're in a low rate environment with little risk of rates jumping just yet, we're still tied somewhat to the US bond market and whatever else the Government does to impact housing. I'd be a little reluctant jumping in hoping to have positive cash flow and capital gains.

You don't need the price of a condo to double to double your money in 5 years, you just need it to go up by the amount of your downpayment. IE if you put 20% down, and it goes up by 20%, you've doubled your money, plus benefitted from mortgage paydown and cashflow over that time. The trick, imo, is to buy something that produces positive cashflow after all the expenses you mentioned. Which usually means the key factor is buying something you can turn into something nice for a lot less than $350k.

[ranchlandsselling]

Originally Posted by bizaro86

You don't need the price of a condo to double to double your money in 5 years, you just need it to go up by the amount of your downpayment. IE if you put 20% down, and it goes up by 20%, you've doubled your money, plus benefitted from mortgage paydown and cashflow over that time. The trick, imo, is to buy something that produces positive cashflow after all the expenses you mentioned. Which usually means the key factor is buying something you can turn into something nice for a lot less than $350k.

I didn't suggest that the condo value needed to double, I intentionally didn't becuase it's a common mistake. But, you put $70k in on a 350k property you need it to go up 20% before expenses, legal, realtor fees, etc to get that double. Not to mention list for sale, which generally sucks selling a rental with tenants being in occuapncy. On top of that, once tenants realize you're selling they often leave unless you time the posession perfectly with the end of their lease. So you're often looking at a period with no tenants which costs you a quick $2,000 covering that mortgage payment and condo fees/taxes.

I'm not saying it can't be done - it's just a grind and at this point in time even more of a grind after the run up in valuations in the latter part of the previous decade. I just think we're at a difficult point in the real estate cycle to make a good go of it, if you really think real estate is where it's at, consider the alternatives (like boardwalk).

[ranchlandsselling]

Originally Posted by JD

Great post, but just to nitpick a little, I think those rental rates are too low. My Inglewood condo is worth roughly $350k and I think I could get somewhere around $2500/month for it in today's market. Whether that is sustainable or not remains to be seen. The other factor you're leaving out is appreciation of the real estate. Obviously it's been higher over recent years than what one should normally expect, but in general, in Calgary, you can expect your property to appreciate.

It's all subject to the individual situation.

Thanks - I also thought the rental rates were low, but they're CMHC's stats for Calgary downtown and beltline apartments for Fall 2013. I picked the more expensive rates which were the downtown and not the beltline to be a bit less conservative. I'd be a little cautious about what you think you can get for your condo. I beleive it could possibly rent for that much, but that would be the exception, not the average.

In November I was talking to a client that was boasting that one of their 2 bedroom suites just went for $1,445 and the smallest one bedroom for $1,095. "The rental market is very strong and it is difficult to gage the markets as rents continue to go up". This was in November from a manager who owns 6 apartment buildings (over 120 suites), and manages 2 condo buildings.

Wife and I owned a townhouse in Inglewood. 2 bedrooms, attached garage, probably 1,700 sq. ft. Nice kitchen, vaulted ceilings, two ensuites, basement space and only once in the last 5 years did it rent for $2,100. That person left early and paid the remaining rent because they were loaded and just decided to buy something. I think the other times $1,700, $1,900 and maybe one other tenant around that level.

If you find someone to rent a place for $2,500 it's not likely they're long term tenants as $30,000 is a substantial amount for people to be dropping in one year for a rental. It might not be if you consider what I said in an earlier post about the costs of owning and breaking even on a rental, but in the past (it may be lessening now) the bias was towards "owning" vs. renting. Regardless of the actual cost benefiits.

[I-Hate-Hulse]

Originally Posted by Calgary14

But the condo fees and special assessments can be an investment killer

It's less of a killer than you think, given that they are tax deductible.

[HockeyIlliterate]

Originally Posted by ranchlandsselling

If you find someone to rent a place for $2,500 it's not likely they're long term tenants as $30,000 is a substantial amount for people to be dropping in one year for a rental.

Or they might be expats on a long-term assignment who get a sizeable tax-free housing allowance from their employer and who are prohibited, by their employer, from purchasing a residence.

[darklord700]

The current rental market favors the landlord. For example, you buy a condo for $400K with 3% interest, $400 condo fees and $2000 property tax.

The annual costs are:
400Kx3%= 12,000 (interest)
400X12=4,800 (condo fees)
2,000 (property tax)
Total is 18,800 per annum or 1,567 per month.

Such condo should easily be rented for $2000 per month so you'll have a net cash inflow of 433 per month or 5,200 per year.

Assuming your down payment is 20% or 80K, the opportunity cost is lets say 3% = 80,000X3%=2,400.

You still should be ahead by 5,200-2,400=2,800 per year.

The rate of return is 5,200/80,000=6.5%

The danger is in not short term leases when you cannot get full 12 month rent in a year, then the math breaks down.

Basically, if I have $80K cash to invest, I could invest and get 3% by doing pretty much nothing. Or I can do all these and take the risk and be ahead by $2,800 per year. What would you choose?

[photon]

What about mortgage paydown? Small at first but accelerates over time to the point that eventually you have a $400K condo that is free and clear and now instead of $433 a month it's $1500 a month (well whatever it is after all adjusted for inflation).

[ranchlandsselling]

Originally Posted by darklord700

The current rental market favors the landlord. For example, you buy a condo for $400K with 3% interest, $400 condo fees and $2000 property tax.

The annual costs are:
400Kx3%= 12,000 (interest), three year term? Kind of a poor strategy given how sensitive the cash flow would be given the risk inherent with stupid tenants
400X12=4,800 (condo fees)
2,000 (property tax)
Total is 18,800 per annum or 1,567 per month.
No repairs and maintenance? Things break, they always do and with tenants you're more likely to have higher repairs and maintenance than if the owner lives there.

Such condo should easily be rented for $2000 per month so you'll have a net cash inflow of 433 per month or 5,200 per year.

Assuming your down payment is 20% or 80K, the opportunity cost is lets say 3% = 80,000X3%=2,400.

You still should be ahead by 5,200-2,400=2,800 per year.

The rate of return is 5,200/80,000=6.5%

The danger is in not short term leases when you cannot get full 12 month rent in a year, then the math breaks down.

Basically, if I have $80K cash to invest, I could invest and get 3% by doing pretty much nothing. Or I can do all these and take the risk and be ahead by $2,800 per year. What would you choose? I can't quite get what you're saying? At one point you say it favours the landlord, then you point out that it's clearly a waste of time?

Replies in bold.

As well, that's clearly a best case scenerio, your mortgage payment doesn't include amortization, which given it's going back in your pocket still is an outflow that you need to account for. Also most of the people who think "buy a condo for investment" aren't thinking long term. They're thinking capital gain and flip. Because it's been drilled into their heads by people they know, HGTV, and watching Calgary's market soar over the last decade. In 5 years any profits they may have had will be eaten up by realtor fees as they're suddenly wishing they could get out of it, devoured by a special assessment (or not) or some major repair, applaince replacement, or whatever else.

Given what you said about at best earning 3.0% doing nothing and having no risk or headache I'd say the market doesn't favour landlords. Unless you're experienced at doing it, which means not posting on a local message board as to how and where to buy

Which takes me back to Boardwalk. If you feel that strongly about Real Estate let someone else do it for you.

[Cowboy89]

Don't forget that the dividend returns you get from a REIT like boardwalk REIT is treated more favorably taxwise than income from a rental property. 3.0% before tax return from a REIT > 3% return from an investment property.

[photon]

Originally Posted by ranchlandsselling

Also most of the people who think "buy a condo for investment" aren't thinking long term. They're thinking capital gain and flip. Because it's been drilled into their heads by people they know, HGTV, and watching Calgary's market soar over the last decade. In 5 years any profits they may have had will be eaten up by realtor fees as they're suddenly wishing they could get out of it, devoured by a special assessment (or not) or some major repair, applaince replacement, or whatever else.

I don't know if I agree with "most people" thinking flip, but I'd probably agree that most of the people becoming aware of real estate investing in Calgary in particular probably do. Everyone I know that was investing in real estate before the big run up is derisive towards those people, and everyone I know that came to it during the run up either falls into tat category, or has been beaten out of that category by getting into a bad situation

But yeah have to think longer term and include maintenance fees, mortgage paydown, appreciation, vacancy rate etc etc.

[Travis Munroe]

To each their own however I quite enjoy condo's as investments/rental properties and I know of a number of people who feel the same! It can be difficult to find a good condo to rent out however when you do, they maintain themselves much easier than a SFH.
The numbers given are off by quite a bit. A $270,000 condo can rent for $1600+
R&M at $200 a month? I spend that a year on my investments. Part of what makes condo's attractive is the smaller sq footage giving less potential problems.
Everyone's situation is different however you do not need to put 20% down. If you want to own a few rental properties, consider buying at a lower % down (assuming 20% isnt a option) and then once you hit 20% equity you can move on and buy another place for 5% down. 20% can come real quick if you are a smart real estate investor and buy on numbers and not personal preference.

Originally Posted by ranchlandsselling

It's all a cost benefit/opportunity cost equation.

20% down, taxes, R&M, condo fees, insurance, time invested, lost rent (tenants flake out) less monthly rent.

Let's say you're spending $350k
You need $70k down
Condo fees of $250
Taxes of $150
Insurance $60
R&M $200 (yes, you do spend at least this much over time)
Mortgage $1,382

Total $2,042

So, according to CMHC's average 1 and 2 bedroom rents of $1,130 and $1,357 for downtown.... I'm thinking it's a bit of a waste of money. But, lets say your place is nicer and you get $1,500 per month. Great, you're still paying $500 per month over your mortgage or $6,000 per year. Sounds like an awful start. But let's say your place is really nice so it's $1,900 per month. Still, total headache and you've tied up $70k over the next 5 years to some ###### who likely doesn't give a crap about your place.

But, let's say you buy some shares of boardwalk and earn 3.4% over the next 12 months and not have to worry about managing a stupid apartment condo.
On top of returning a nice dividend boardwalk could also have some capital gains. $2,600 a year, or a permanent headache. That you're trapped in for 5 years. But wait, you're going to have to pay $10,000 to sell the place. vs. $9.99 for the boardwalk shares.

Boardwalk has also more than doubled over the last 5 years. I don't think buying a condo 5-years ago would have yielded anything close to that type of return.

Plenty of other options. The boardwalk one is just easy because I'd bet they're more competent property managers than the average person who decides to buy a condo. Also you get to enjoy the benefits of diversification, economies of scale, and experience.

Bunk did mention covering the carrying costs - which buying now, isn't easy. Nor does it account for and lack of capital growth in a time when many think housing prices are frothy, Canadian economy is looking weak and regardless that we're in a low rate environment with little risk of rates jumping just yet, we're still tied somewhat to the US bond market and whatever else the Government does to impact housing. I'd be a little reluctant jumping in hoping to have positive cash flow and capital gains.

[photon]

Originally Posted by Realtor 1

To each their own however I quite enjoy condo's as investments/rental properties and I know of a number of people who feel the same!

Of all my rentals my condo is by FAR my favorite. I enjoy showing it, I enjoy doing what little work it needs on it, I enjoy meeting and knowing the people that rent it.

Every other rental property I have/have had (single family, duplex, up/down, 4plex) I don't like nearly as much, even though some at least are probably better investments from a pure investment point of view.

Though I guess the one up/down I own I like but only because the tenant is probably the best tenant on the entire planet. He does stuff for free, like paint the whole house, replace fence posts, etc. My wife asked me if we were raising his rent and I just looked at her as if she'd lost her mind.

[bizaro86]

Originally Posted by photon

Of all my rentals my condo is by FAR my favorite. I enjoy showing it, I enjoy doing what little work it needs on it, I enjoy meeting and knowing the people that rent it.

Every other rental property I have/have had (single family, duplex, up/down, 4plex) I don't like nearly as much, even though some at least are probably better investments from a pure investment point of view.

Though I guess the one up/down I own I like but only because the tenant is probably the best tenant on the entire planet. He does stuff for free, like paint the whole house, replace fence posts, etc. My wife asked me if we were raising his rent and I just looked at her as if she'd lost her mind.

All my rentals are condos, for this reason. After I renovate a crappy condition condo when I purchase it, there isn't much that needs to be done. I agree that a suited house or whatever is probably a better % return investment, but the extra work outweighs that, for me anyway.

I'm not going to post exact numbers, but doubling a downpayment in 5 years is considerably worse than my results, and I didn't start buying until '09, so there isn't artificially high boom appreciation in there. It's like anything else, if you buy something because you personally like it, don't get a good deal, and don't understand how to get good tenants, it'll be terrible. If you buy undervalued property for cashflow, and make judicious improvements, you can do very well.

[ranchlandsselling]

Originally Posted by Realtor 1

Everyone's situation is different however you do not need to put 20% down. If you want to own a few rental properties, consider buying at a lower % down (assuming 20% isnt a option) and then once you hit 20% equity you can move on and buy another place for 5% down. 20% can come real quick if you are a smart real estate investor and buy on numbers and not personal preference.

Well, technically you do have to put down 20%. Unless you claim you're buying a second home or some other subterfuge, which completely muddies the situation as then you might as well not claim any taxes on the rent.

On top of that you're paying a higher mortgage and on an already tight cash flow situation you're now paying CMHC insurance. I'm not saying it isn't possible to find a property that cash flows or make good money - just that right now isn't an ideal time for those without a lot of experience to make a go of it. Also I do wonder if the government is going to kill the CMHC second home program which I think would put a good dent in the people who buy rental properties under the pretense of buying a second home. Not sure of the numbers, or how dramatically it would affect demand (if at all) but there's plenty of options out the for the Feds to mess with housing prices, something I don't think will happen to cause a dramatic effect, but it would be in the back of my head if I were thinking about throwing 70k into a property as an investment.

Higher interest rates, increasing the downpayment, killing the second home program, three things (two of which would have to be direct interventions) that I could see in the next 5 years to stall house values increasing. Photon, you're a landlord, you've been a landlord as long as you've been on this site (or it seems like it), you're not who my comments would be directed towards.

Edited for the below
Weird, I wonder if I read this research piece (not the article) in the past, I hope not otherwise I'm having some brain problems
http://www.theglobeandmail.com/globe...board/follows/

[19Yzerman19]

Too late - the one I'm renting just sold. $500k for a 2100 square foot recently reno'd penthouse (6 and 7th floor) in an older building on 15th ave. Pretty solid deal, honestly, even with the exorbitant condo fees. Gonna miss it when I have to get out of there in a couple of months.