# buying a rental property before owning a home?



## twowheeled (Jan 15, 2011)

Hi all, I'm looking for a quick sniff test. I'm 35, in Edmonton, married, no debt.

My spouse and I would not like to settle down in Edmonton, we have another 2 years here until my contract finishes at which point we would like to move.

We are renting an apartment, and considering buying a rental property, bungalow with a legal basement suite both currently rented out. We can put down 20% and by my estimates this 450k property could cashflow pretty well.

$3150 rent (utilities incl)
-$1500 mortgage payment
-$750 utilities, insurance, tax
$900 cashflow

We would like insights as to investing in a rental before owning a home. Main reason being, I've always planned to buy our first and last home in the midst of a large downturn similar to 2008. My logic being that the largest purchase in our lifetime should be made when there's blood on the streets. We've gritted our teeth and waited. Reasons for wanting a rental property:

-I believe inflation will pick up and destroy our purchasing power
-We've saved a large downpayment with no place to put it (also firmly believe we are in the final stages of a stock and bond bubble so our allocations are small)
-Edmonton prices are inflated but not nearly the level as some of the places we'd like to live (Okanagan, Victoria)
-interest rates are cheap and the cashflow numbers are making sense
-our parents in Edmonton willing to manage the property for us after we leave, dad is handy and built their house.
-we have enough income to support both the mortgage and our current apartment rental if we lost both tenants, but we would likely move into the house if that scenario occurred.

Is our plan foolish? If interest rates do tick up and run away and home prices do not keep pace, we can afford to buy out the mortgage. Currently planing on 5 year fixed rate.


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## Just a Guy (Mar 27, 2012)

My son bought his first rental at 18, the income pays his rent while he’s in school. Inflation is your friend. You buy in today’s dollars but pay it off in tomorrow’s making you place cheaper. Interest rates are incredibly low. The only thing I question is your numbers...450k is a lot to pay for a rental property. I could get close to 10 places for that kind of money. Giving me a lot more cash flow than $300–$500/month which I don’t see you getting in the first place.


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## twowheeled (Jan 15, 2011)

properties in Edmonton that sell for 50-75k are studio apartments with condo fees around $550/mo or mobile homes with pad rent for $700 a month. Poke some holes in my cashflow assumptions? Wife and I work full time and then some, we cannot manage 10x properties.


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## Just a Guy (Mar 27, 2012)

Didn’t say buy 10 properties. You also said you couldn’t manage one property. I said, in my experience, 450k will not usually cash flow And implied you could improve your cash flow with lower priced properties.Then again, what would I know, you probably know more about rentals than I do.


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

My experience of buying rental properties going back to the early seventies is, any time you can get positive cash flow is a good time to buy. If you can't find positive cash flow, don't buy. The other thing is to be ready to pay for better quality properties. My biggest "bargain" properties were the biggest headaches and the hardest to get rid of, the best were the ones I had to pay up for and which rapidly went up in value. Which brings up another lesson, don't be too quick to sell if you see a big profit. Every time I sold a good property for a good profit I thought I was smart, but later regretted it. Keep the good ones and sell the stinkers.


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

Just a guy I don't know where you are buying houses for $45000 unless you mean the down payment. Here in the Port Hope - Cobourg - Trenton - Belleville area that might have bought the cheapest house 20 years ago but those days are long gone.


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## Just a Guy (Mar 27, 2012)

I’m very good at finding bargain properties. I bought two last month for 45k each.i had renters lined up at $850 before I even closed. Yesterday I got an email from a developer who wants to buy the whole building offering me 80k for each of them and 90k for another unit I own in the building that I bought years ago for 70k. Not bad capital gains for a month and a half. So, keep thinking they aren’t possible. I realize this isn’t common, but it shows I find places under market all the time.


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## Longtimeago (Aug 8, 2018)

My two first questions would be, do you want to be a landlord and do you want to be a landlord at a distance two years from now if you move out of the area?
l
My answer to both of those would be no thanks. I would not want the headaches of having to physically be a landord with all that implies. I have owned commercial and industrial real estate in the past but all the 'landlording' was done by property management companies and I just had to sit back and take my rental profits each month. That of course requires more cash flow since you have to pay for that management service.

Being a landlord is not something I would do lightly without some serious thought as to just what that entails in terms of your time and energy.

Second is your intent to move in 2 years. Being an 'absentee landlord' puts even more emphasis on the negatives aspects. So unless your intent would be to sell in 2 years regardless of the market conditions at that time, I think this factor also deserves serious consideration.


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## twowheeled (Jan 15, 2011)

Just a Guy said:


> I’m very good at finding bargain properties. I bought two last month for 45k each.i had renters lined up at $850 before I even closed. Yesterday I got an email from a developer who wants to buy the whole building offering me 80k for each of them and 90k for another unit I own in the building that I bought years ago for 70k. Not bad capital gains for a month and a half. So, keep thinking they aren’t possible. I realize this isn’t common, but it shows I find places under market all the time.


Who is lining up pay $850 in rent on a property worth $45,000 which they could have a mortage payment payment of under $200 a month on? What type of property is this?


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## Topo (Aug 31, 2019)

twowheeled said:


> $3150 rent (utilities incl)
> -$1500 mortgage payment
> -$750 utilities, insurance, tax
> $900 cashflow


Is that a cap rate of about 6.4 percent? It may be a good deal in terms of cash flow, but capital appreciation is most likely going to be muted in Edmonton. The economy could pick up, but then energy stocks will also be doing well. 

Have you considered investing in REITs? You could move to anywhere in the world and still manage the portfolio. Diversification is easy and you could use a tax-protected account to defer taxes. It is also more scalable for you, since you can add funds as they become available during the course of your career, while it would be difficult to buy additional properties in Edmonton if you move out.


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## Just a Guy (Mar 27, 2012)

twowheeled said:


> Who is lining up pay $850 in rent on a property worth $45,000 which they could have a mortage payment payment of under $200 a month on? What type of property is this?


People who didn’t bother to looks at sale prices for properties, people here always Say you can't buy a property for that price, so how would they know what I paid for it? $850 for a one bedroom apartment is the average rent in most major cities.
if it makes you feel any better I bought them last month and a developer just offered me 80k each for them this month because he wants to buy the building. So, they were obviously worth more than 45k. I just happened to be the guy who looked and had the cash to buy when no one else would.

right now no one is lining up to buy anything, everyone is afraid, in stocks, real estate, businesses, you name it. Everyone afraid is missing out on the bargains out there. The stocks I bought in March are averaging over 50% returns, yet people on here are still wondering which stocks are safe. Keep worrying and not doing, that’s the way to make money. Don’t forget to mock the people who are buying as liars and fools. 

mortgage less than $200, condo fees $300, taxes, insurance, etc. $50. Rent $850. Profit $300 x 10 to spend 450k, profit $3000/month


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## sags (May 15, 2010)

twowheeled said:


> Who is lining up pay $850 in rent on a property worth $45,000 which they could have a mortage payment payment of under $200 a month on? What type of property is this?


It is a fantasy tenant living in a fantasy rental owned by a fantasy owner, who is compelled to sell the property immediately at a reduced price.

This fantasy owner is such a bewildered fool that they don't realize they could borrow against the value of their property......get $40,000 in cash and still retain the profit earning property. If they need cash ASAP.......there is no faster way to raise it than applying for a loan at the bank.


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## Johnny199r (May 20, 2014)

1. Do you really want to be a landlord knowing that is can potentially be nothing but headaches? Hasn't this pandemic, where a large segment of renters have refused to pay rent, with absolutely no recourse from landlords, made you think twice?

2. Do you want all of those problems being a landlord living far away? Sure, dad's handy. Does dad want to go over and deal with all the B.S all the time if you get problem tenants? Are you going to pay him to do it?

You couldn't pay me enough to be a landlord. Everyone always tries to say it will be easy and they will be rolling in money. B.S.

Why not just buy an index etf with one click of your mouse on questrade, get 6-8% returns and never have to devote hundreds of hours to something fraught with potential difficulties that might not work out the way you want it to?


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## Just a Guy (Mar 27, 2012)

Spoken Like someone who’s too afraid to even try it.

1) there is a recourse, it was only delayed.

2) what are all these problems your an expert of? You do good screening you get good tenants. Let me guess your first “evidence” a clogged toilet in the middle of the night. First off, it never happens, tenants sleep at night, how often does you toilet clog spontaneously in the middle of the night. Next, call a plumber if it does. Finally,you can turn your phone to silent after a certain time so it doesn’t ring. 

you may be happy with your single digit returns which are more like 4% in the past few years, taxed at the highest levels, I’ll stick with my double to triple returns with many tax benefits. In fact, I get such good returns than bank managers ask me to mentor them so they can get into real estate.

you sound like you should live the assop fable about sour grapes.


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## Longtimeago (Aug 8, 2018)

Whether it is stocks or real estate, some people can pick good investments. To me, the only question is whether someone wants to be a landlord or not. I wouldn't suggest middle of the night clogged toilets, simply the amount of time and energy it requires even when things go well.

I would never want to be the landlord of an individual property as I wrote earlier, unless it was managed for me by property management company and I just sat back and took my profits. It's a question of having to be 'active' in an investment vs. having a 'passive' investment that requires much less of your time and effort. If two investments could provide the same return, then it should be obvious which one would make more sense. Why work on something if you didn't have to. The difficulty for most people is in finding such investments because they only think in traditional ways.


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## Just a Guy (Mar 27, 2012)

At infinite roi, there is nothing that compares to real estate. Of course there is work involved, but hoe many people complain about their jobs every day....I find most problems come in the first month or the last, I “work“ probably a lot less Than most paycheque chasers and get more money for doing it.


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## prisoner24601 (May 27, 2018)

Just a Guy said:


> People who didn’t bother to looks at sale prices for properties, people here always Say you can't buy a property for that price, so how would they know what I paid for it? $850 for a one bedroom apartment is the average rent in most major cities.
> if it makes you feel any better I bought them last month and a developer just offered me 80k each for them this month because he wants to buy the building. So, they were obviously worth more than 45k. I just happened to be the guy who looked and had the cash to buy when no one else would.
> 
> right now no one is lining up to buy anything, everyone is afraid, in stocks, real estate, businesses, you name it. Everyone afraid is missing out on the bargains out there. The stocks I bought in March are averaging over 50% returns, yet people on here are still wondering which stocks are safe. Keep worrying and not doing, that’s the way to make money. Don’t forget to mock the people who are buying as liars and fools.
> ...


So to fund a retirement income of $9,000 per month I only need to invest $1.35M and manage 30 properties? That would be roughly 2x what you might withdraw from a B&D portfolio which is very good but it also seems like a big commitment with some stress also. Not my idea of retirement but it may work for some


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