# To be or not to be a landlord



## mtl83 (May 23, 2011)

I live in Montreal and I was looking to buy a condo. It seems that I found what I like and before getting it I decided to look around for alternatives. I found a triplex that looks pretty good... but I still want the condo 
Now I'm facing 3 options: 
- buy the condo
- buy the triplex
- buy the condo and the triplex

Condo is brand new 1250 sq feet for 380K (parking and taxes included), it will be 200$ condo fee and approximately 3K/year in taxes.
Triplex is 2007 construction for 650K, fully loaded with tenants who pay a total of 3600 per month. Without taxes and insurance yearly income would be 36K from the tenants. Triplex is a 3 floors building with large 5 1/2 apartments on each floor.

For some reason I like the 3rd option of getting both of them, triplex and the condo. I have 80K cash and 120K salary without any debts to pay.
What would you recommend?


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## Cal (Jun 17, 2009)

You may want to run the numbers and assess how profitable the triplex would be, when you factor in for repairs, property taxes, vacancy, increasing interest rates and loss of investment potential with your downpayment.

I am assuming that you are handy and would undertake any repairs on your own to cut costs, and to only have the parts as your labour expenses.


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## mtl83 (May 23, 2011)

I don't think that triplex would be profitable. At best, collected rent would cover mortgage and minor expenses.
With 5 year fixed I'd be able to accumulate around 120K in principal while it would cost me 1000 a month, in other words I'd be +50K in 5 years.
With 3 year variable principal would be 75K in 3 years and it would cost me $600 a month, in other words I'd be +50K in 3 years as long as the rate doesn't increase (which is unlikely).

What does that mean "how profitable the triplex would be"? Does that mean that I should be getting return on investment (on down payment?) or it's the capital accumulated on the down payment?

In any case, if I get only the condo that I really want to buy, with a triplex it all looks much better overall, while I might get into position where I'd barely be able to afford payments (if all three tenants leave for example).


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## Berubeland (Sep 6, 2009)

Yes, the triplex and condo should be profitable.


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## tygrus (Mar 13, 2012)

invest the $80k, DRIP it and add to it monthly and you will have a fortune in 25 year and a lot less headaches like you will with the condo.


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## SkyFall (Jun 19, 2012)

Before running the numbers, ask yourself this... do you want to deal with all the tenants problems? do you have time to run here and there if they need something? or you just want a place and don't have to care about others?


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## the-royal-mail (Dec 11, 2009)

What is it about CMF that seems to attract these types of specuvestor threads? This is the second such thread in as many days. Someone bent on creating free buzz or are people really so clueless as to blow all their money on property that doesn't realize solid profit?


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## mtl83 (May 23, 2011)

SkyFall said:


> Before running the numbers, ask yourself this... do you want to deal with all the tenants problems? do you have time to run here and there if they need something? or you just want a place and don't have to care about others?


I have friends who have large apartment buildings and I talked with them about it. I came to conclusion that bigger and better apartments result in less headaches with the tenants. 5 year old triplex with 3 large apartments should almost be trouble-less. So, the triplex decision is mainly based on these two factors: 1) more or less acceptable rent 2) triplex is expected to be more or less worry-free.




tygrus said:


> invest the $80k, DRIP it and add to it monthly and you will have a fortune in 25 year and a lot less headaches like you will with the condo.


I live in a shitty apartment now, and I want to get a decent place for myself (my selection of the new place is in large based on the travel time to work). Also the condo that I want to get for myself is located in a nice trendy neighborhood. Before jumping into the condo boat I researched other acceptable options and found the triplex which has a very nice apartment as well (probably occupied by the owner). But I still like to condo more than the triplex. SO, this decision overall isn't investment-only decision. My main investment as of today is my work and I invest my time there in two-three years I'll reconsider if I need to make other investments.


I'm using ing caclulator. From there I get these numbers:
Condo only with 5 year fixed I'll have $2255 monthly payment and I'll end up with 70K principal in 5 years. (for condo I don't consider taxes or condo fees).
Triplex only with 5 year fixed I'll have $3857 monthly payment and I'll end up with 120K principal in 5 years. If I consider taxes, insurance, 5% vacancy and rent then monthly payment will be $1050 per month.
Condo+Triplex in 5 years fixed will be $6100 monthly (or $3500 if I consider consider taxes, insurance, 5% vacancy and rent on the triplex only). I'll end up with 190K principal in 5 years.

If I buy condo only and pay $3500 monthly (the same amount that I'd have to pay if I also bought triplex), then I'll end up with 153K principal in 5 years.


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## mtl83 (May 23, 2011)

the-royal-mail said:


> What is it about CMF that seems to attract these types of specuvestor threads? This is the second such thread in as many days. Someone bent on creating free buzz or are people really so clueless as to blow all their money on property that doesn't realize solid profit?


I want the condo for myself and I don't view it as an investment. However, the triplex looks good from investment point of view and would ease pain of paying lots of money for the condo and all the fees associated with it. 80K is what I have in regular checking account now, I have around 500K cash trapped in private company stock with option to cash out in a year or so. So, I'm not blowing all my money; worse case I can sell triplex or condo in a year or two, or I can take out some of that 500K cash in case if I have problem paying the mortgage. I also have 120K salary and with my life style I don't spend more than 1K a month anyways. So I'm first time home buyer and I'm looking for options and opinions.

By the way, what's CMF?


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## tygrus (Mar 13, 2012)

Your math and approach are skewed and are reflective of the idea that you just really want the condo and triplex regardless of what the numbers are telling you, so go get it. 

Personally, a first time RE buyer getting 3 properties at once is scary to say the least. The qualifying rules are much more strict now. Factor in that canadian RE has never been more expensive compared to wages. Likely 30% is going to be shaved off the value of those units in a few years, so you are buying a losing proposition, losing equity and will likely have to subsidize the renter one day. I wouldn't touch any RE in any part of Canada right now.


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## Sampson (Apr 3, 2009)

the-royal-mail said:


> What is it about CMF that seems to attract these types of specuvestor threads?


Because this is a Financial forum and there are plenty of people that make money investing in real estate, whether as landlords or via other means. You might as well ask what it is about CMF that attracts threads about investing in stocks, bonds, or HISAs.

As the OP posts later on, they have $500k sitting in an account. Don't tell me that the only thing he/she can do with it is build an e-fund for the business. SkyFall's questions are targeted and spot-on - does one want the work associated with being a part-time landlord, and will it be profitable? If the answers are yes, then it is a very reasonable choice to invest the money.

For every bad tenant, there is a good tenant. If all landlords, whether individuals or corps, expected that all tenants were bad apples, then all the renters on CMF would be screwed cuz no one would rent to you. Effort, planning, and treating landlording seriously as you would work is the key - be a professional and you can make money.


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## Rusty O'Toole (Feb 1, 2012)

Price is WAY too high for the triplex from an investment standpoint.

Real estate investing is not for everyone, I used to believe in it very strongly but the more I learn about other investments the less I like real estate.

Suggest you stick to easier investments like stocks, ETFs, etc.


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## andrewf (Mar 1, 2010)

Are you aware of how bad the Montreal condo market looks right now? There is a glut of inventory and prices are going to fall.


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## Just a Guy (Mar 27, 2012)

I think your prices are too expensive for long term profits. It may cash flow at 3% interest, but you'll be paying these off for the next 20+ years. How good will the cash flow be when interest rates increase. Expect your expenses to increase by $100/month per $100,000 for each percentage increase in interest. 

Being a successful landlord takes a long term view. 

You'll lose your shirt on either purchase long term.


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## mtl83 (May 23, 2011)

tygrus said:


> Your math and approach are skewed ... Personally, a first time RE buyer getting 3 properties at once is scary to say the least.


I don't understand how one condo and one triplex became 3 properties 



tygrus said:


> Likely 30% is going to be shaved off the value of those units in a few years, so you are buying a losing proposition...


Here I agree partially. If you compare different cities in Canada then it looks like Vancouver has to collapse if not today then tomorrow, but it isn't happening yet for some reason.




andrewf said:


> Are you aware of how bad the Montreal condo market looks right now? There is a glut of inventory and prices are going to fall.


That's what I was told by a friend who works in a large condo builder company. There was like 10-15K new apartments constructed every year for the last 5 years. Still, top dollar condos cost around $350-$400/sq feet in new constructions near downtown, while in Vancouver it's 600-650.



Rusty O'Toole said:


> Price is WAY too high for the triplex from an investment standpoint.
> 
> Real estate investing is not for everyone, I used to believe in it very strongly but the more I learn about other investments the less I like real estate.
> 
> Suggest you stick to easier investments like stocks, ETFs, etc.


I'm primarily buying a house for myself and I don't view the triplex as an investment. I'd probably be better in the long run if I simply deposited the money in a savings account. In a couple of years I'd be able to sell one or the other if I didn't like something or had troubles paying the debt.



Just a Guy said:


> I think your prices are too expensive for long term profits. It may cash flow at 3% interest, but you'll be paying these off for the next 20+ years. How good will the cash flow be when interest rates increase. Expect your expenses to increase by $100/month per $100,000 for each percentage increase in interest.


Regarding the triplex only. 2007 construction, three large equal size units (no basement units). $43800 net rent, $7500 taxes and insurance. What would be a reasonable price for that property from investment point of view?


Overall, thanks to all the replies, I'm thinking to pull the break handle for now or slow down in my search. Or maybe just get the condo for myself without triplex.


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## the-royal-mail (Dec 11, 2009)

mtl83, you said a couple times "In a couple of years I'd be able to sell ..."

I just want to point out that this is a very risky assumption. You could be stuck with that condo for several months, during which time you would be paying taxes, mortgage and condo fees and not getting any value. That wastage alone adds up to thousands. It takes time to sell property unless of course you firesale, putting you in the red. As well, don't forget that RE takes 4-6% when you sell, plus the legal expenses out of your pocket. Notice no one from the RE industry is here cautioning you against buying? Selling in 2 years would be a complete waste of your time and money. The value of the average condo in Mtl won't appreciate enough in value. But of course, RE and legal get their fees no matter what. As well as the banks and city hall. Everyone but you.

As for the triplex, if not buying as an investment, why buy it at all then? You would be basically be buying a landlord and money shuffle job. Money comes in, you then forward it to the various middlemen. Faucet breaks, you get the call. Tenants leave the place in a mess, you pay to clean up. What's your time and effort worth? Don't you want to have some free/down time to yourself, hang out with friends/family? Landlording is not a passive thing. 

Just because you can do something, doesn't mean you should.

Glad you're reconsidering this.


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## SkyFall (Jun 19, 2012)

But guys he said he'll keep the condo for him, which I assume he will not sell anytime soon. What about commercial building? for 650k you'll find something nice with maybe 2 units if lucky 3 units and you'll get higher rent and less trouble with tenants since you won't have to deal with legal stuff if they don't pay rent


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## My Own Advisor (Sep 24, 2012)

I like what another commenter said:

Invest the $80k, DRIP it and add to it monthly if you can. You'll have a million in 25 years and no landlord headaches throughout that time period. 

The smartest thing I did when we sold our condo in Ottawa (after 2 years of renting) in 2010 was to invest the money. I put $40,000 total into dividend paying stocks like BMO, CM, BNS, ENB, SLF and EMA. Been paid dividends and increased dividends in some cases ever since. 

No cranky tenants to deal with, no real estate stress wondering if the RE market is going up, down, going to crash, etc. One home is enough to take care of.


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## Just a Guy (Mar 27, 2012)

Look for something different, don't look for "luxury", look for rental with cash flow. 

Now, I'm not in Montreal, but my last five purchases were around 75k each and generate over 1300/month in rent. They aren't built in 2007, they were in foreclosure (most had sold for around $180k a few years ago), and they are just apartments. 

You sound more like the "investors" who bought these places for $180k. Even with 1300 in rent I wouldn't have touched them as they wouldn't cash flow in my opinion. 

These deals don't come up often, I'm only finding maybe a dozen a year right now, but they make money.


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## Cal (Jun 17, 2009)

A triplex is an investment property, you should onlybuy one that is profitable, otherwise whats the point.

As mentioned above, about the oversupply of Mtl condo market, watch it closesly, you will figure out what is a good price to offer.

P.S. the Vancouver marktet is already taking a hit.


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## marina628 (Dec 14, 2010)

Just got contract on a place in Orlando for $73,000 and tenant paying $1000 a month ,HOA only $115 a month. We are selling some property in Ontario and getting about 17% ROI in Florida and Georgia .I got a good agent and Property manager and have dealt with reno work on all of them. I would probably buy the triplex only if you are planning to keep it long term .I am not convinced this is time to get into the markets. We are looking to cash out all our rentals in GTA and purchase in USA but like Just a Guy we are buying under 80k and getting $1000+ a month.


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## mtl83 (May 23, 2011)

SkyFall said:


> But guys he said he'll keep the condo for him, which I assume he will not sell anytime soon. What about commercial building? for 650k you'll find something nice with maybe 2 units if lucky 3 units and you'll get higher rent and less trouble with tenants since you won't have to deal with legal stuff if they don't pay rent


Yes, condo is for myself, it's not an investment, it's a place for me to live. I'm not planning to change within next 5 years or so. The condo is a phase2 building in a 8-phase complex, same condo in phase 3 that was just put on sale costs 20K more. All the signals are showing that condo prices should come down... but how much will they go down?

Regarding triplex: I was considering it because it was 3 hi-rent units (relative to the are where it's located), so I assumed that it wouldn't be populated by some douchebags that would be making me troubles. It's a nice building overall. On top of that I have a couple of good friends who do construction and could help with fixing problems if **** happens.
I understand that stuff with US properties, but I'm not a RE investor, at most I could get the triplex if it more or less made sense from financial point of view. Everything that's far away from me I'm not considering if it potentially could cause troubles. The triplex is in 3 minutes drive from the condo that I want to get, so I'm fairly comfortable with it.

If I do as others suggest and buy stocks/etfs/mfs... let's say if I average 8%/year and if I decide to cash out yearly then I'll be heavily taxed (I'm single and close to the top tax bracket in the most taxed province). With the triplex I'm pretty much getting same return and in 5 years if I sell it I don't get taxed (if I understand correctly that stuff).


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## Sampson (Apr 3, 2009)

If you share the numbers, then we can evaluate if you have good assumptions about how it will work.

I think most posters are giving advice based on generalizations since you provide only basic information and it doesn't appear to me that you have done a thorough analysis of the profitability.

How do you get $36k income annually? Is the property paid off in cash upfront or are you taking advantage of leverage/mortgage? Have you considered property taxes, maintenance (on-going and contingency), vacancy allowance, insurance costs, taxes on profits, interest expense on borrowed money etc.

Calculate the cap rate using realistic figures and people will either be more or less supportive and not use generalizations.


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## andrewf (Mar 1, 2010)

marina628 said:


> Just got contract on a place in Orlando for $73,000 and tenant paying $1000 a month ,HOA only $115 a month. We are selling some property in Ontario and getting about 17% ROI in Florida and Georgia .I got a good agent and Property manager and have dealt with reno work on all of them. I would probably buy the triplex only if you are planning to keep it long term .I am not convinced this is time to get into the markets. We are looking to cash out all our rentals in GTA and purchase in USA but like Just a Guy we are buying under 80k and getting $1000+ a month.


Now that's an investment. Good work, marina! Buying houses that yield 4-5% gross is a recipe for trouble.


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## Just a Guy (Mar 27, 2012)

You will be taxed capital gains on a rental property. Only a personal residence is tax free. Plus you have to pay the realtor, lawyers and fees.


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## tygrus (Mar 13, 2012)

You can take out as high as $50,000/yr in dividends from canadian stocks tax free (another $50k for your spouse). I assume you are in your 20s. Invest the $80k, DRIP it and add another $1,000 a month to it religiously, by the time you are 50, you could have a million dollar portfolio throwing that much your way tax free. Way better investment than property.


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## SkyFall (Jun 19, 2012)

Like other said you'll get tax on the capital gain on the property aswell, but hey don't forget that you'll only get tax on 50% of the capital gains. Regarding the triplex it's also about how you feel about it, i.e. I wouldn't feel comfortable to invest a big chunck of my money into one asset, I get on average about 12%-18% ROE so far in my young investment career so for me the choice is not hard. The only time I see myself jumping in the RE market is if there's a huge correction and I can get something for myself and not as an investment property


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## the-royal-mail (Dec 11, 2009)

Listen to tygrus.

P.S. You would have to be a pretty awesome investor to average 8%.


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## andrewf (Mar 1, 2010)

tygrus said:


> You can take out as high as $50,000/yr in dividends from canadian stocks tax free (another $50k for your spouse). I assume you are in your 20s. Invest the $80k, DRIP it and add another $1,000 a month to it religiously, by the time you are 50, you could have a million dollar portfolio throwing that much your way tax free. Way better investment than property.


It's only the illusion of being tax free. The corporation is paying tax on your behalf. The lower rate of personal taxation is to compensate investors for the tax paid on corporate profits.


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## MoneyGal (Apr 24, 2009)

Indeed! Integration now is tighter than ever - so the illusion is even more illusory than ever.


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## Jay (May 9, 2012)

A must read for those thinking of buying a new condo for investment or living purposes... http://www.ottawacitizen.com/news/o...condo+fees+soar+investment/8844417/story.html

That is not an isolated incident either - all you have to do is search the real estate listings for all of the 3-5 year old condos to see how the condo fees are often in the $350-550 range. I don't think anyone buying a condo should budget for less than $500/month in fees for your typical 1-2 bedroom. $700/month for an older building... some go even higher than that.


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## mtl83 (May 23, 2011)

Jay said:


> A must read for those thinking of buying a new condo for investment or living purposes... http://www.ottawacitizen.com/news/o...condo+fees+soar+investment/8844417/story.html
> 
> That is not an isolated incident either - all you have to do is search the real estate listings for all of the 3-5 year old condos to see how the condo fees are often in the $350-550 range. I don't think anyone buying a condo should budget for less than $500/month in fees for your typical 1-2 bedroom. $700/month for an older building... some go even higher than that.


I'm buying for living. Now the condo fee in this place is 18c/foot and the condo fee includes hot water. The thing is that this location is planned for 8 phases (and I'm looking to buy in phase 2), I'm pretty sure that they won't rise condo fee until they finish phase 8, and I'm pretty sure that they will rise condo fee when they finish phase 8. At a friend's place his condo fee almost doubled when all phases were constructed.

Condo fee is one of deciding factors when buying condos, so, developers set it to some reasonable low number and when it's all sold they (or the management) "fix up" the condo fee.
In the location that I like it will take 4-5 years for the entire site to be built, on top of that there are future plans (within 10 years) to built a metro line and station will be close to this place (I looked at city's proposals), so I think it's a pretty safe buy overall.


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## mtl83 (May 23, 2011)

Sampson said:


> If you share the numbers, then we can evaluate if you have good assumptions about how it will work.
> 
> I think most posters are giving advice based on generalizations since you provide only basic information and it doesn't appear to me that you have done a thorough analysis of the profitability.
> 
> ...


I don't know how to calculate all these things 
In short, triplex is 6 years old, all 3 units rented (has no basement units, all above ground) for a total of $3600 per month (or $43000 per year). Annual taxes and insurance are $7500. Grass+snow: $800/year. In other words, net income is $2900 per month or $2750 if I factor in 5% vacancy rate.
It's on sale for 645K (probably can be negotiated), total municipal evaluation is 600K. If I were buying it, I'd put minimal down payment ($40K or whatever is possible?) with 5yr variable closed mortgage. I was given right away prime-0.3 at a bank and I'm pretty sure I can negotiate better deal somewhere else (I think I can get prime-0.5). I was also given option of 30yrs mortgage term. I'm mostly interested in the first three years and then I'd sell it if I don't like it (as long as RE doesn't fall in price badly, in such case I'd have to keep it and pay for it until RE recovers more or less).

So, average case scenario with *25yr* mortgage at 2.7% over the next 3 years would be: $2750 (net rent) - $2850 (mortgage).
40K invested and $100 monthly out of my pocket for 36 month I would end up with 55K of extra principal accumulated (towards 40K invested).

If I average 3% on *30yr* mortgage for 3 years, mortgage payment would be $2650. In this case:
40K invested will give me $100 monthly for 36 month I would end up with 35K of extra principal accumulated (towards 40K invested).



I absolutely agree that if I had $650K cash and bought the triplex as an investment I'd probably be dumbest investor of the year  It only makes sense with small down payment and low interest rates.


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## mtl83 (May 23, 2011)

tygrus said:


> You can take out as high as $50,000/yr in dividends from canadian stocks tax free (another $50k for your spouse). I assume you are in your 20s. Invest the $80k, DRIP it and add another $1,000 a month to it religiously, by the time you are 50, you could have a million dollar portfolio throwing that much your way tax free. Way better investment than property.


I'm not targeting this kind of long term scenario. My personal goal is to retire in 5 years not because of investment, but because of success at work. In 3 years from now I'll be able to judge if my goal is feasible, if not I'll correct my investment strategy, for now I don't want to care much about it and I thought that buying a triplex isn't a big headache (considering it's not an old dumpster). Driving by in person for minor repairs or to collect rent isn't a problem for me; I don't want my head to be busy with one more thing: current state of the stock market.


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## mtl83 (May 23, 2011)

Just a Guy said:


> You will be taxed capital gains on a rental property. Only a personal residence is tax free. Plus you have to pay the realtor, lawyers and fees.


I will be taxed on capital gain when I sell it, right? For how long do I need to live there myself so that I don't get taxed?


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## Berubeland (Sep 6, 2009)

It's a triplex so at best you could claim 1/3 of it as your personal residence and then only for the amount of time that that you lived there. I always tell every landlord that moves get a freaking appraisal to lock in the tax free capital gain.


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## Just a Guy (Mar 27, 2012)

To avoid capital gains you have to be the only one to live in it. As soon as it becomes an income property it is subject to capital gains...or losses. 

That seems to be something you're ignoring as well the (VERY REAL) possibility that the value will decrease. 

Lets compare your scenario with two of mine (I just closed a couple this week).

I just got possession of a unit in a three story walk up built in the 60's. it's the basement unit, right across the street from a major post secondary school. I got possession two weeks ago and it's renting (yes I've filled it already) for $1600/month. I paid $73,000, so mortgage is around $300, condo fees (including heat and water) are around $500, insurance and taxes are about $100. Gross profit around $700/month plus principle pay down. 

Second unit is a two bedroom, top floor of an old three storey walk up. Closes September 30. Already has a tenant (who's lived there for 10 years). Paid $72,000, so mortgage is around $300, condo fees (including heat and water) are around $400, taxes and insurance are about $100. I renegotiated the rent to $975 (I gave her a good deal as she looks like an excellent long term tenant and I'd rather have her than. Make the $1100+ I could get for the place). Gross profit $175 + principle pay down. 

Now, I'll be the first to admit that these deals are highly unusual, even in my experience, but they are out there. 

I think one of the reasons I found them was that most investors have given up looking for places because prices are so high that they aren't even looking. Another factor is I can offer an unconditional offer right away (these were both foreclosures and financing may be difficult to get). 

Now, going back to your triplex, what do you do if their value decreases in 3-4 years by 50k, and interest rates increase by 1-2%. You'll be underwater on value and your payments will increase by several hundred dollars every month. Don't think it can happen? Both of the units I just bought sold for double what I paid just a few years ago, there are places in the same building currently listed on Mls for double. 

As for the condo, what happens if the developer runs into financial problems before phase 8? Don't think it can happen? Look at Vancouver in the 90's. I've bought units from distressed developers who had grand plans that were never realized...

Back to my scenario, what happens if the housing market corrects? More demand on rentals. Will their value decrease? Probably, but I'm already buying at half the price of the current market, so they have less room to fall. 

You are buying and hoping the prices remain stable which, in my opinion is unlikely. You also haven't accounted for the expenses of selling your place (standard fees are 7% on the first 100k and 3.5% on each subsequent 100k). Realtor fees on 650k are $7000+5.5x$3500 = $26,250. Then you have legal fees and disbursements $1500). So your 50k profit (which depends on the value remaining constant is quickly shrinking). Now, this also assumes you sold right as the mortgage expires so that there are no fees (penalties) to remove financing. 

You are gambling on real estate using the hope and pray method. If you do but either property, you still won't be an investor. But that's okay, give me the address, I may be interested in the place when it goes into foreclosure.

Is it just me, or did I just sound like Kevin o'leary?


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## tygrus (Mar 13, 2012)

A rental property will need at least a 25% deposit, probably more, regardless of the cash flow from yourself and the renters. You can't even convince a bank that its a primary residence to get a lower downpayment and CMHC financing because it has 3 units in it. If it was a single unit, you could pull that one on the bank. So count on your $40k being more like $150k and since you are unable to get CMHC your interest rate is likely going to be a point higher. 

If you want to retire, save your downpayment, invest it away and do not put it into a falling asset.


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## mtl83 (May 23, 2011)

Just a Guy said:


> To avoid capital gains you have to be the only one to live in it. As soon as it becomes an income property it is subject to capital gains...or losses.
> 
> That seems to be something you're ignoring as well the (VERY REAL) possibility that the value will decrease.
> 
> ...


Where is it all happening? Toronto?
These look really good to me  Where do you look for foreclosures?



Just a Guy said:


> Now, going back to your triplex, what do you do if their value decreases in 3-4 years by 50k, and interest rates increase by 1-2%. You'll be underwater on value and your payments will increase by several hundred dollars every month. Don't think it can happen? Both of the units I just bought sold for double what I paid just a few years ago, there are places in the same building currently listed on Mls for double.
> 
> As for the condo, what happens if the developer runs into financial problems before phase 8? Don't think it can happen? Look at Vancouver in the 90's. I've bought units from distressed developers who had grand plans that were never realized...


Depending on the situation, I might have to hold the triplex for 5 years more to recover the money. That's what it was in general with RE: if it went down it will recover in 3-5 years. I calculated worst case scenario (even if I had no tenants) and I would be able to pay from my pocket if I had to.
I don't compare to Vancouver, price in the condo that I want to buy is $300/sq feet, while in Vancouver it's 600-650. If the developer stops selling worst case condo fee might go up.



Just a Guy said:


> Back to my scenario, what happens if the housing market corrects? More demand on rentals. Will their value decrease? Probably, but I'm already buying at half the price of the current market, so they have less room to fall.
> 
> You are buying and hoping the prices remain stable which, in my opinion is unlikely. You also haven't accounted for the expenses of selling your place (standard fees are 7% on the first 100k and 3.5% on each subsequent 100k). Realtor fees on 650k are $7000+5.5x$3500 = $26,250. Then you have legal fees and disbursements $1500). So your 50k profit (which depends on the value remaining constant is quickly shrinking). Now, this also assumes you sold right as the mortgage expires so that there are no fees (penalties) to remove financing.


I'm mostly using duproprio to search, I'd also use it to sell if I had to.


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## Just a Guy (Mar 27, 2012)

As I only find a handful of such deals in Canada, you'll understand why I don't want to broadcast where I'm finding them. But I'm on a search with realtors all over the place looking for properties that match my criteria. Even then you still have to sort through and negotiate each deal. 

As for prices recovering...they may not. 

As for a worst case scenario, what if the developer goes bankrupt after raiding the reserve fund and you are faced with a cash call just to keep the development afloat.


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## mtl83 (May 23, 2011)

Just a Guy said:


> As I only find a handful of such deals in Canada, you'll understand why I don't want to broadcast where I'm finding them. But I'm on a search with realtors all over the place looking for properties that match my criteria. Even then you still have to sort through and negotiate each deal.
> 
> As for prices recovering...they may not.


Considering prices in Toronto/Vancouver I find it hard to believe that prices in Montreal might not recover if RE goes down. Even in 2008 it didn't go down... It's easy to come up with some kind of scenarios where it goes down and never recovers, but in that kind of scenario most likely all kinds of stocks or saving will take the same unrecoverable hit



Just a Guy said:


> As for a worst case scenario, what if the developer goes bankrupt after raiding the reserve fund and you are faced with a cash call just to keep the development afloat.


I don't understand what you are talking about. It's a 8-phase project. Phase2 is probably 90% sold and almost finished and that's where I want to buy. Are you talking about possibility of this developer to go bankrupt on phase6 or 7 and I'd have to pay for that?! This project is carried out by a large construction firm who built factories or water treatment plants, so I doubt that they will be bankrupt anywhere soon. For worst case scenario we may also discuss possibility of a meteorite hitting Montreal...


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## tygrus (Mar 13, 2012)

Go talk to your parents or grandparents for some perspective, not this forum. People here are trying to advise you to exercise caution because RE has risen way beyond what is sustainable compared to wage gains and know its best days are behind it, probably for a generation. You think that the last 5 years are indicative of the way its always going to be. Its not and you aren't old enough or experienced enough to know that so go talk to someone you trust who does.

Here is a tip for you to research, there are 11 million boomers in Canada waiting and needing to downsize. Along with normalized rates, stagnant growth in Canada and much stricter rules for credit equals and inevitable melt, if not eventual crash in RE. Every other country has had theirs already, we are due.


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## the-royal-mail (Dec 11, 2009)

Listen to tygrus.

I am concerned for the OP as he seems to have decided to do this and appears to be arguing with those who are posting dissenting POVs, or arguing every point. The approach is respectful and everything but I question how much OP is getting out of this discussion beyond confirmation bias.


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## SpendLessEarnMore (Aug 7, 2013)

Berubeland said:


> I always tell every landlord that moves get a freaking appraisal to lock in the tax free capital gain.


I didn't know about this appraisal when I moved and converted my primary residence to rental property. Will they accept the property tax assessment?

I lived in my primary residence when I bought it for $205k in 2009 and converted it to rental house in 2011 when the house was worth at least $300k if not more.


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## SpendLessEarnMore (Aug 7, 2013)

This is really good advice. Listen to the guy. Always factor in the possibility your property you are investing in will decrease in value and interest rates will rise can you weather it? Never assume the price will appreciate. If it appreciates think of it as a bonus.

Just saw your calculations. Sounds like a nice rental income property. Problem I see is the financing of it. Man carrying a $600k mortgage on variable and planning to retire in 5 years?! If things go sour you'll have to dip into your retirement funds to bail yourself out.




Just a Guy said:


> To avoid capital gains you have to be the only one to live in it. As soon as it becomes an income property it is subject to capital gains...or losses.
> 
> That seems to be something you're ignoring as well the (VERY REAL) possibility that the value will decrease.
> 
> ...


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## mtl83 (May 23, 2011)

tygrus said:


> Go talk to your parents or grandparents for some perspective, not this forum. People here are trying to advise you to exercise caution because RE has risen way beyond what is sustainable compared to wage gains and know its best days are behind it, probably for a generation. You think that the last 5 years are indicative of the way its always going to be...


Actually, my point of view is totally opposite. I have some friends who barely make for living and they are thinking to buy a house primarily because they expect that it will appreciate in value. I give them example that if 100K house always appreciates in value 4% per year then it will cost $5M in 100 years. Either it's impossible, or average salary has to be 2-3M per year at the time.
The reason I'm thinking that RE in Montreal isn't that overheated is simply based on comparison to other provinces or cities (Vancouver for example), or even other countries. In 3rd world countries new constructions that aren't comparable to Canada in quality cost easily 2K/sq meter. I want to buy for $3200/sq meter in a nice area (I'm talking about condo that I want to buy for myself anyways).



the-royal-mail said:


> Listen to tygrus.
> 
> I am concerned for the OP as he seems to have decided to do this and appears to be arguing with those who are posting dissenting POVs, or arguing every point. The approach is respectful and everything but I question how much OP is getting out of this discussion beyond confirmation bias.


I took the advice and canceled triplex idea. I'm just answering questions regarding the numbers for the triplex.



SpendLessEarnMore said:


> This is really good advice. Listen to the guy. Always factor in the possibility your property you are investing in will decrease in value and interest rates will rise can you weather it? Never assume the price will appreciate. If it appreciates think of it as a bonus.
> 
> Just saw your calculations. Sounds like a nice rental income property. Problem I see is the financing of it. Man carrying a $600k mortgage on variable and planning to retire in 5 years?! If things go sour you'll have to dip into your retirement funds to bail yourself out.


That's the thing, I find these calculations more or less OK. I agree I don't factor in things like property transfer tax, legal fees and expenses to sell the property, capital gain tax etc. I also don't think that RE will go down much for an extended period of time (like 10 years for it to recover to previous values). If I retire in 5 years it's a totally different situation, it's not what I'm planning to do, it's what I may possibly do if I reach success at what I do at work. If I make at work 2M (in bonuses for example) in 5 years it would be super great, but I wouldn't be success that I'm hoping for.


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## SpendLessEarnMore (Aug 7, 2013)

man 2M in bonuses? If your salary is 6 figures right now and you feel the condo you're buying is severely under value in comparison to the condos around it than I'd say buy it now. Put the extra cashflow into paying down the principal to weather future interest increases. As long you can keep the property cashflow positive than don't worry about the property depreciating. In the long run it will resolve itself. 

Good opportunities don't come everyday and when it presents itself to you work out the good and bad scenarios and believe in yourself.


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## Just a Guy (Mar 27, 2012)

Okay, you don't think a 100k house can go to 5M in 100 years right???

Maybe you should listen to tygrus...let me give YOU another example. 

My first (personal) house was originally built in the 1950's. my neighbour was an elderly lady who was one of the two people left in the neighbourhood who were original owners (she bought from the builder). 

Original purchase price? $10,000

I bought the house in the 90's. My purchase price? $108,000

Now, that's the same increase as 100k-1M (in only 40 years)

I sold the house 7 years later for 130k, during the start of the boom. Last year I saw it sold for 345,000

So, a 10k house is now 355k in just about 65 years, can it get to 500k in the remaining 35 years? 

Despite what the government tells you, we have something called inflation, and it IS very likely that, in a hundred years, salaries will be in the millions. Go watch Austin Powers and see the reaction to his demand for 1 millllllion dollars (a huge sum in the 60's, now easily covered by many people on this board). 

You know, just maybe, some of us with a thing called experience, may just know what we are talking about. Talking to you is like talking to my teenaged kids...."don't confuse the issue with facts dad..."

Oh, and before you say "aha, see you say real estate is going to up in value, I caught you"...go read up on what happens to fiat currency in the long run...


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## tygrus (Mar 13, 2012)

Mtl, just a tip, housing prices are directly tied to wage gains and interest rates/credit and carrying costs, nothing else. So in the last 10 years which one has had the most influence? Interest rates are at historical lows and will never stay there. 

Since a house cannot earn money like a business can, its appreciation is limited to speculation only. Do you really see another leg up in the housing cycle or a quick rebound if these factors change? The peak in Canadian housing is already in about 4 months ago.


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## marina628 (Dec 14, 2010)

My parents paid $25,000 about 53 years ago for their house in White Rock BC when my dad was stationed there in Military, they recently sold it for almost 2 million dollars.It's had about $400,000 reno done on it in last 10 years but still a big upside.


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## tygrus (Mar 13, 2012)

Well then they should go buy something for 2 million again cause its going to be worth 200 million in another 53 years, right?

Catching a greater fool is not investing, its speculating and that strategy can turn on a dime. Lots of people are way in over their head on housing especially young people and when the economic growth is scaled back a bit, there will be blood.


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## Just a Guy (Mar 27, 2012)

House prices should be about 2.5 times the annual income of the buyer. So, back when houses cost 10-25k, people were probably earning 4-10k. 

Only in the last few years, when interest rates fell, did banks relax this rule at the banks, because payments are now "affordable". No one sells on price for big ticket items, they buy on payments. 

This will end pretty quick when interest rates return to normal.


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## marina628 (Dec 14, 2010)

2.5 - 3x income is about right for my parents back then ,most people I know are now buying 4-6x their income .My parents sold off most things in 2012 and paid the capital gains and mainly into cash now. They use to go back to BC quite often last 15 years or so but last year when my brother got sick with cancer it changed quite a few things for all of us.


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## My Own Advisor (Sep 24, 2012)

My mortgage is just under 3 times my salary, closer to 2.5 times my annual gross income.

That's still too high for me.


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## marina628 (Dec 14, 2010)

Our first mortgage was $110,000 back in 1991 with 8.75% interest ,it was about 2x what we made back then but by far the scariest because our networth was lucky to be $40,000 back then.


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## mtl83 (May 23, 2011)

Just a Guy said:


> Okay, you don't think a 100k house can go to 5M in 100 years right???
> ...
> So, a 10k house is now 355k in just about 65 years, can it get to 500k in the remaining 35 years?


I'm basing my guesses on current inflation rates. In the last 65 years there were a couple of decades with inflation around 10%. Currently, according to stats canada we have 2% or something like that. Also, don't forget that along the 65 year long road they probably spent 50K on reno and upkeep of the property.
As many pointed out, latest price jumps (in the last 10 years or so) I partly due to low interest rates. Suddenly, regardless of the house price many people were able to afford them whereas 10 years before (in 80-ies) they weren't even close to keep up with mortgage interest rates.


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## mtl83 (May 23, 2011)

SpendLessEarnMore said:


> If your salary is 6 figures right now and you feel the condo you're buying is severely under value in comparison to the condos around it than I'd say buy it now.


The condo isn't an investment, it's for myself to live. I don't think that it's anywhere under value, but compared to some other upscale condos it looks more or less OK.


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## mtl83 (May 23, 2011)

tygrus said:


> Mtl, just a tip, housing prices are directly tied to wage gains and interest rates/credit and carrying costs, nothing else. So in the last 10 years which one has had the most influence? Interest rates are at historical lows and will never stay there.


Absolutely agree, housing prices depend on salaries and mortgage rates.
What makes you think that interest rates will never stay there? Historically mortgage rates were around 25% 50 years or so ago and were gradually decreasing over time. Banks are probably making the same money anyways since more people can afford paying mortgage than before (and these people are paying over extended periods of time). What is the economical reason for the rate to go up (more than let's say 3 percent up from current lows)? I think in the next 5 years prime shouldn't go over 4%, but my guess is totally blind without any reasons


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## Just a Guy (Mar 27, 2012)

mtl83 said:


> I'm basing my guesses on current inflation rates. In the last 65 years there were a couple of decades with inflation around 10%. Currently, according to stats canada we have 2% or something like that


Do you seriously believe that??? Have you actually tried buying anything lately????

I can assure you your buying power has decreased by more than 2% a year. The government is finding it hard to eliminate items from its calculation to keep justifying its number. Maybe, if they increase interest rates, they'll put housing into the calculation, then we'll officially have negative inflation while bread soars in price.


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## tygrus (Mar 13, 2012)

Mtl, you are better off to just hang on the sidelines for a bit cause I bet you dollars to donuts there are going to be "ample" buying opportunities all over the country within the next few years.


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## Cal (Jun 17, 2009)

My Own Advisor said:


> My mortgage is just under 3 times my salary, closer to 2.5 times my annual gross income.
> 
> That's still too high for me.


Sounds more like my comfort zone too. I can't figure out those with average jobs, and almost a million dollar mortgage.


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## SpendLessEarnMore (Aug 7, 2013)

My first mortgage was almost $200k and I was making just $22k last 3 years. I had my mom co-sign it. Yes I got a lot of flak over it. But I knew this house was too good a deal to pass up. In just 3 years the house is worth over 50% it's value.


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## mtl83 (May 23, 2011)

Just a Guy said:


> Do you seriously believe that??? Have you actually tried buying anything lately????
> 
> I can assure you your buying power has decreased by more than 2% a year. The government is finding it hard to eliminate items from its calculation to keep justifying its number. Maybe, if they increase interest rates, they'll put housing into the calculation, then we'll officially have negative inflation while bread soars in price.


Yes, I agree, that prices grew way more than 2% per year, no clue how they calculate these numbers. Personally, I measure by milk price  I used to buy 2L pack for $2.01 at one store around 8 years ago, now the best price for this milk is around $3.5. Bread was around 1$ now I have no clue how much it cost, but I guess around $2-$3. But these price increase aren't due to inflation (e.g. injecting more paper money into circulation that devalues CAD), these are due to oil price increase.



Cal said:


> Sounds more like my comfort zone too. I can't figure out those with average jobs, and almost a million dollar mortgage.


I'm taking mortgage for the condo, it will be a bit less than 3 years of my gross salary.



tygrus said:


> Mtl, you are better off to just hang on the sidelines for a bit cause I bet you dollars to donuts there are going to be "ample" buying opportunities all over the country within the next few years.


I'm mostly agree with it. But at the same time in 2008 contrary to some expectations there weren't that much buying opportunities. If prime goes up to 4-5% in the next 3 years then most likely prices should go down. In my situation I want exact condo in exact location. They are planning 8 phases, but only in one building I like orientation of the condos and that building is farthest from the highway.


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