Real estate thread

NoMoreTO

Hummingbird
Catholic
I'm renting a property on airbnb, and I prefer it exactly because I fear problems with regular renters. I have heard of airbnb guests trashing a house, but I haven't ever heard of them stopping rent payments, refusing to move out for months with court protection, then trashing the place when they finally do leave.

The guys were slobs, never will I rent to Pajeet again
- Put a darboard up without a backing and put a bunch of little holes in one part of the wall
- Half the trim is wrecked in the bathroom, not sure what even happened to it, but it's almost rotted brown
- There was apparently a leak from the upstairs bathroom, rather then let me know they taped up plastic on the ceiling, which when pulled left a mark on the ceiling paint. Plus I have a leak to investigate
- Matresses on the floor, couldn't even clean their rooms before my showings
- Dirty

Somehow a group of 4 sophmore girls went for it, I was surprised. I ran 8 groups through there in 2 hours. I didn't think it'd rent just because of the way it was treated.

I'm not returning their last months rent as they are leaving early and on short notice. I need it to pay for repairs, cleaning, hassle. Tired of this game.
 
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cosine

Woodpecker
Realtors in my area, Southwest Florida, are going broke. Almost everything was bought up before the New Year and now there are 10 realtors for every of the very few homes for sale.
I have a real estate license, but that's maybe 1/3 or 1/4 of my income. It shouldn't even count as a full time job. You open houses for people and get paid $20k; the only hard part is acquiring clients.
 

Seadog

Kingfisher
That's pretty interesting. I'd be interested in reading the article.

I'm considering selling a rental property in a university town. I'm building a house at the moment and not sure if I want to hold multiple mortgages through this. Prices feel crazy high. I had thought that I would finish my build and see where I'm at at that moment.

Also, part of it is I'm kind of tired of the landlord game, where once it buttered my bread, I'm getting more to an age where I find the young people who rent very annoying. Also, I'm concerned longer term about regulations and other BS. It's an hour drive from my place and I'm the handyman so it kind of gets old.

Honestly as an engineer and a numbers guy, this is why I haven't bought, and will refuse to do so until the prices make sense again. I live in a tier 2 city, in a 1 br, 1 bath, 1 den place worth maybe 600k, I pay not even $1500 a month for rent. Thats a gross cap rate of not even 3%. Take off insurance, tax, maintenance, and I doubt he makes any money at all outside of appreciation. *If* it appreciates. If he still has a mortgage, he's not only cash flow negative each month, but absent appreciation, he's literally poorer every single month, and that's including the non cash increase in networth that flows into equity. I did the same thing in Edmonton, and the landlord was happy to subsidize me, as his place was increasing in value. Then the oil crash came, he's stuck with lowering rents, lowered values, and the only thing that didn't go down was his expenses.

Now, "absent appreciation" is a pretty big caveat given that last YoY increases of 30%, but where does it end? At some point prices need to reflect the reality of rents they garner and relative incomes. When it takes more than 100% of the average after tax income to pay a mortgage on the average house in some places, something has to give. People only have so much money they can devote to a mortgage, so if BoC would get it together and raise rates to something realistic relative to today's inflation, I'm not sure prices couldn't help but come down. I'm also of the opinion that for the same monthly on the same house, it's far better to own a 100k house at 20% interest, than it is a $1m home at 2%. In both cases interest rates only have one way to go. One burns you, one does not.

Given that housing has had a 30 year bull run in Canada, anyone born after about 1982 thinks a housing "crash" is the 6 months and 5% of retreat that happened in 2008 or 2017.

Here's a interesting chart that shows Toronto's home prices on an inflation adjusted basis:

original.jpg

Had you bought at the last peak in 89 (are we there now?), you literally would have saw it erode for almost a decade taking a third of your equity, then been sitting on dead money for 2.
 

NoMoreTO

Hummingbird
Catholic
Honestly as an engineer and a numbers guy, this is why I haven't bought, and will refuse to do so until the prices make sense again. I live in a tier 2 city, in a 1 br, 1 bath, 1 den place worth maybe 600k, I pay not even $1500 a month for rent. Thats a gross cap rate of not even 3%

I've lived in a 1 + Den and there is a certain beauty to it. I actually rent out my old place in Toronto which is a 1+Den and there is very little profit in it, other than appreciation. Basically I am riding it

There is a difference between real estate investment and Principal Residence purchase. To me a principal residence is a place where you can lock in, lay your head at night and be in the game. The reason I won't sell a rental is capital gains on an investment property. My accountant told me straight up to get a line of credit, because selling is a tax liability. The longer you hold, the more the capital gains tax keeps you locked in. Imagine you can unlock 60-75% of the value in a line of credit. So to sell that property, you'd have to be in need of a big chunk of cash for some reason.

Nobody cash flows on an income property from day 1 or year 1. If you're smart, most of your money is going back into the unit, repairs, improvements. I bought my university town house in 2007, and still wasn't a positive cash flow for about 3-5 years. Over time the price inflates, rents increase and the mortgage becomes manageable. A good way to think of it is as a retirement nest egg. Imagine paying the mortgage for 25 years and living on the income from it at that point.

Real Estate is a long term investment. Unless you're doing a reno and flip, it's all about holding on for the long run. I talk about selling every time I have to clean up after a bunch of degen tenants, but the truth is, selling is harder than renting. I've done major renos, but the amount of money to get into a top notch tenant just doesn't justify it. I can clean a place up to rent for 2K to rent, but to sell and maximize my price, then we're talking 20K. Which is ultimately a project that needs to be managed and thought through.
 
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joost

Kingfisher
I have a real estate license, but that's maybe 1/3 or 1/4 of my income. It shouldn't even count as a full time job. You open houses for people and get paid $20k; the only hard part is acquiring clients.

Can you tell me what's the average yield you get for renting a condo in Canada/US?
 

joost

Kingfisher
What I dislike about the appreciation is that unless you plan on flipping the house, you end up paying more in taxes every year. Here in Austin I've seen 20% increase in a single year!

If your home goes from 100k to a million in ten years, your property taxes turns "your" home to a rental.
 

NoMoreTO

Hummingbird
Catholic
What I dislike about the appreciation is that unless you plan on flipping the house, you end up paying more in taxes every year. Here in Austin I've seen 20% increase in a single year!

If your home goes from 100k to a million in ten years, your property taxes turns "your" home to a rental.

Yes. There's an injustice because capital appreciation which you're taxed on isn't because of "improvements" but simply a function of monetary policy. Still if you have 20% down, it's a winning game so to speak. However, this doesn't apply to your principal residence in Canada. So buying for use, is different than buying for investment.

In the long run, rent controls and additional taxes, regulation are likely coming. People can only pay so much to live. If you look back to high inflation times of the 80s, rent controls were very popular. It makes sense because landlords get rich off inflation.
 

cosine

Woodpecker
What I dislike about the appreciation is that unless you plan on flipping the house, you end up paying more in taxes every year. Here in Austin I've seen 20% increase in a single year!

If your home goes from 100k to a million in ten years, your property taxes turns "your" home to a rental.
Then you borrow against a $1M home and buy more assets. This works as long as the asset inflation is fairly manageable. 5-8% seems great, whereas 20% means that the new assets will be taxed as well, it spirals out of control and erodes actual value.

Can you tell me what's the average yield you get for renting a condo in Canada/US?
That's like asking for the average temperature in the US; Texas and Minnesota are going to be so different that the average is meaningless.

In a decent part of Denver you can find a 1bed 1 bath 750sq ft apartment for $1500-1700/month, and that's somewhere on the more expensive side, but very far from the top end.
 

Seadog

Kingfisher
I've lived in a 1 + Den and there is a certain beauty to it. I actually rent out my old place in Toronto which is a 1+Den and there is very little profit in it, other than appreciation. Basically I am riding it

There is a difference between real estate investment and Principal Residence purchase. To me a principal residence is a place where you can lock in, lay your head at night and be in the game. The reason I won't sell a rental is capital gains on an investment property. My accountant told me straight up to get a line of credit, because selling is a tax liability. The longer you hold, the more the capital gains tax keeps you locked in. Imagine you can unlock 60-75% of the value in a line of credit. So to sell that property, you'd have to be in need of a big chunk of cash for some reason.

Nobody cash flows on an income property from day 1 or year 1. If you're smart, most of your money is going back into the unit, repairs, improvements. I bought my university town house in 2007, and still wasn't a positive cash flow for about 3-5 years. Over time the price inflates, rents increase and the mortgage becomes manageable. A good way to think of it is as a retirement nest egg. Imagine paying the mortgage for 25 years and living on the income from it at that point.

Real Estate is a long term investment. Unless you're doing a reno and flip, it's all about holding on for the long run. I talk about selling every time I have to clean up after a bunch of degen tenants, but the truth is, selling is harder than renting. I've done major renos, but the amount of money to get into a top notch tenant just doesn't justify it. I can clean a place up to rent for 2K to rent, but to sell and maximize my price, then we're talking 20K. Which is ultimately a project that needs to be managed and thought through.

I've looked extensively into RE as an investment, and many people feel that rents should be about 10% of the value per year (with ~half that going to non-recoverable costs) for it to be a good investment, and as such will flow cash from day 1. Obviously thanks to current monetary policy this is becoming more and more difficult, and dare I say impossible in Canada. That's one great thing about the US, is simply the volume of cities to choose from, but I'd rather not get involved in cross-border dealings. Generally even in non-bubbly times it's hard finding something like that near dt cores, but most often you can in more blue collar areas. Traditionally in the landlord game the rent covered all costs with a bit of profit left over, and how it's been for most of the last 100 years save for the end game of a bubble. The problem with being cash flow negative and buying for appreciation, is what happens if 1989 repeats? Now not only are you losing money every month on rent, but also equity, and if the bank assesses you at less than current mortgage, then you need to come up with a chunk of cash. Then you're potentially in for a world of financial hurt. I know, I know "It's different this time, that could never happen here" - Every guy ever before a bubble pops.

That said, I'm heavily invested in equities, and they also suffer from a valuation problem. So pick your poison I guess....
 

joost

Kingfisher
That's like asking for the average temperature in the US; Texas and Minnesota are going to be so different that the average is meaningless.

In a decent part of Denver you can find a 1bed 1 bath 750sq ft apartment for $1500-1700/month, and that's somewhere on the more expensive side, but very far from the top end.

If such apartment cost you $600k, it means you're getting 3% yield. Not much in my opinion. And if you have to pay for maintenance and taxes, doesn't leave a lot of room for profit. And if the bubble pops, a world of hurt.

If you paid $300k, you have more room but still I'm not convinced it's a good investment. I'm guessing you need a 20y mortgage to be able to use rent to pay for everything. And if a bubble pops during that interim, you're screwed.

Real estate might be the safest investment against inflation but at such yields it gives me the impression that the market is way overpriced and in need of a correction.
 

Seadog

Kingfisher
If such apartment cost you $600k, it means you're getting 3% yield. Not much in my opinion. And if you have to pay for maintenance and taxes, doesn't leave a lot of room for profit. And if the bubble pops, a world of hurt.

If you paid $300k, you have more room but still I'm not convinced it's a good investment. I'm guessing you need a 20y mortgage to be able to use rent to pay for everything. And if a bubble pops during that interim, you're screwed.

Real estate might be the safest investment against inflation but at such yields it gives me the impression that the market is way overpriced and in need of a correction.

I read a few RE forums frequented by Canadians who are amateur landlords, and between the horror stories, I see numerous people who can't understand a simple profit and loss or a balance sheet. I also try to explain that as an "investor" it's your job to provide the capital, and make the decisions. That's it. The second you pick up a hammer, you're a contractor employed by your rental holding co or whatever, and a purist would account for it. If you're screening tenants, fixing toilets at midnight, and dealing with the tenancy board, well then you're not an investor, you've just bought yourself a Rental Management job that pays very little. Yet numerous people pad the numbers by providing a big down payment (while ignoring the opportunity cost of money), managing the rental process themselves (forgoing a property manager and it's expense) and do as much maintenance as they can get away with after watching youtube videos (saving on contractors). I think this is why the rule I've thumb I've heard from multiple investors is to shoot for 10% a year in rent, of which half, or 5% goes to non-recoverable costs. You can probably get away with 3, but as above you're likely doing a bunch of work yourself and getting a close to 0 return. I'd also argue that if you're losing money on rent each month that you're really more of a speculator than an investor, but semantics I suppose...

As a contrast, I'm heavily invested in bank stocks. I provide money. I get votes at annual meetings as to how the bank should be run. The bank earns money. I collect dividends. The money it earns is from it's operations, unlike how many Canadians "investors" operate. Also, what I'm not doing is approving mortgage applications, negotiating leases for a new branch, or calling up people who've fallen behind.

Losing money can be palatable if there's growth, but that's impossible with homes, in fact it's the opposite as they eventually wither. It can just get more valuable. A chicken farm can grow. Going form 10 chickens to 12 chickens is growth. Going from a new home to a 20 year old one is not. Or, eggs can become more valuable. As an analogy, many people I see here have chicken farms, lose money each month, some chickens are dying and either not being replaced, or replaced at an expense, and they are just hoping that the price of eggs triples.
 

Thomas More

Crow
Protestant
I read a few RE forums frequented by Canadians who are amateur landlords, and between the horror stories, I see numerous people who can't understand a simple profit and loss or a balance sheet. I also try to explain that as an "investor" it's your job to provide the capital, and make the decisions. That's it. The second you pick up a hammer, you're a contractor employed by your rental holding co or whatever, and a purist would account for it. If you're screening tenants, fixing toilets at midnight, and dealing with the tenancy board, well then you're not an investor, you've just bought yourself a Rental Management job that pays very little. Yet numerous people pad the numbers by providing a big down payment (while ignoring the opportunity cost of money), managing the rental process themselves (forgoing a property manager and it's expense) and do as much maintenance as they can get away with after watching youtube videos (saving on contractors). I think this is why the rule I've thumb I've heard from multiple investors is to shoot for 10% a year in rent, of which half, or 5% goes to non-recoverable costs. You can probably get away with 3, but as above you're likely doing a bunch of work yourself and getting a close to 0 return. I'd also argue that if you're losing money on rent each month that you're really more of a speculator than an investor, but semantics I suppose...

As a contrast, I'm heavily invested in bank stocks. I provide money. I get votes at annual meetings as to how the bank should be run. The bank earns money. I collect dividends. The money it earns is from it's operations, unlike how many Canadians "investors" operate. Also, what I'm not doing is approving mortgage applications, negotiating leases for a new branch, or calling up people who've fallen behind.

Losing money can be palatable if there's growth, but that's impossible with homes, in fact it's the opposite as they eventually wither. It can just get more valuable. A chicken farm can grow. Going form 10 chickens to 12 chickens is growth. Going from a new home to a 20 year old one is not. Or, eggs can become more valuable. As an analogy, many people I see here have chicken farms, lose money each month, some chickens are dying and either not being replaced, or replaced at an expense, and they are just hoping that the price of eggs triples.
In theory, If you do real estate investing right, you put down a small amount of down payment, then the property can rent with positive cash flow after paying for mortgage, maintenance, and property management. Then over the years, the property pays of the mortgage with no more money coming out of your pocket, and very little time required from the investor, and it appreciates. Your down payment at the beginning turns into a fully paid off income producing asset with an appreciated value.

In practice, it's like you said. Many people have ongoing out-of-pocket expenses, because the property doesn't have a positive cash flow. They end up doing property management and maintenance themselves, essentially for free, or if they credit the value of their labor to the enterprise, the cashflow is even more negative. By the time it's all said and done, they only see 3% annual growth (or worse!) on their initial capital, which could easily be beat by other investments.

The trick is to get into the property in a way that starts off with a positive cash flow from the start. In many real estate markets, this is not possible, and so therefore, they should never go through with the investment. There are still places where a deal like this can be made. Alternately, it might be smart to sit on your money for now, but in a few years there may be situations where an income property could be purchased with immediate positive cash flow. Lots of people have done this successfully, but it's not always possible in every market and at any time.
 

Hypno

Crow
Real estate prices in Canada are much further extended than they are in the U.S. They really make no sense.

In the U.S., you can find rental properties that yield 6% - 8% unlevered. This is more common at the lower end of the market and in smaller markets. You have to look, and you might need to do some updating - new paint, flooring, and kitchen cabinets/counters. Properties that are already updated are fetching very high prices, and rents are lagging those prices. If you are patient you will probably make a good yield but its safer to buy something that needs a little work and update it to the taste of your market and then increase the rents.
 

Coja Petrus Uscan

Crow
Orthodox Inquirer
Gold Member
Looking for a few opinions/advice.

I'm looking to get a vacation rental - an apartment. I was going to get one last year, but got gazumped and the window closed.

I seem to remember, at least, @Dr Mantis Toboggan, has some experience here.

1) Looking at the properties, I am wondering whether to get a mid-priced one, which (IMO), would need a new bathroom, kitchen and maybe floor tiling + furniture. Or to get a higher-end one, which would just need furniture. I also saw one, which is pretty much ready to go and relatively cheap, but it's in a building that had a bad reputation, before being taken over by new management. In general, I'm wondering what the overall state of the building would contribute. As you can make virtually any apartment look as good as any other. N.B. there are very few properties that I consider ready to go.

2) I don't need a mortgage, but can get one at 2.3%. It seems that overall, it may be cheaper to get a mortgage. I seem to remember @Easy_C commenting on this before.
 

Dr Mantis Toboggan

Pelican
Catholic
Gold Member
Looking for a few opinions/advice.

I'm looking to get a vacation rental - an apartment. I was going to get one last year, but got gazumped and the window closed.

I seem to remember, at least, @Dr Mantis Toboggan, has some experience here.

1) Looking at the properties, I am wondering whether to get a mid-priced one, which (IMO), would need a new bathroom, kitchen and maybe floor tiling + furniture. Or to get a higher-end one, which would just need furniture. I also saw one, which is pretty much ready to go and relatively cheap, but it's in a building that had a bad reputation, before being taken over by new management. In general, I'm wondering what the overall state of the building would contribute. As you can make virtually any apartment look as good as any other. N.B. there are very few properties that I consider ready to go.

2) I don't need a mortgage, but can get one at 2.3%. It seems that overall, it may be cheaper to get a mortgage. I seem to remember @Easy_C commenting on this before.

I don't yet have any experience doing it, it's something I'm working towards.
 

cosine

Woodpecker
If such apartment cost you $600k, it means you're getting 3% yield. Not much in my opinion. And if you have to pay for maintenance and taxes, doesn't leave a lot of room for profit. And if the bubble pops, a world of hurt.

If you paid $300k, you have more room but still I'm not convinced it's a good investment. I'm guessing you need a 20y mortgage to be able to use rent to pay for everything. And if a bubble pops during that interim, you're screwed.

Real estate might be the safest investment against inflation but at such yields it gives me the impression that the market is way overpriced and in need of a correction.
This is why I buy in markets that have lines of people waiting to get in.

If a bubble pops, there's a stack of people in surrounding areas who will see it as an opportunity to move to the more desirable location. You're only screwed if rents collapse. And truly collapse, not "dip".
 

Hypno

Crow
Looking for a few opinions/advice.

I'm looking to get a vacation rental - an apartment. I was going to get one last year, but got gazumped and the window closed.

I seem to remember, at least, @Dr Mantis Toboggan, has some experience here.

1) Looking at the properties, I am wondering whether to get a mid-priced one, which (IMO), would need a new bathroom, kitchen and maybe floor tiling + furniture. Or to get a higher-end one, which would just need furniture. I also saw one, which is pretty much ready to go and relatively cheap, but it's in a building that had a bad reputation, before being taken over by new management. In general, I'm wondering what the overall state of the building would contribute. As you can make virtually any apartment look as good as any other. N.B. there are very few properties that I consider ready to go.

2) I don't need a mortgage, but can get one at 2.3%. It seems that overall, it may be cheaper to get a mortgage. I seem to remember @Easy_C commenting on this before.

I don't have an opinion on the value of vacation homes. I think we are going to have big inflation for several years to come, so owning primary homes is likely to do well. Not sure if people will cut back and vacation less, or maybe they vacation in rental rather than a hotel. I'm just not sure.

A mortgage at 2.3% is an extremely good deal, I wouldn't pass that up.

I would buy in a good building and pay for repairs/updates. Its a minor hassle, but then you have the place finished out how you want it and in tune to what people want. This might get you a premium.

Make sure you your building allows rentals. Understand the fees you have to pay to a management company; often they are higher for short term rentals. Understand taxes generally and short term taxes specifically.

Get quotes on the work before you buy; its not uncommon for contractors to gouge folks in vacation markets.
 

Coja Petrus Uscan

Crow
Orthodox Inquirer
Gold Member
I don't have an opinion on the value of vacation homes. I think we are going to have big inflation for several years to come, so owning primary homes is likely to do well. Not sure if people will cut back and vacation less, or maybe they vacation in rental rather than a hotel. I'm just not sure.

A mortgage at 2.3% is an extremely good deal, I wouldn't pass that up.

I would buy in a good building and pay for repairs/updates. Its a minor hassle, but then you have the place finished out how you want it and in tune to what people want. This might get you a premium.

Make sure you your building allows rentals. Understand the fees you have to pay to a management company; often they are higher for short term rentals. Understand taxes generally and short term taxes specifically.

Get quotes on the work before you buy; its not uncommon for contractors to gouge folks in vacation markets.

This is in Dubai. The prices were falling for maybe 13 years straight until last year, when they had their first recovery. I think they've found market value now. Though I've noticed that much of the upper-bottom of the market has got cheaper, while the higher-level up has gone up quite a bit. I don't think it will ever be a good market for appreciation. It seems that they will likely loose value against inflation. As not many people plan to live here, the purchase prices are very low compared to other global cities. Thus providing good rental yields. e.g. a two bedroom apartment in the tallest building in the world (with view below and great surroundings) will cost about $1,000,000 now. Was $850K a year ago. I imagine you could put a zero on the end of that if it was in a similar area in New York etc.



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And on top of that it's an incredibly safe country. There is no politics, no public degeneracy and everyone knows their place.

There also appears to be a good REIT, but it's unfortunately gone up 100% since late last year; again pointing to the bottom in the market. I can't really work out what the actual dividend should be assumed to be -


This site (which is as reputable as it gets) says that you can recoup the purchase price over 46 months, which seems a bit ridiculous.


I guess that is before all expenses. Though from my research it seems that a 15% yield is quite feasible.

Short-term management costs are about 15-20%. I've done the research to find the ones that get the best reviews.

According to this - https://famproperties.com/dubai-rental-yield-2018 - normal rental yields range between 5-12%, depending on the area.

I think I might go for a smaller, cheaper but still good quality unit to see how it goes. Then get something more substantial when I can find what the actual yields are.
 
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Hypno

Crow
Dubai would be a very specialized market. Not sure what will happen there. They build like crazy and eventually will run out of land/water yet they have accomplished some amazing feats.

Many of the older properties have reputations for having been built poorly. Many are not connected to sewers so they truck their waste out to the desert. But the older properties are probably better located, e.g. next to the sea, Dubai marina, etc.

Demand is strong for apartments targeted to entry level white collar workers, but softens in the summer with the heat obviously.

Many landlords require rent to be paid in an annual or quarterly payments; montly rent is the exception.

Supposedly you can finance a property there with a mortgage, but I'm not sure how that works with Sharia law.

Mostly Dubai has been managed well, e.g. no lockdowns, but things can change very suddenly there. Tax rates could change, war could break out in the Gulf, pandemic might impose travel restrictions, they import most of their food, they import most of their labor, etc. Many more wild cards there.

Still, I think Dubai is relatively undiscovered by North Americans and to a lesser extent wealthy Asians. Cost of living is less than London or New York or any West Coast cities, but arguably the standard of living is much higher, it just depends on what is important to you.
 
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