66 replies to this topic

[MarkoJ]

With about 1,000 units of rentals coming to downtown Victoria alone over the next 1-4 years, how will this impact the condo rental market? Have you noticed any decline in interest or a watering down of good renters since the half dozen downtown rental projects that have completed over the last two years? I'm sure there have been about 400 units or so since 2013.

 

And yes, the article. I'll jump on that!

 

Tough to say with certainty.  It will certainly increase the supply; however, bringing more people downtown will make it a more vibrant place to live and potentially even more attractive.

 

There is a fairly big difference in terms of quality of finishings between buildings built as apartments and condos; therefore, I think there will always be a niche market for renting a condo over an apartment.

 

1000 rental units coming to market also means there is 1000 less condos coming to market and on top of that we are going to have nothing completed coming to market at all in the next 18 months.  Duet only has 8 units left, Era is soon to be sold out, Promontory has a couple of units left, Union is sold out, Janion only has a few units, etc.  

 

The rental boom could restrict condo supply to the point where we some some condo price appreciation downtown?

[lanforod]

How would a property manager be more qualified for this than a REALTOR®? 

 

Every individual would be different. I think both could fill this role though, as long as bias doesn't play a role: A realtor who is not involved in the sale or purchase would not be biased any more than a property manager who would not manage the property.

 

Either way, I agree, there isn't enough of a market for this as a full time career. But it could become a service that you offer. Currently, you're doing it for free, here! Thank you!

 

I do this myself - have a mix of portfolio and real estate (a large rental condo in New Westminster). I want to sell that condo in 5 to 10 years or so, once the return is sufficient, and probably use the proceeds to purchase two small ones here, similar to the criteria you posted, depending on the market at that time. My personal experience tells me everything you've posted is spot on.

[Mike K.]

Downtown also commands the highest prices in the region, so it'll be interesting to see once more purpose built rentals hit the market just how many people are willing and able to spend $1,200-$1,500 per month for a one bedroom apartment.

I'm also curious if we'll ever get to the point where rental companies compete ferociously among themselves and condo rentals like what we see in other markets. It's not unusual to have rental buildings offer very enticing deals to prospective tenants.

In the 1990's secondary suites were all the rage. There were no new condos, no new rentals, so the market reacted. Now even nice secondary suites are sitting empty as renters have an increasing number of purpose built or condo rentals to choose from. I can see the condo rental market feeling a pinch when purpose built homes are available and are free of the kind of hassle some landlords out renters through, plus there's never any issue with repairs (in condos it's all up to the landlord, and some simply refuse to make repairs, even if it means possible depreciation of their unit).

[MarkoJ]

You never know how things play out....Vancouver is a good example of horrible return.  $350,000-$400,000 condos only rent for $1,500 to $1,600 for example.

[Mike K.]

Yup, just goes to show how pent up the demand for new rentals is in Victoria and why so many condos are available for rent (I guess I should clarify, are rented out, because it's damn near impossible to secure a nice condo rental in this town). What happens to prices once 1,000 or 1,500 purpose built rentals hit the downtown market remains to be seen, but this should be something a new entrant onto the scene takes into serious consideration before taking that leap.

[spanky123]

Marko,

I would be surprised to find that you could buy many places in Victoria and rent them out and get a $100 - $300 a month positive cash flow after you factor in all costs. My experience has been that you are lucky to cover the interest payment and costs and on that basis you are relying on either holding the property for a long time or appreciation and a flip to make your money.

Now in your case you may be able to factor out the realtor costs and property management costs but the average Joe can't do that and it becomes part of the overall cost.

If I could generate positive cash from properties in Victoria after all costs then I would do those deals all day long.

[lanforod]

Marco, are you including compounding gains when compared to the stock market? There is a point where if you get enough capital, compounded interest gains should pretty far outperform real estate, I'd think?

Long term, I'd suspect the market will out perform real estate when starting with the same $ value.

 

The key is you can't be spending the gains each year to make that work. If you need the cash flow to live, real estate will work better.

[MarkoJ]

Marco, are you including compounding gains when compared to the stock market? There is a point where if you get enough capital, compounded interest gains should pretty far outperform real estate, I'd think?

Long term, I'd suspect the market will out perform real estate when starting with the same $ value.

 

The key is you can't be spending the gains each year to make that work. If you need the cash flow to live, real estate will work better.

 

Tough to say....you could also apply the positive cash flow from condos towards down payments on more condos; therefore, there is compounding there I am not factoring in either.

[jklymak]

Marco, are you including compounding gains when compared to the stock market? There is a point where if you get enough capital, compounded interest gains should pretty far outperform real estate, I'd think?

Long term, I'd suspect the market will out perform real estate when starting with the same $ value.

 

A few points.  First, obviously you invest your positive cash flow, so that return will compound.  It wouldn't make sense to keep it under your mattress.  So you the two are equal from that point of view.  

 

Second, rental return and value of your property tend to rise with inflation.  When comparing returns into the future be sure to subtract the expected inflation rate from your (expected) stock market gains.  (or add the inflation rate to your expected rental returns).  

 

Third, your rental property is usually leveraged 4:1.  I doubt a bank would give you a loan to leverage your market picks 4:1 (though I've never tried to do this) unless you had a very substantial income to cover your potential losses. For some reason they are happier trusting that they can seize a nice tangible asset like a condo if the payments stop.  ( I guess I'm not sure - maybe a bank would give you a HELOC against your primary residence, but would you bet your home on your stock picks?)

[lanforod]

A few points.  First, obviously you invest your positive cash flow, so that return will compound.  It wouldn't make sense to keep it under your mattress.  So you the two are equal from that point of view.  

 

Second, rental return and value of your property tend to rise with inflation.  When comparing returns into the future be sure to subtract the expected inflation rate from your (expected) stock market gains.  (or add the inflation rate to your expected rental returns).  

 

Third, your rental property is usually leveraged 4:1.  I doubt a bank would give you a loan to leverage your market picks 4:1 (though I've never tried to do this) unless you had a very substantial income to cover your potential losses. For some reason they are happier trusting that they can seize a nice tangible asset like a condo if the payments stop.  ( I guess I'm not sure - maybe a bank would give you a HELOC against your primary residence, but would you bet your home on your stock picks?)

 

Rental costs also go up due to inflation.

 

I get the leverage, but that leverage is not free. Yes, it is very cheap right now, so that leans in real estate favour.

Edited by lanforod, 16 July 2015 - 10:06 AM.

[lanforod]

I agree, you can plough your cash returns back in, but seems to me you can't do it at the same rate as you can for the market. The market is much more liquid, and you can buy in for smaller amounts. What are you going to do with your 2000 or 3000 cash proceeds from real estate in a year?

[MarkoJ]

Marko,

I would be surprised to find that you could buy many places in Victoria and rent them out and get a $100 - $300 a month positive cash flow after you factor in all costs. My experience has been that you are lucky to cover the interest payment and costs and on that basis you are relying on either holding the property for a long time or appreciation and a flip to make your money.

Now in your case you may be able to factor out the realtor costs and property management costs but the average Joe can't do that and it becomes part of the overall cost.

If I could generate positive cash from properties in Victoria after all costs then I would do those deals all day long.

 

If take the emotion out of it such properties can be found.

 

For example, the Era has an excellent selection of one bedroom condos on the lower floors ranging from $205,900 to $225,000 and during pre-sale they ran a $2,500 discount promotion.

 

Let's say your cost all in (PPT, lawyer, net GST) is $220,000.

 

Mortgage $176,000 @ 25 year amort @ 2.2% = $762

Strata Fees = $200

Taxes = $125

Insurance = $20

 

= $1,107

 

I rented my unit at $1,195/month but at 11 rental applications I believe that was under market value.  You can further improve cash flow by going 30 or 35 year amort.  

 

At the Promontory I do a bit better as my purchase price was lower and strata fees are only $150/month.

Edited by MarkoJ, 16 July 2015 - 10:30 AM.

[MarkoJ]

I agree, you can plough your cash returns back in, but seems to me you can't do it at the same rate as you can for the market. The market is much more liquid, and you can buy in for smaller amounts. What are you going to do with your 2000 or 3000 cash proceeds from real estate in a year?

 

Pay down principal on your personal residence (mortgage interest not tax deductible unlike the condos) or if you have three condos, for example, combine all the cash flow over a few years and buy a 4th condo, and so on.

[jklymak]

Rental costs also go up due to inflation.

 

Right, I was talking about your net return (presumably you are as well since market transactions are not free either).

[jklymak]

If take the emotion out of it such properties can be found.

 

For example, the Era has an excellent selection of one bedroom condos on the lower floors ranging from $205,900 to $225,000 and during pre-sale they ran a $2,500 discount promotion.

 

Let's say your cost all in (PPT, lawyer, net GST) is $220,000.

 

Mortgage $176,000 @ 25 year amort @ 2.2% = $762

Strata Fees = $200

Taxes = $125

Insurance = $20

 

= $1,107

 

I rented my unit at $1,195/month but at 11 rental applications I believe that was under market value.  You can further improve cash flow by going 30 or 35 year amort.  

 

At the Promontory I do a bit better as much purchase price was lower and strata fees are only $150/month.

I agree with most of this.  However, you really should apply another 2.2% to the downpayment as lost opportunity to use that money elsewhere: so add in another $53/mo cost there.  And of course your ppt and lawyer costs are amortized over the length of ownership. 

[Mike K.]

For example, the Era has an excellent selection of one bedroom condos on the lower floors ranging from $205,900 to $225,000 and during pre-sale they ran a $2,500 discount promotion.

 

Just to confirm, has or had?

[MarkoJ]

Just to confirm, has or had?

Had..my typo. One beds sold out two beds flying off the shelf too.

[lanforod]

If take the emotion out of it such properties can be found.

 

For example, the Era has an excellent selection of one bedroom condos on the lower floors ranging from $205,900 to $225,000 and during pre-sale they ran a $2,500 discount promotion.

 

Let's say your cost all in (PPT, lawyer, net GST) is $220,000.

 

Mortgage $176,000 @ 25 year amort @ 2.2% = $762

Strata Fees = $200

Taxes = $125

Insurance = $20

 

= $1,107

 

I rented my unit at $1,195/month but at 11 rental applications I believe that was under market value.  You can further improve cash flow by going 30 or 35 year amort.  

 

At the Promontory I do a bit better as my purchase price was lower and strata fees are only $150/month.

 

 

Your numbers look like they work right now.

 

However, for long term:

What about once strata fees go up, and levies start happening? One levy will wipe out the years cash flow.

 

Long term, mortgage rates won't be at 2.2%. Maybe you'll average 4% over 25 years. Still low, but there goes the cash flow long term.

 

Your numbers don't include costs than many others may have, such as property management (6% of income?, which would wipe out all the cash flow by itself).

[Castera]

If take the emotion out of it such properties can be found.

 

For example, the Era has an excellent selection of one bedroom condos on the lower floors ranging from $205,900 to $225,000 and during pre-sale they ran a $2,500 discount promotion.

 

Let's say your cost all in (PPT, lawyer, net GST) is $220,000.

 

Mortgage $176,000 @ 25 year amort @ 2.2% = $762

Strata Fees = $200

Taxes = $125

Insurance = $20

 

= $1,107

 

I rented my unit at $1,195/month but at 11 rental applications I believe that was under market value.  You can further improve cash flow by going 30 or 35 year amort.  

 

At the Promontory I do a bit better as my purchase price was lower and strata fees are only $150/month.

 

 

Thanks for examples, but nothing in there for any repairs or potential vacancies... First 5 years you might be OK, but when you need to paint the unit the first time in 5 years time, or do some small repair (appliance breakdown, etc..) or have it empty 1 month between tenants, that will kill the cashflow for the previous number of years.

 

As someone with many rental apartments, I caution against some of the new small condos as investments.  I've often advised people to look at the older buildings with larger square footage units, such as 2 bedrooms with 2 bath and around 1000 sq.ft. that many 1990s buildings have, with insuite laundry, etc... and try to buy one at the best possible price. 

You can get decent rent from them and I believe tenants will remain longer in a large 2 bd than a small 500 sq.ft. 1 bedroom or studio.  One can easily get between $1300-1350 for large (1000 sq.ft.) 20 year old condo in good shape near downtown with parking.  (or maybe more, but I want to be realistic).

 

It may no thave the bling of the brand new units, and may have some maintenance ot do (and please make sure the envelope has been remediated!), but will likely cashflow better in the long run than a new unit where the square footage is very small and costs are under estimated as in your scenario.

 

But I agree with you that the older units/buildings may have some repairs, this is where one can get tired of owning rentals and some wish to avoid this headache.

 

Running the figures on two different investment type to see the net return is the best way to compare in the end.

Edited by Castera, 16 July 2015 - 12:18 PM.

[Mike K.]

You can get decent rent from them and I believe tenants will remain longer in a large 2 bd than a small 500 sq.ft. 1 bedroom or studio.  One can easily get between $1300-1350 for large (1000 sq.ft.) 20 year old condo in good shape near downtown with parking.  (or maybe more, but I want to be realistic).

 

Perhaps yourself and Marko can clarify, what happens when a condo ages? After ten years can you expect to ask and get what new-build condos are going for, or are you having to introduce price concessions at that point? I mean I know I wouldn't pay $1,300 for a 10-year-old 500 square foot condo if a brand new 500 square foot condo was renting for the same price (which many are). One unit I'm familiar with is a 15-year-old one bedroom plus den and the rent it's going for is far less than a comparable new-build, about 20% less. But I'm not sure if that's just the landlord being sloppy or if that's a reasonable price for something that old (and it shows it's age, everything from the bathroom to the kitchen to the windows looks dated despite being only 15 years old).