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.
1. There is also nothing in my calculations for potential rent increases or potential appreciation; those factors could hypothetically offset a month between tenants or a new dishwasher.
2. Personally, the problem I have with buying older condos is you have to pay market value. With pre-sales a few years out there is often an opportunity to buy a condo at below market value (the pre-sale is less in cost when compared to an equivalent existing condo).
The two bed, two bath older condo is usually in an inferior location and wood framed. Location is extremely important. A one bedroom without parking at the Era will fetch similar rent to a two bed two bath with parking at Bear Mountain.
You have the issue of strata fees (based on square footage in 98% of buildings). With a very small unit the strata fees are a very small percentage of building entitlement. For example, at the Promontory my unit pays less than 1/10th of what the penthouse pays. Can the penthouse really use to conceirage person or elevators more? Not really. The bigger condo you go the fatter the strata fees, with near zero added value!
20 years old equals 20 year old elevators...good shape or not elevator will need to be changed out 20 years sooner compare to a new unit. A decent elevator is around $200,000 to $250,000?
Finally, you are looking at a bigger capital investment. A 2 bed, 2 bath, insuite laundry, with unresticted rentals, no age restrictions, pets and BBQs allowed, close to downtown will typically be north of $300,000 in a half decent building.
The 2 bed 2 bath bigger unit makes "more sense," I guess...why not buy double the size of condo for only 50% more; however, I just don't see the actual numbers supporting it.
$1,300-$1,350 month rent, strata fees of close to $300/month, taxes probably $160-$180/month, and purchase price of approximately $300,000 equals negative cash flow.
Excellent discussion...keep in mind these are my personal opinions. An older condo may be a better investment for some.
Edited by MarkoJ, 16 July 2015 - 05:14 PM.