# Good investment property?



## Dmoney (Apr 28, 2011)

http://www.realtor.ca/propertyDetails.aspx?propertyId=11648580&PidKey=-1453056666

Went by to check it out today... Seems livable and rentable...

6 cap is moderately attractive for Toronto...

Wonder how insulated an income property like this would be from any correction?

Could easily live in and rent two units, or rent all three.

Opinions?


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## ddkay (Nov 20, 2010)

one of those neighbourhoods always in transition... a lot of these have historically been rooming houses (I think they still are) and cost at least half as much 10 years ago unrenovated... the area is mainly marketed to yuppies and students. sadly the price is on par for anything you'll get near College St. rent looks inflated but it's difficult to tell exactly how big this place is from the photos. Does the top floor really have 3 full sized bedrooms? :S with all the profit the current owner is making you'd think he could replace that '70s fridge with something more energy efficient... mixed feelings about this one, doesn't look well kept (but neither is the whole area, generally speaking)

as long as personal incomes are stable or rising you shouldn't have problems? central banks and policy makers are manipulating markets so much right now I have no meaningful commentary about corrections.


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## Dmoney (Apr 28, 2011)

The current set up is two good sized bedrooms with the third as a living room in the upstairs unit, dining room is attached to kitchen with walkout to a pretty good sized deck.

Main floor is pretty similar set up... living room at the front of the house, hallway down to the kitchen with rooms off of the hallway. Walkout to the back to a decent deck.

Basement has a separate entrance, one long room with kitchen/bathroom at the back.

The rents are comparable to what you'd see advertised on Kijiji/Craigslist, and proximity to U of T probably means it's very rentable.

It's in decent condition, not fully renovated anytime recently though. 

In terms of areas in Toronto, what are some better/good areas? I really like the Beach area, along Queen near Woodbine/Kingston. Have heard that Little Italy is in good demand... Any areas to stay away from, look into?


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## jamesbe (May 8, 2010)

Although e say enough to rent most likely renting to students really scares me. Wear and tear seems to triple and of course they are short term.


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## Berubeland (Sep 6, 2009)

Dmoney, 

That's the thing about a marketwide correction. Everything gets hit. Also I would seriously question a real estate agent's cap rate.


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## Dmoney (Apr 28, 2011)

I would question everything a real estate agent says to be perfectly honest. Looking at the units, the stated rents make sense, the expenses would be harder to verify. Also doesn't take into account any repairs, vacancy etc.

In terms of a marketwide correction, I don't see it going so far down the drain that renters become owners. I think with downtown Toronto, you're looking at a situation where if the prices drop enough, there's a ton of demand from the suburbs to fill in. Granted, many from the suburbs would be reticent to sell at a loss, but I feel like something that's going to generate income is somewhat sheltered from large corrections. Think dividend paying stocks in a market correction. They fall, but not as far as the other guys.

Considering the property, but not in any hurry to get in.


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## Homerhomer (Oct 18, 2010)

It's not a bad area, worked there for number of years.
Number of decent restaurants and shops, and the happening is spreading from Queen street through Ossington up.

I think the main question is do you want to be a landlord, and with older property like this one how handy are you.

I don't know how much price correction one can anticipate in comparison to other areas or properties, it seems like one should be able withstand it owning it barring renters non paying the rent or apartments being empty for extended period of time.


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## Dmoney (Apr 28, 2011)

I'd share the concern about repairs over time. Will be seeing the sellers inspection (which I will take with more than a grain of salt), and if I'm interested will follow up with my own inspection.

I'd much prefer something fully renovated in the past 5 or so years, but that would likely run into the 1MM range and above.


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## ddkay (Nov 20, 2010)

I like The Beaches, especially the cozy stuff south of queen along the lakefront trail. The watefront can get really gusty and cold, maybe not much worse than the wind tunnel on Bay St., but you gotta take the good with the bad. Maintenance/renos are always going to be the most difficult and expensive part of home ownership. Are you going to rely on contractors all the time or DIY? The age and shape of the home should play a role in your decision. If time is no obstacle, a little training goes a long way...


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## Mall Guy (Sep 14, 2011)

Berubeland said:


> Dmoney,
> 
> That's the thing about a marketwide correction. Everything gets hit. Also I would seriously question a real estate agent's cap rate.


Berubeland is bang on about the cap rate. Let's assume that the $12,000 in expense is realty tax and utilities. What about insurance ($1500), repairs ($1500), vacancy allowance (two units are m/m $1500) and let assume a mortgage of $520,000 ($33,000) with a down payment of $175,000 (your equity in the investment). Good news, its might just be cash flow positive (before tax and unforeseen contingencies)

$53,500 - ($12,000 + $1500 + $1500 + $1500 + $33,000) = $4,000 / $175,000 = 2.3% R.O.E. Not to show my age, but does anyone else remember "Twiggy" (ie. its a skinny deal). CAP and NPR both pay 4.7%; Boardwalk 3.2%. Was going to say you can't live in a REIT, but I guess you can!

But it is one way to finance a purchase in the core of the GTA.


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## ddkay (Nov 20, 2010)

Carrying that mortgage is the real buzz kill... guess that explains why the current owner is still using his grandma's fridge.


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## humble_pie (Jun 7, 2009)

dmoney i'm not knowledgeable about RE & i don't live in toronto. I'm writing more about your future & your career.

you've mentioned you're a recent graduate in finance, you've recently moved to toronto to take up 1st job with what sounds like an investment banking house, you seem to have clear goals, good skills & every expectation of a highly successful career. What's more, a career that could pay exceptionally well.

the way i see it, there's a certain image here. What do you wear to work every day ? i would hope expensive suits whose price tags initially made you weak in the knees. Shoes ? i would hope italian leather. 

and your home, your palace, your principal abode. Five years from now, you will not want to entertain colleagues & clients to dinner or drinks in what look like student digs. The place is fine for graduate students or associate profs, but not fine for investment bankers.

berubeland has said she expects RE prices to fall. Perhaps instead of buying a rental property w much work involved, you might develop a concept of what kind of elegant bachelor apartment you'd like to own or rent over the next 2-7 years. A place that's easy to take care of. A place you can leave for business travel at the drop of a hat. A place where one cleaning lady plus a catering service can stage a drop-dead gorgeous party in less than half-a-day.

then you could save up some $$ for a little while longer. Any bonuses etc go into the elegant bachelor house/condo fund. A couple years from now, the new job will be that much more secure & you would be able to buy something suitable for a young but ambitious investment banker.


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## Dmoney (Apr 28, 2011)

The expenses they have listed are:

Gas: $1440
Hydro: $2,265
Water: $293
Sewage: $388
Garbage: $190
Insurance: $1,700
Taxes: $4,127
Cable: $932
Groundskeeping: $600

Assuming everything else is correct, I'd add in vacancy and maintenance, and maybe take out groundskeeping. I've never had cable personally, but if it's there for the tenants to split and is part of the arrangement, I'd live with it. 

The one upside on the vacancy is that I'm currently paying $1,600/month in rent, and am more than willing to move into the place as soon as there is a vacant spot. 

The numbers I'm looking at it with are roughly as follows:

$12,000 for all the expenses they give
$5,000 for repairs and maintenance (rather overstate than understate, seems to be well constructed and in decent shape, but you never really know)
$3,600 for vacancy (assume a month of vacancy for each of the top units)

As for financing, I'd call it about (25 yr mortgage, so principal is being paid down)
~$40,000/ year for $700K,
~$34,000/ year for $600K,
~$28,000/ year for $500K

Calling it ~$34,000 per year, its a net zero cash flow more or less.

However, the interest on ~$600K would be between $18K and $24K (3-4% interest rate), so I'd calculate an ROE of roughly 10-15% (assuming paying into equity of ~$10K-$15K).

From a numbers point of view, does the above make sense?
What sort of annual repairs and maintenance expenses would be normal for a ~50 yr old house?

One of my lines of thinking is that any single family home in Toronto's core is going to cost $500K to $800K+. I don't need a single family home at the moment, way too much space. Rather than buy, upsize, upsize, upsize, I'm thinking buy something larger now, rent out part of it, then take back the rented area as needed. (5-10 years down the road not any time soon).

My other line of thinking is that if the numbers don't make sense, I'm in no hurry to buy and am perfectly happy renting while I wait.


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## Dmoney (Apr 28, 2011)

*To Humble Pie*

You do bring up some extremely valid points regarding the career. It's unfortunate, but I'm in a very superficial industry that is all about money, image, fancy cars, watches, clothes etc. 

I'd be inclined to say that I am as humble as the pie in your name, and hope to remain so if at all possible, so while I may have to project a certain image Monday through Friday, on Saturday I'm in sweat pants and a t-shirt.

At the moment I'm probably 5-7 years away from a truly client-facing role, so while I do show up to work in a decent suit, it's not something you'd need a bank loan for. In my current role, I don't entertain or have a particular image to uphold, but down the road that will be a concern.

In 5-7 years, if I stick with my current career, money will be the least of my worries, and at that point I'd be looking for the worry-free, no maintenance option. That's why part of my consideration now is future potential for anything I consider buying. In 5 years, I'll easily be able to sink $100K+ into a major renovation.

One of my bosses actually bought an old five or six unit apartment/rooming house and put $500K into it and it's now absolutely stunning, so that's always an option.

Like I said in other posts, I'm fine with renting as long as it takes, but am always looking for decent buying opportunities as they present themselves.

Thanks for the input though, it actually highlighted a few points that I hadn't given too much consideration to.


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## humble_pie (Jun 7, 2009)

dmoney i'm content that you're staying cool, detached & objective about it all. At least, you sound so.

what is a bit puzzling is that you agree that student digs will not do for the career you expect will be approaching full bloom in 5, 6 or 7 years.

yet you contemplate buying a student dig now that could be renovated for $100k in several years time to produce the stunning housing that will be necessary to accompany the cars, clothes, travel, etc.

how will you know, nowadays, that the dig you buy today can indeed be renovated in 5 years for $100k into a stunning etc.

i for one don't happen to believe the property you showed us will cut the biscuit. I don't care for its squirty little size compared to its neighbours, for one thing. Is there any sunshine in that backyard. One cannot make a silk purse out of a sow's ear ...

if you were my child i'd be saying, Don't buy now, Save your money, Aim higher, Be prepared to move if you have to.

then probably my kid would do the exact opposite, as the offspring usually do.


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## Berubeland (Sep 6, 2009)

It may seem a bit strange but...I don't like that type of house, under the colonial stone exterior it's a simple wood frame house and a lot of them sag and bend. Not too much insulation and no sound proofing. 

I like the old solid brick houses. 

As for 50 year old houses, lots of stuff happens to them. Expensive repairs include waterproofing, digging up the main drain which block in the spring when the tree roots grow, electrical upgrades. Main beam replacement. Furnace, roof and so on. I mostly hate newly flipped houses for the purposes of selling. Lipstick on a pig. Lots of hidden defects (the expensive ones)


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## ddkay (Nov 20, 2010)

I didn't know you wanted this to live in long long term. I would definitely look around the beach in the future.. that area is almost fully gentrified since 2001 (rental stock -> homeownership) and has definitely become one of the better places to live downtown, relatively low crime, houses usually large enough to raise a family, and lots of fresh and open space (minus some new subdivisons)


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## Berubeland (Sep 6, 2009)

Are you serious? You'd have to pay me to live in the Beaches. No parking with 80% of the houses and every weekend the area is over run with even more people. Traffic is awful. Plus the houses are way way overpriced.


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## Causalien (Apr 4, 2009)

Furnace + water heater replacement is almost guaranteed. Electricity cost seems too low. 

I say don't do it. I am now regretting the same decision. It is a lot of work and things progress a lot slower than in finances. 

I am doing it for the experience, but if you are thinking about maximizing earnings per hour, a 2% ROE is very lousy. Minus all the cost and you barely beat inflation. ( unless of course, there'sincrease in house price)


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## Dmoney (Apr 28, 2011)

I think I'm gradually being swayed towards not doing it. A lot of good input here guys, thanks a lot, I appreciate all the contributions.

Berubeland, if not the beaches, where would you say is good value (within ~15 minutes of the financial district)?

Humble: You put it into very good perspective with relation to my career etc. I figure any home can be brought up to snuff for a cost, but you've got a point about some things that can't be changed (backyard), or wouldn't be worth the cost (size relative to neighbours).

Causalien: I gotta hope that I can make more than a 2% ROE in the market, so that's probably the way to go for now. Wouldn't want to bank on much price appreciation in the current state of the market.

Thanks for all the input, I'll likely keep my eyes open for opportunities but will move on to the next one.

For all in the GTA, what are some good areas to keep in mind? 

Berubeland, where do you find good solid brick houses with little maintenance?


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## ddkay (Nov 20, 2010)

Huh.. If you live downtown traffic is a fact or life, you can only try to get around it by foot or bike. No comment on price or corrections, I have not seen "value" anywhere since the brief correction in 2008. There are no great public schools in the fin district either so someone will still have to commute, but if you lived on the subway line you could get to Earl haig (popular choice at fml listings) in 30 minutes lol. Beaches are good if your kids use the local schools for K-12, you take the 501 to work, and get your daily stuffs from the retail strip on queen st. or big box retail on Eastern/Leslie. Hopefully better choices emerge in the next 10 years. Who knows what effects a crash and displacement of people will have on even the "good" neighborhoods of today?

If you just want to be around other rich people.. Lawrence park, Forest Hill, Rosedale, Kingsway (Etobicoke), or some suburbs like Castlemore, Kleinburg, King City. GL driving in every morning from the burbs though, car traffic is projected to get worse and GO/TTC pet projects will only mildly alleviate issues.


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## humble_pie (Jun 7, 2009)

i'm an amateur admirer - very amateur alas but still very admiring - of the history of architecture, so i went back to the realtor's link to see once again why this house was so jarringly small compared to its neighbours.

it appears to me that it was built later, in a lot that had originally been scaled to accomodate one more standard house in a row of identically structured red brick row houses.

i wondered why this lot had been left vacant, or how it had come to be vacant. Had there been a fire, perhaps, which had demolished the original row house.

and i wondered why this house did not seem to have any basement, although it was described as having a basement apartment. If it does, surely there must be window wells, because otherwise there would be no natural light whatsoever in a basement that would be 100% below grade.

sometimes houses without basements have been moved from other locations. There is one in the next block to me. It's a small century brick house that sits upon a cement slab, in a block that's otherwise a stretch of victorian row houses. In the neighbouring case, all the houses are so old that everything melds together.

i wondered whether the house that dmoney showed us was, in fact, moved from another location.

berubeland's insight, that it is a simple wood frame structure clad in stone facing, could support the move-in hypothesis. The wooden house was possibly moved into place, then the stone cladding was applied.

whatever its history, whether it was moved in or whether it was purpose-built some time after the row was constructed, this house does not belong visually to its neighbours. If it was built on the spot, it's baffling how the architect could have designed an infill structure so completely at odds with its streetscape.

for this reason alone, thinking only of its possible future appreciation, i would pass on this house.


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