# Investing in Real Estate in Calgary



## tylC (Jul 2, 2012)

Hi,

I am looking to invest in a rental property in Calgary.

1.) I am looking to buy a house/property at $200,000+, which will rent for around $1300-1500/month, with expenses of around $400/month (tax, maintenance, etc), which will generate about $10,000+ for a vacancy rate of 1month/year

2.) I know the rent seem quite high for a 200k house, but I think such rental properties do exist in places where people are reluctant to buy but willing to rent (e.g. places near ctrain at the NE)

3.) The point of this investment is to take advantage of the low mortgage rates, at the present rates (4%, fixed for 5-7 years), a 20% down payment is about $40,000, and a $160,000 mortgage would translate to $750/month at 4%, $9000/year, I am looking to sell the place after 5 years unless the interest rate remain low, and the rent is going up

A conservative look at the investment would translate to a measly $1000 return per year, which is a 2.5% cash yield on the $40,000 investment. However, on a good year, the investment can easily generate a 5-8% cash yield. If taking into consideration a modest appreciation of 20% increase in property value in the next 5 years (less than 4% annualy), the investment could give a whopping 100% return at the end of 5 years, and giving the investment a 15-20% annual return. 

I understand this is a rather risky investment, and will probably involve a lot of work renting the place out and occasional maintenance. But there seem to be limited downside, while the upside looks reasonable in today's market. What do you think? Am I too optimistic with the numbers, or is there something I've failed to consider. 

Thanks for your comments!


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## Jay (May 9, 2012)

I'd be interested to hear from some of the local rental experts here (I noticed there are some good ones), but have you factored in: real estate transaction fees, lost money if the unit is vacant for a month (it looks like a 1 month vacancy could wipe out everything you made in 1 year), as well as the time/effort required? We don't have many $200k houses where I live, but $400/month seems a bit low for property tax, maintenance, insurance, etc. If it's not a brand new house - you may have an initial bill of several thousands to bring it up to the standards quality renters will expect.

I have a few friends who've made similar deals to the one you're contemplating, and as best I can tell with my 'envelope math', the only way they'll do well is if property values continue to increase at rates substantially above historical norms (as the have in the past 10 years). I believe they were late to the party though... One of my friends who purchased a money pit of a house keeps telling me how they're hopeful a new condo development will buy them out - dream on. To me it looks like they're putting in a lot of time/effort for a minimal/no return - and are just banking on being able to sell the place to a bigger sucker down the road. In the meantime, the local housing market has been flat this past year (2% increase)...and by most accounts will start heading downward next year.

I would call a 4%/year property value increase slightly 'optimistic' rather than 'modest'... though maybe things are different in Calgary. If you've been following the news, gambling on Canadian housing prices in urban centres increasing at the rates they have been in the past few years may not have odds in your favour. Even you said that you plan to sell after 5 years "unless interest rates remain low" - Well if interest rates do start to rise, they will have the same impact on a potential buyers price as it would on your ability to carry the property forward - bottom line... your sale price will be lower.

Personally, I would not do such a deal unless there was enough monthly cashflow (after all expenses) to justify all of my time/effort, lost opportunity cost and interest rate risk. It sounds doubtful that is the case with your numbers - and I think you are only presenting "best case" scenarios here. It sounds like you're mostly just hopeful of property value increases - ie speculation.


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## Sampson (Apr 3, 2009)

tylC said:


> 1.) I am looking to buy a house/property at $200,000+, which will rent for around $1300-1500/month, with expenses of around $400/month (tax, maintenance, etc), which will generate about $10,000+ for a vacancy rate of 1month/year
> 
> 2.) I know the rent seem quite high for a 200k house, but I think such rental properties do exist in places where people are reluctant to buy but willing to rent (e.g. places near ctrain at the NE)


I won't comment on 'becoming a landlord' and all the 'troubles' potentially associated. I'm sure people will come out from all over this forum to comment on that.

You'll be hard pressed to find what you are looking for. Most of these places in 'less' desirable areas, adjacent to the NE track of the LRT will not give you $1300-$1500 in rent. Check out Rentfaster.ca or Kijiji for market rental rates. It can be anywhere from $800 to $1250. For full houses, these will cost at least $280,000 to $320,000. When you do the calculation for cap rates on these units, it becomes very unfavorable. 

You could generate enough income if you rent the top floor and basement separately, but very few people want to live in the boonies AND in a basement. Then you have to question the quality of tenant that wants to rent a shabby place for a few hundred bucks.

You'll have to dig deep and look hard. You are best to try and find a place close to downtown - try to attract a better quality of tenant. There might be a few places fitting your description in Renfrew


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