# Rental Real estate in Canada with decent Yields



## Freedomeer (Jan 3, 2018)

Hey Everyone,

As I have a decent equity portfolio, I want to get into real estate for diversification sake. And I like the leverage aspect of real estate. Following a couple people on youtube / blogs, they recommend that at a minimum you should get 1% of the property value in monthly rent, but preferably 2%.

I can find places in the States with those types of ratios but I am struggling in Canada. It seems like a ton of red tape to invest in America, so I would prefer Canada.

Any ideas where you can find decent yields in Canada?

Thanks for the help.


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## TomB19 (Sep 24, 2015)

You don't sound like the sort of person who has a chance of making money in the rental business.

The support industry will strip you of your cash. Trustworthiness is questionable. At the very least, you want to be in the same city as your properties so you can do a little of your own troubleshooting.

I tend to think that if rebuilding a toilet sounds like a difficult task, you shouldn't get into R-E. A landlord should be able to rebuild a toilet in 15 minutes. A plumber can do it for about $450. lol! I can do it for $35 bucks and three parts.

It's not that the toilet is some magic right of passage but, to make money, you will need to knock off some of the easier jobs yourself. It might be OK if you have children who are interested in it.

It's 100% learnable. It isn't difficult. There is money to be made but if you pay retail trade prices to have every minor issue handled, it's tough to even break even.


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## Just a Guy (Mar 27, 2012)

You can find those types of properties all across Canada. The problem is, the market is very overpriced in general, so the odds of finding one are very small. In order to pull it off in this market, you need all your ducks in a row. You need to have the money available, no "subject to financing" clause. You need to know if there are problems with the property when you walk in to view it, no "subject to inspection". You need to know the area, what the rents are like, what the rental market is like, etc. You don't tend to have time to "think about things". 

Next, you need to work with a realtor who understands what you're looking for so that they don't up sell on a different property, I'm pretty sure you don't really know what you're looking for and taking their "advice" can be costly. You need a realtor to set up an MLS listing search for you so that you get all the properties that meet your criteria as they hit the market. 

I'd suggest you check out the book on www.easysafemoney.com. It's a good beginners book. There's also the first time landlord by koho, its American but still a lot of good information. 

Also, you should know how to do some of the work yourself when you start because the margins aren't really that great with only one property. Also, check out CRA, there used to be a minimum number of properties you needed to own to benefit from the full deductions of rental properties. I think it's 3, but that was a long time ago when I last looked.


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## Freedomeer (Jan 3, 2018)

Thanks for the suggestions. I do all my own plumbing, electrical, carpentry, mechanics. But looking at the duplex / condos in my City and what the associated rents are for adjacent properties, it doesn't seem wothwhile.

From your experience, investing in a different City isn't worthwhile? I have no issues managing/negotiating contracts. It is what I do for a living.


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## twa2w (Mar 5, 2016)

Sounds like you are well equiped from a technical diy point of view. Some people have a hard time dealing with late rent pymts, bad tenants, wrecked properties that every talks about to scare new landlords. These don't happen as often as sometimes portrayed and good tenant selection skills or checklists go a long way. Don't fall for sob stories.
As other posters have said, housing in general is over priced. You have to be very patient and not be in a hurry. You may also have to put in some stink bids before you get a bite. Look for distressed situations. A house with all the ladies or mans stuff missing and 1/2 empty closets indicates a possible divorce and sometimes a need to sell. Look for proprties that have been listed a while where the price seems in line but not selling. Could be a crappy gaudy paint job or really crappy carpets with 5 dogs in the house. Something easy to remedy with a little elbow grease and not much time. Also empty places that have been listed a while and estate sales.
These are potential places where the owners may really want toget out of the property. If you go in with a lowball, cash offer, short closing, you may get it. You may have to make 10 or so of these before one bites.
You have to invest a lot of time in this market. It will be a second job until you get more established, know who you can trust or rely on etc.
At first stay local or within an easy drive. Once you are an old hand then you likely need to go further afield
Know where to go to get inexpensive durable laminate/ carpeting cheap and fadt etc. Don't start shopping around after you buy. Be ready with Standard colors etc.
Some guys use ikea/ homedepot for diy cabinets. Use a standard style for all units. If you know this ahead of time, the day after you buy, you walk in, have them cut X yards of carpet, pick up the Sq ftg of laminate, and pickup the boxes of cabinets to fit the space and order the counter etc
Best of luck


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## TomB19 (Sep 24, 2015)

It sounds to me like you're 80% there, at least.

Keep an eye open and you will find something. Don't be in a rush. Don't hessitate to pitch ultra low offers.

Remember, you have nothing to lose. If someone is asking $360 and you think it's worth $290, offer $290.

Where I live, I've used a rule of thumb that the property should break even with a 22 year mortgage. So, if you can get more rent than a 22 year amort mortgage payment plus tax plus insurance, it is an interesting house.

Of course, it's wise to mortgage to 30 years but the 22 year payment has been my rule of thumb.

You will have a different rule of thumb. That's ok.

At first, there will be no obvious deals. Over the years, you will develop a market view that will bring an endless stream of great deals to you. Don't swing at every pitch. Cherry pick the best houses for your portfolio.

It sounds to me like you will do well. Disregard my first comment. You will have to do some work, though. Try to find some unskilled labor and train them to do or help with the work for an affordable cost.


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## Just a Guy (Mar 27, 2012)

I wouldn't start with a property that isn't in your own city. There's too many things you'll need to learn and gain experience with. Then you won't need to work on finding good, reliable, honest contractors, property managers, etc. In an unsupervised situation. Those tend to be rarer than finding the actual property. 

Patience is the key in this market. I literally look at listing daily, of those I dismiss 99% out of hand (my search criteria is looser than my actual buying criteria). Of those, I may put in a dozen offers a year and maybe close on a handful. Remember though, I'm looking much more broadly than one city. So there really aren't a lot of properties out there.


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## valachio (Apr 10, 2018)

Often times properties with high cap rate (if you find a property that pays 1% of its value with 1 month of rent, that's 12% cap rate) have low appreciation. Condos in downtown Toronto for example, you'll be losing a couple hundred a month after paying mortgage, condo fees, taxes, etc. but the appreciation opportunity is much greater.


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## nobleea (Oct 11, 2013)

valachio said:


> Often times properties with high cap rate (if you find a property that pays 1% of its value with 1 month of rent, that's 12% cap rate) have low appreciation. Condos in downtown Toronto for example, you'll be losing a couple hundred a month after paying mortgage, condo fees, taxes, etc. but the appreciation opportunity is much greater.


"...WAS much greater, but that's probably not going to last forever."
That's not rental real estate, that's purely speculation.

Some might tell you that a super high cap rate is actually a good sign of good capital appreciation in the future. See arizona rentals after the crash compared to now.


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## Just a Guy (Mar 27, 2012)

Since rental investing is built on cash flow, you'd never sell the properties until you want to get out of the business. If you want to flip properties, you may look into capital appreciation, but for a rental property, it's low on the list of desires. Also, when you go to sell, a 12% cap rate will probably sell faster than a 3% cap rate. Heck, you could sell the property to some fool for a 5% cap rate and they'd think it's a deal in this market. You do that, you get automatic capital gains.


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## kcowan (Jul 1, 2010)

I am not an RE investor but we offered on a house on Bayview and Steeles and the listing broker bought it without presenting our offer. Same price.

Then 10 years later, we put in an offer on a lake home on Lake Rosseau and the listing broker bought it. Same price again!


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## TomB19 (Sep 24, 2015)

7 years ago, I set up an open house and nobody came. Very unusual. When I went to collect the private sale open house signs, they were gone.

Next Saturday, I put the signs out and went to check the first sign after planting the last. A realtor who was also having an open house in the neighborhood was pulling my signs.

We had a nice discussion and I helped him see my point of view in pretty clear terms. lol!


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## Freedomeer (Jan 3, 2018)

Thanks for all of the advice. I will start with a property in my City. There is no learning like doing. I will be patient and see if I can find the right property. Once I do, I will keep you guys posted, and you can criticize me on the crappy deal I signed. I will look into your 22 year rule of thumb Tom and see how that looks to me.


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## Mortgage u/w (Feb 6, 2014)

Freedomeer said:


> ....Following a couple people on youtube / blogs, they recommend that at a minimum you should get 1% of the property value in monthly rent, but preferably 2%....


1%-2% seems far fetched and a little unusual as a recommendation. Maybe in some cities, its possible. Not mine.

My rule of thumb has always been that the total rent covers; mortgage payment, taxes, insurance and provide a positive cash flow equivalent to 8% of my initial DP. 

This is hardly ever possible on a single door rental. Focus on properties containing 3 units or more.


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## sags (May 15, 2010)

We pay $1080 plus hydro. Our rent went up $100 a month over the 12 years we have been here.

Even so, the landlord is making out well. They built these units in 1967 for about $6000 a unit and have collected rents all this time.

They have 1200 units and a waiting list. They provide a private community center with indoor/outdoor pools staffed with lifeguards.

Would be landlords.............behold your competition. It has to be really difficult to find something that will pay for itself.


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## sags (May 15, 2010)

Reports out of Toronto are that in the surrounding area home prices are down 10-25% year over year.

That has to be really tough on landlords who are losing every month and now losing on the value of the property.


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## nobleea (Oct 11, 2013)

Several condos/apartments in Edm can be had for 50-80K. They would rent for $800 or slightly higher, so yes, it's possible here. There's more than a few that are in decent neighbourhoods in ok buildings too.


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## Mortgage u/w (Feb 6, 2014)

nobleea said:


> Several condos/apartments in Edm can be had for 50-80K. They would rent for $800 or slightly higher, so yes, it's possible here. There's more than a few that are in decent neighbourhoods in ok buildings too.


I find that very particular. 

A payment on a $50000 mortgage is less than $250 per month. Even if you add taxes and utilities, I doubt you reach $500 total. 
Downpayment is as little as 5% ($5000-$8000).

I would question the quality of tenants - the image I'm painting is: no money and/or poor credit which I associate to poor employment conditions. 
I hope I'm wrong. If I am, I go back to question why someone would pay $800 when they could pay half. 

If quality tenants are in abundance, then investing in real estate here makes a lot of sense.


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## Just a Guy (Mar 27, 2012)

Come on, you know that tenant rates and housing prices are unrelated. I made my portfolio based on getting cheap properties with rents that could be lowered if required. None of my places are slums and I’ve generally got good tenants. Just because a place is cheap doesn’t make it bad.

Besides, housing has been so overpriced for so long few people believe things like this even exist, so they don’t even bother to look.


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## OnlyMyOpinion (Sep 1, 2013)

nobleea said:


> Several condos/apartments in Edm can be had for 50-80K. They would rent for $800 or slightly higher, so yes, it's possible here. There's more than a few that are in decent neighbourhoods in ok buildings too.


Don't most of these apartments have monthly fees associated with them as well, in the range of ~$400/mo?

Separately, I've recently seen a few nice single detached homes MLS-listed as "Civil Enforcement" sales where a 1/3 or 1/2 equity interest is being sold. I presume a nasty parting of ways has occurred. Does anyone know what you would do if you bought this interest? Do you have equal rights to live there, make decisions about the property, etc. How would you even begin to get on the same page as the other interest owner(s). Do you just sit on title as a part owner until the other(s) finally make a move to sell?
I'm asking only because I've never noticed these before (they tend to be in the sub-$100k listings). I would never consider actually buying in.


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## twa2w (Mar 5, 2016)

Mortgage u/w said:


> I find that very particular.
> 
> A payment on a $50000 mortgage is less than $250 per month. Even if you add taxes and utilities, I doubt you reach $500 total.
> Downpayment is as little as 5% ($5000-$8000).
> ...


Also don't forget condo fees of 200 to 250 per month or more plus the possibility of a special assessment.

Also many people don't buy for a multitude of reasons. 
Mobility, no ownership hassles, saving for down payment on house, unable to save for down payment, student, temporary job in city etc etc.
Close to 40% of households rent, that is a lot of people. Most pay rent on time, otherwise no one would want to be a landlord.


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## dadaswell (Jan 6, 2016)

kcowan said:


> I am not an RE investor but we offered on a house on Bayview and Steeles and the listing broker bought it without presenting our offer. Same price.
> 
> Then 10 years later, we put in an offer on a lake home on Lake Rosseau and the listing broker bought it. Same price again!


I hear a lot of stories like this one up in Muskoka. The RE agent buys it, or in the case of estate sales, the lawyer does. Six months later they are back on the market...sometimes fixed up, sometimes not.


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## nobleea (Oct 11, 2013)

Mortgage u/w said:


> I find that very particular.
> 
> A payment on a $50000 mortgage is less than $250 per month. Even if you add taxes and utilities, I doubt you reach $500 total.
> Downpayment is as little as 5% ($5000-$8000).
> ...


Immigrants with no credit history, out of town workers who want a place to stay on weekends, workers from out east staying here mid-term, students, min wage earners, etc etc. Lots of people would be good tenants who pay on time and for whatever choice, be it conscious, or through circumstances, don't want to or can't commit to buying a place, as easy as it looks for us.


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## TomB19 (Sep 24, 2015)

I'm blown away by the 1-2% number. Good for anyone who can do it. We've never been able to.

Our best property makes about 1.5% per month of our total initial investment but it was a derelict that we bought for a song, fixed up, and it is a popular renter. Six months after we bought the place, the adjacent crack house was torn down and has since been joined to some other lots where they developed a condo. Suffice to say, it was some amazing good luck.

We bought the place because we knew the area was just starting to turn over and it was adjacent a major hospital so we thought it would go well over time. It would be disingenuous for me to suggest all of our properties were or could be Cinderella stories like this. It does show that not everything that happens in R-E is bad.

It would be great if every property could be like that but it would require more luck, time, and life energy than I have. This type of re investing does not scale well. Houses can't be built or renovated in three weeks, like they do on TV.


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## Mortgage u/w (Feb 6, 2014)

Just a Guy said:


> Come on, you know that tenant rates and housing prices are unrelated. I made my portfolio based on getting cheap properties with rents that could be lowered if required. None of my places are slums and I’ve generally got good tenants. Just because a place is cheap doesn’t make it bad.
> 
> Besides, housing has been so overpriced for so long few people believe things like this even exist, so they don’t even bother to look.


I totally agree. I'm not saying its impossible - I just find it interesting. In my neck of the woods, such properties are not as abundant where nobleea states.



nobleea said:


> Immigrants with no credit history, out of town workers who want a place to stay on weekends, workers from out east staying here mid-term, students, min wage earners, etc etc. Lots of people would be good tenants who pay on time and for whatever choice, be it conscious, or through circumstances, don't want to or can't commit to buying a place, as easy as it looks for us.


All the better! I guess its a great place to be for RE investors.


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## Mukhang pera (Feb 26, 2016)

TomB19 said:


> I'm blown away by the 1-2% number. Good for anyone who can do it. We've never been able to.
> 
> Our best property makes about 1.5% per month of our total initial investment but it was a derelict that we bought for a song, fixed up, and it is a popular renter.


I would think that just about any property, held long enough, will produce 1.5% of total initial investment. And that's assuming, when you say it "makes" that much, you are talking about net profit before taxes. If it shows a profit in the order of 1.5%/mo. on investment in the first year, then that would be a Cinderella story. I suspect that the real gurus of the game, investors like JAG, see such an immediate return as a _sine qua non_ of even bothering to write an offer.


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## Mortgage u/w (Feb 6, 2014)

Mukhang pera said:


> I would think that just about any property, held long enough, will produce 1.5% of total initial investment. And that's assuming, when you say it "makes" that much, you are talking about net profit before taxes. If it shows a profit in the order of 1.5%/mo. on investment in the first year, then that would be a Cinderella story. I suspect that the real gurus of the game, investors like JAG, see such an immediate return as a _sine qua non_ of even bothering to write an offer.


I don't find using a percentage of cost is a proper measurement tool. A rough estimate as such is possible, however, does one consider all the extras added to the initial cost? How accurate would it be measuring against the purchase price but ignoring an important renovation down the line? What about an equity take-out? How is that factored in? As an RE investor, I think its important to consider all ratios and returns - its not always as simple as it seems.


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## Mukhang pera (Feb 26, 2016)

Mortgage u/w said:


> I don't find using a percentage of cost is a proper measurement tool. A rough estimate as such is possible, however, does one consider all the extras added to the initial cost? How accurate would it be measuring against the purchase price but ignoring an important renovation down the line? What about an equity take-out? How is that factored in? As an RE investor, I think its important to consider all ratios and returns - its not always as simple as it seems.


I only referred to percentage of cost to address TomB19's post. Truth be told, I am a sufficiently unsophisticated, seat-of-the-pants RE investor that I use no measurement tools at all. How's that for batshit crazy? I have owned at least one rental property at all times for over 40 years and, in that time, I have never paid any attention to "cap rates", ROI, blah, blah. I have but a few simple principles that guide me, such as: (i) with a down payment of at least 20%, will the property pay its own way from the outset, i.e., will the rents cover mortgage (including principal repayment), property taxes, insurance, a fair allowance for repairs, vacancies, etc.? (ii) I have always wanted to be assured that I will never have to subsidize a rental. Even a small negative cash flow, I won't accept. Some will, because they believe it's for the short term and rising rents, property appreciation, or religious faith will soon make up the shortfall. (iii) I'll pass on owning anything I would not be content to live in myself. If I would not live there, why should anyone else pay me to live there? Will they respect me and my property? I am sure that makes me a "contrarian" - a term I seem to recall seeing bandied about on this board of late. I am sure all here would think that last criterion qualifies me to reside at 999 Queen Street (should anyone here get that reference from of old).

My kind of real estate investing is probably of the sort that would see the true jocks of the sport on this board reaching for the smelling salts. Surely a straight run to the poorhouse. But, unlike some here, I am not rich (a term I would define as a net worth of $10 million or more). But I am content with my lot and that's what counts. I know some who are content to live on a net worth of nil and a net income of $1,000 a month. I could not imagine that for myself, but they don't seem unhappy. There are times when I read on this forum about the RE movers and shakers and I reflect wistfully on my misspent youth, having been able to own a number of Vancouver rentals over the years and how, with even a modicum of drive and ambition, I could have kept accumulating, wheeling and dealing, ducking and weaving, and by now owned a portfolio of rentals _a mari asque ad mare_. Alas, when others were beating the bushes, with fire in their bellies, looking to turn up the next deal worthy of bragging about on CMF, I was off walking some beach in SE Asia, fishing in Norway or just being profligate in general. And now, as my mummy would have said, my chickens have come home to roost. I missed the boat on living on The Bridle Path, with a large staff, flying my own 747, etc. Sniff.:sorrow: So I must now content myself with living in reduced circumstances. I suppose another of my mother's sayings applies: "You have to cut your coat according to your cloth." My cloth is not of such generous proportion as what might have been had I not been a sloth, albeit a contented sloth.

Getting back to percentages for a moment (even if meaningless), I just now looked at the BC assessment for the first rental I owned in Kitsilano in Vancouver. Bought for $70,000 in the roaring 70s. Assessed today at $2,263,000 for the 33' x 110' lot and $128,000 for the 1912 building. A legal duplex, masquerading as a triplex (near universal in that part of town). In the online photo, it looks to be in the same rough shape it was in when I sold. When I bought, I rented the basement for $200/mo., the upper for $350/mo. and I lived on the main floor (another breach of RE investment rules - don't live in your rental and don't buy 3 units or less). The main probably had a rental value of $450/mo. as it was about 200 square feet larger than the other floors. So an income of at least $900/mo. was easily achievable. The 1% rule spoken of on this forum would require an income of $700/mo. to make an offer worthwhile, so it came handily within that criterion. 

I am not sure that house could today pay obeisance to the 1% rule. Assuming BC assessment to be at all close to the mark, the gross rent would have to be about $23,000 a month. Let's say $5,000 for the dark basement (one BR and one bath) and $10,000 a month for the main (2 BR and one bath) and $8,000 upstairs (one BR and one bath). BC Assessment says the basement is 900 square feet, the main is 968 and the upper is 768. When I first bought, I rented the basement to UBC students. One BR rented for $90/mo. and the other for $110, including utilities. They shared a bath and the very basic "kitchen", with laundry tubs passing for a kitchen sink.

However, if I still owned that house, it would more than give me a 1.5%/mo. return on initial investment. I paid $70,000 for the house with $18,000 down and vendor financing of $52,000 at 11% for 5 years. The monthly payments were $500.52 principal and interest. That mortgage would have been paid off awhile ago, even leaving it at a 25-year amortization. A 1.5%/mo. return on $18,000 would be $270. I think the place would produce a net return of at least that much.

When I put that Kits house on the market, the common lore at the time was that properties of the sort generally sold for "7 to 8 times gross". If today that property _could_ command a monthly gross rent of $23,000, at 8 times gross it should sell for $2,208,000. Sounds about right. My guess is that house cannot be rented for more than about $6,000/mo. today, so the assessed $2.3 million must be a "bubble" price and the smart money will wait for it to fall back to about 8 times gross based on $6,000/mo., $72,000 a year or $576,000 total price.


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## TomB19 (Sep 24, 2015)

The best R-E deals I've found are downtown, near major places of employment. In our case, the hospital and police station. These are crappy neighborhoods. Nobody wants to own a house there. Prices are crazy low. Rents can be high, if you are close to the station or hospital. These tend to be rental sweet-spots. They are also areas that where houses don't move quickly; something to keep in mind when it's time to exit the market.

For married people, like myself, it can be difficult to get these houses by the spouse. In our case, I pretty much run the R-E show but she is a partner and has a say. She wasn't impressed at the outset.

If you can get really close to a hospital, as in across the street, and you can hold the property for a long period of time, you have a reasonable chance of the property being re-zoned commercial and being able to sell it for substantially more than it was worth as a residential property.

We've been winding down our program for the last several years. I've been more focused on stocks and building a non-RE business. If I was doing it again, I'd start with the inner-city type of property. Make it decent outside, nice inside, and reasonably secure. Decent outdoor lighting will keep the crime to a dull roar.

I've seen a lot of rentals and I've guestimated that an average house values out at approximately 22~25 year mortgage payment + insurance + tax being equal to the rent. Condos value out lower but they have the condo fees holding them back, for less total return. These being the averages I've seen over the years.

Once you know the average, you can keep an eye peeled for something that is better than average. Every so often, you come across a property that is substantially better.

We also own some homes that are absolutely average. In these cases, the point is that we wanted the homes for their strategic value. It's a long story but they are the feed stock for the next phase.


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## TomB19 (Sep 24, 2015)

I think the biggest mistake that is universally made is people don't think about exiting R-E. The properties do very well at the start of their journey but they earn progressively less, as they de-leverage themselves. In our case, our LTV is way below where it should be. We should have been buying more houses the last few years to scale the business.

R-E doesn't scale very well, IMO. Once you have more than a few properties, you need to consider hiring someone. It's important to have someone available at all times to attend to the tenants. If you can find someone decent, it's not a bad position to be in.

Quite some years ago, we sold our 2 bed houses because they tend to be lower rent, higher maintenance, houses. They take too much time compared to a 3 or 4 bed house. It took years to reposition ourselves but it's been a good journey. I'd rather own fewer, higher value, houses.

Now that our LTV is way down, our yield is lower than it was when we were constantly expanding. We make more money than ever but the equity is up so the actual yield is lower. Unleveraged real estate is OK but a person would be far better served by some decent value stocks. IMO, it doesn't make sense to own a house much down 

There is also the problem of CG, on the way out. How do you sell a whole bunch of houses the most tax efficiently? What happens when you realize it's time to move somewhere warm and it's going to take quite a few years to sell down the inventory? It's a significant down side of R-E.


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