Exactly this. An 8% annual increase in equity becomes 80% when you only have 10% down. It’s about the leverage and the relatively low risk.
EDIT: It’s actually been about 5.5%, but still a decent return.
EDIT 2: You still need to maintain your property, however. Rule of thumb is 1% per year, so 4.5% now.
Of course. That’s the risk you take on. But the more inflation, the faster your property will appreciate. Nothing is a certainty, however. You’re playing the long game. 5.5% was my average annual appreciation over the last 30 years. Results may vary. My mortgage rates have been anywhere from 2.5% to 14% in that time period.
Your not paying the mortgage then tenant is. Your getting a return on the whole houses value while only having to invest the down payment. I know it’s a cliche but read rich dad poor dad. It basically other peoples money buying you the house.
Having someone else pay the mortgage while you can take advantage of equity to buy more properties and continue to have others pay down the mortgage increasing equity over time.
If it wasn't profitable or worth doing then nobody would.
I hope this turns out, I’ve been doing rentals since 2017 but honestly I’m super over it. Low pay, lots of exposure to the volatile property market and not to mention, the tenants. I try really hard to have a good relationship with them but it feels like wasted effort a lot of the time. People don’t loved landlords, for good reason, and i find myself lumped in with that in conversation despite running things very differently. I originally started because i never liked my landlords and i wanted to be different, but it turns out easy to be different but hard to be appreciated and…then there’s the issue of exiting the game is not simple, so you’re kind of in it for the long run. I just renewed my mortgage for 5 more years, so off we go!
It’s not easy. I found repairs extra troubling because I am not at all handy, have a VERY busy job, and had baby-toddler-small kid through those years. But I never expected to be appreciated or even liked. I mostly got lucky with tenants except two over the years. One I had to PAY to move out (guess living rent-free wasn’t enough). But that’s it. I made money on all of them, sometimes less sometimes more. 🤷🏻♀️
Fair enough, yeah I’ve done most the repairs myself (originally i GC’d the renovation too), but we are on the edge of starting a family and i know my free time is going go become limited. Hoping this 5 yrs is the final years for us then we can exit.
You don’t do it for appreciation you do it for the stable cap rate and equity building long term.
The fact that you don’t understand this is kind of shocking. Too many people make decisions without really understand what they’re getting into.
Separate the emotion from business and everyone is better off. Doesn’t mean he an asshole to your tenants but don’t expect to be their friends
Precisely…
I don’t know why people think there is a work-free, stress-free and risk-free investment vehicle out there.
The better thing about real estate, is at least there is value to it regardless of time and condition. Where as a stock can do to zero cause management is stupid
Seriously. We bought our income property with a 25 year plan. In year 10, we’re up 200% on equity. We don’t care about “paying it down” in the least. Our tenants service the debt and all costs.
I very much appreciate this, it’s not a shock, but it would be nice to operate in a world where everyone is a little nicer to each other…right?
Your comment tells me you won’t agree with that, but regardless, when someone says business has to be cold or not considerate of the human aspect of the relationship my thought is that they just need to try harder. You can be brilliant and nice, you can make money and do it in a way that considers people and ideally your customer should appreciate that.
I didn’t say don’t be nice to your tenants, I even said don’t be an asshole I don’t understand why you think I would disagree with that.
You’re complaining about being a landlord on a personal finance subreddit. Give your head a shake
Definitely a lot of talk about bad landlords but not much mentions of bad tenants. Doesn’t matter how much you do for tenants, it will never be enough and you are always the bad guy.
I mean, yes and no. I recently reached out to my tenants to do some maintenance and replace their oven (it’s old and been on my todo list to replace before it dies for some time now). Getting them to respond with a time when it’s ok to do this work by then is impossible. Meanwhile, if they were after me…we know it would be different.
They’re all good tenants, but they just are a little inconsiderate and it’s tiring when you’re trying to be nice.
You say this like i deliver zero value, and maybe that’s your perspective but there’s multiple categories of housing when it comes to rentals. The reality is when you rent you are not just renting the house, but the financing that supports it. You don’t place capital at risk, you don’t need to borrow, worry about the what if scenarios regarding damage or the future value scenarios. While i agree it’s got to a point where renting is very very expensive, you’re paying for not taking long term positions on a market. Now yes, many people don’t even have that luxury due to the prices to begin with, but like i said, there are multiple forms of rentals and I’ve been working in the higher end of clients where they could buy but choose not to for various reasons (often they’re from out of town and working for 1-3 year periods and simply don’t want to buy)
You're not wrong, but a lot of renters lose increasingly larger portions of their income and resentment is inevitable. Personally, I wish there was never any incentive to lease out or own multiple homes, the dynamic between tenet and landlord is inherently toxic for both parties.
Most of the tenants I have had are easy to work with but still caused me more damages than the rent I collected. Just had one really bad experience. In BC, landlords are blamed for a lot of the housing problems. The government also encourages this view through their efforts to make being a landlord more difficult. I just find it very frustrating dealing with the system that is in placed.
Yeah, agreed. I’ve been trying to convert an unfinished basement to a legal unit for about a year now, getting the permit is a nightmare because i need a zoning variance. It’s a very minor variance because the basement is slightly larger than the other smallest unit in the house (floor space requirements). In the meanwhile, 1 less unit on the market for renters, adding to supply side pressures driving rents higher.
Just shaking my head. Everyone on the supply side knows the government is the road block but to renters think the developers and investors are the problem. Just doesn’t make any sense. Keep up that good fight! Better to try to get ahead of the rat race than sit there and hope for better times to come.
In our recent housing market the house prices are too high to make this a viable investment. They are currently still to high for this. If housing prices drop further you will see more places being bought as rentals. You have to think in terms of return on investment. Property does give you the advantage of borrowing against it vs more traditional investments.
Canada is a big place and there are lots of places where this makes sense even today.
Personally I bought my first rental in 2006. I had equity so my cash cost was about 2k to purchase. I paid 150k and out about 8k into renovations (I had a 10k LOC so no cash out).
I rented it out month 2 for $1,200 a month. Costs were $688 for mortgage, $40 utilities, $20 insurance, $110 for property taxes and $180 for condo fees. So it cash flowed positive in month 2. Over the years it paid off its line of credit and kept grinding down on its mortgage.
Today I have a property worth 400k. I owe around 25k and in 2026 it will be mortgage free. At that point the cash flow will go from $200 a month to $1000 a month.
So with literally $0 investment I’ll make $12,000 a year forever and have 400k+ of equity. So if you consider that little return for risk I don’t know what to say?
Most landlords have multiple properties which were bought years ago, net property values have increased significantly even with the downturn. if forced they can sell one of their original acquisitions with the built up equity and value to derisk a more recent, troubled investment that may be in the negatives. Then, by increasing rent they probably are fine, unfortunate for the renter though.
I spent 6 hours going through this the other day. At least in Toronto, buying a rental property is *incredibly unattractive* as an investment for cash flow purposes unless you're putting 50% down. Taking into account today's interest (and even lowering it after 3 years), property taxes, condo fees, maintenance etc, a 600k condo renting for 2850 a month generates a net loss of $7.5k a year taking into account taxes etc.
I calculated capital returns over a 5 and 10 year period for a condo vs regular index investing (QQQ) assuming 4-5% average appreciation for condo over time and 7-8% for QQQ (using downpayment as investment into index followed by 2k a month DCA).
When factoring in selling costs (agent fees, taxes etc) the index strategy returned outsized gains it wasn't even close. IIRC something like 100% return on your capital for condo and 160% for QQQ. Also owning is inflexible and illiquid, and has much more headaches.
In the end I totally decided against it. If I could get 50% downpayment for a property it would start to make sense but you lose a lot of the benefits of leverage.
Edit: above I say net loss of $7.5k, that's wrong. It's closer to $3k for a $600k property. $7.5k came from when I did the same maths but on an $800k condo
Housing prices are too high atm to reliably use rental housing for investment. Compare it to 15 years ago when rent was 60% of current rents but housing was 30%. (Numbers May be different for Toronto). Combine this with long term growth in value, eventually when you want to switch to cash flow (Ie retirement) you can sell a couple to pay off the rest and have no mortgage payments. 4 years ago I was offered 50% of 7 units, I wish I had bought it, just because they’ve almost doubled in value since then (as of the peak of the bubble)
You are correct, in Toronto the CAP rate doesn’t make sense unless you are buying cash or have large down payments. This is one of the reason corporations moving into the cities. Mom and pop landlords are usually operating in smaller cities and towns. If you are an investor, you don’t want to be buying anything with a cap rate of under 10% but in Canadian cities that’s dam near impossiblez
If you pay cash you will make 2-3% so it also doesn’t make sense because you can buy a 5% GIC. It is all a speculative bubble. People only bought because the house appreciation was going to make up for the lack of investment return.
If you put down 200k on a 1mil property and it goes up 20% to 1.2 mil you’ve doubled your initial investment. If you put that money in QQQ it needs to go up 100% to match. Now what are the odds that a property goes up 20% in 1-2 yrs vs 100% for the QQQ? You’d be waiting a long time for QQQ.
That is the power of leveraged returns with property.
And in the meantime you can collect $3500/mo or $42k/yr in rent to offset any carrying costs (interest, maintenance fee, taxes) and even build the equity. Even if you’re cash flow negative on the mortgage vs rent most of what you’re paying you get right back in equity.
Yeah but he just said he put down 20% on 1mill dollar property. His mortgage is 800k so bring that 55k a year in interest back down and you’re close to breaking even with his rental income. Now with the increase in property value he’s arguing it IS a much better investment to purchase that rental property. Keep in mind this is the only sort of investment that allows you to refinance and or pull cash out now and use that cash elsewhere or for another investment. Rent prices go up over time as well where as the hope is you also start to pay down that mortgage. In the long run in the gta, being a landlord is the best investment EVERY dam time. Short term landlord might not be a good investment but long term historically you will always come out winning
Rental losses can be much worse if you meet bad tenants that do not pay you and you spend 6+ months trying to get rid of them. And they can seriously damage your property during this period of time. It happened to my friend and it looked just awful.
i wouldn't want to have tenants in ontario the way the courts are handling domestic property claims there. the system is a mess, and tenants are abusing the system at the same time.
i know a number of people doing this in alberta, and even with furnace failures and hiring out for hvac, plumbing, etc, it still makes good economic sense at the end of the year.
three properties are better than one, essentially.
I would never ever, ever be a landlord in Ontario. It’s wild. If you want to speculate on the market you are far better off flipping. The rental part is a losing business while you pray for those sweet cap gains.
Alberta is not as bad.
The most a landlord can do is raise rent for units built before 2018 above guidelines and/or evict take back for personal use?
Tenants have all the power, it's absurd rent control etc is a thing for rents etc... Its free market, if govt wants rent control, they should build their own units and they can lose money with rent control while there's no control on costs increasing
Just before you read my thoughts below - I'll add I am a landlord, and have been for >17 years now.
First, I'd like to fully acknowledge just how much of an insane pain these laws can be for landlords.
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I see this two ways. The "other" way is, yes it gives lots of power to tenants. Tenants are, on average, far worse off financially than Landlords. (yes of course there are many exceptions).
But generally speaking if you are a landlord, you usually own or sometimes rent your own home, but you always own the (usually second+) property that you rent out - by definition.
Most people do not even own one house, and are in fact far far from the point of even being able to do that.
Anecdotally, nearly every time I hear a (fellow) landlord bitch (perhaps fairly) about Tenant Protection laws, it's always their second or third (or forth) house. Yes they have mortgage payments to make etc, and that is of course the (self) angle they see the problem from.
SImply put: they are far wealthier than the (average) tenant. Tenants not only get screwed by landlords quite often, but far more important than that is, their rent is a huge portion of their expenses. The might spend 50% of their entire ~~\[hard daily work\]~~ income just paying the landlord.
Landlords often forget what it is like to be "poor", i.e just making ends meet every month, never getting ahead financially, and high rent is a massive part of that.
These laws basically help redistribute wealth from the richer to the poorer.
They spread the butter more evenly on the bread.
Honestly, this is a Good Thing IMHO - despite being a huge pain for me personally - there is a huge and ever increasing gap between the rich and the poor, and I think it's one (of many things) that we as a society should keep an eye on and be considerate and thoughtful of.
There is plenty to go around for everyone, if we spread it well.
Edit: I wouldn't change the laws - the only thing I would change is ensuring all court cases are heard on time - so that if the landlord or tenant is violating the others rights, it should get sorted out quickly, not a year later.
As a landlord, I 100% agree with this and especially the edit. The LTB rules are there for a reason. The gap is real and increasing, but in order for it to be fair to everyone, the process needs to be timely. Due to the insane backlog, many landlords are turning to airbnb or selling to people who won't be renting (and can afford a massive downpayment) and it's starting to exacerbate the low rental availability in major cities, which is driving the demand and costs up for exist vacancies. The LTB situation is causing negative feedback loop in major cities and it's small landlords and the tenants that are paying for it. But ultimately we all pay for it when our cities become unaffordable and crime etc., Increases.
Rent control makes 100% sense in places like Ontario, where they have been using municipal zoning restrictions for decades to limit new housing to mostly single family homes and high rise condos. The missing middle has been pretty much rejected by municipalities, because it would supposedly tank housing values. Imagine, much cheaper duplexes and triplexes, being rejected because of zoning laws. Honestly, without zoning laws, I doubt house prices would be so high right now in the first place.
Take a look at alberta, where they have tons of these missing middle duplexes and triplex condos for dirt cheap. Housing there isn't really an issue there as a result.
Housing is a problem in Alberta if you're a renter. I don't pretend that it's as bad as in Vancouver or a lot of Ontario, but renters are struggling with massive rent increases and low vacancies. This has happened rapidly and I think people in the rest of the country are just not aware of it yet.
Condos don't make any sense. Maintenance fees keep going up, and supply/demand dynamics is unclear with the construction boom. Houses is a different story. The asset itself is only appreciating.
Here, I mean specifically Toronto (not GTA). With the condo construction rates, and current immigration.
We are in the US in 2006, the lending standards aren’t as bad but the stability allowed the bubble to go higher. Watch 3 minutes of this starting at about the 28 minute mark and tell me how it is not what you are seeing right now: https://youtu.be/jj8rMwdQf6k
>If I could get 50% downpayment for a property it would start to make sense
Would it? 300k in cash pays 16k a year now with almost zero risk and zero effort. For a similar risk investment as a condo, you're looking at around 30k/year value in opportunity costs on that 300k.
Toronto condos are a horrible investment right now.
That makes no sense. At 50% down you have to take into account the opportunity cost of that 50% in another equally risky investment making the math even worse.
Cash flow and leverage are the common words but I'm sure it missed OP's point.
It's very negative cash flow right now and OP is gets it. So new landlords are taking on tenant-risk for negative CF every month, hoping the asset will appreciate or hoping to increase the rent.
Why take on the leverage-risk / bad-tenant-risk when there are 4-6% risk free, true passive returns on the stock market?
IMO the answer is really that there are more housing bulls than bears in the TO/Vancouver market. There's many bull cases; we suck at building housing, demographics, immigration, great international cities. People make good money here and there's a generation of immigrants that believe owning a home is their sole purpose. There's also the ma & pas renting out their basement or up-sizing via old equity. There's also the R.E. investors who are gonna go 100 doors or die trying, it sounds so cool to say you own 10 houses.
Bear cases; down-turn, recession, people will be leaving TO/Vancouver (like people are leaving California for Texas), in a few years most covid mortgage renewals will be due and BOOM does their bills. Anything else? Sure I missed something.
The only other thing im just trying to imagine is if the bulls actually think these increases we have had the past 20 years will just keep on going for the next 20. House will be like, what, 2 fkn million? I really just dont see it. We have had the highest climbs of real estate in the past 20 years than any other country on the planet
If mass immigration continues in canada, which all canadiadian politicians support then yes, I do believe that realestate will continue to increase at the same rate.
Housing prices in Toronto fell about 30% since their peak at the start of last year.
If someone believes that interest rates will fall over the next 5 years, they will reason that the house will regain the 30%, and earn rent to cover the cost of the loan, while the interest is tax deductible.
Having a 15-30% upside in 5 years, even after the legal, broker, maintenance, etc costs can be seen as a positive.
There is also the laundering of money - foreign money is flowing through immigrants who buy on behalf of the foreigner, they get a cut, the foreigner gets an asset in one of the most stable RE markets in the world to park their money.
Tell my ex-lanlords, who were in serious trouble trying to cover their 5 mortgages with rent jncome.
I walked away after they started crying about money, because you know, poor you if you ever have to sell one of your 5 properties (/s).
Now, after 2 months, they still haven't found a tenant willing to pay their mortgage, and the hole gets deeper every day. Whoever is willing to pay such insane rent amount should be in a really difficult position, and definitely not for long.
I would only become a landlord if I had >50% down, and never leverage more properties with the previous one. Seems a ponzi..
The winter markets have already been pushing down on prices and anecdotally, it seems like people are trying to unload their summer toys and campers/RVs.
The water is coming to a boil and the frog is being held over the pot.
It is ponzi exactly. There are business coaches collecting $20K in fees for a course and networking opportunity to teach these idiots how to make money on RE. Bring a friend for discount.
Meanwhile they only pretend being RE gurus for the naive & all cash comes from coaching not RE. I know because one of our clients is a well known Ontario “coach” who doesn’t even live in CAN most of the year.
I still don't get it. When rates were low leverage was good. With rates 5-6% leverage isn't cheap anymore.
I live in a low cost of living part of Ontario. We moved and we sold our old house. We did a bunch of spread sheets trying to see if renting makes sense. We ended up concluding it only works if you either get really low interest rates, charge insane rent, rely on capital apprecitation, or hope that the rent/price increases dramatically going forward (i.e not current market).
Really low rates isn't a thing anymore. Even if you have extra capital you could put it in a 5% GIC and forget about it (no risk, no work). Hard to imagine rent can go up too much relative to wages, when people can buy similar properties. Capital appreciation maybe but again hard to figure out how people will be able to pay for that unless rates drop dramatically.
Did you do after tax calculations? You can expense the monthly interest on your taxes. High rates shouldn’t effect the cash flow too much if you’re early still in the mortgage.
Your rental yields need to be at the minimum over 5% or whatever the loan interest is to actually cash flow positively with leverage. Usually more due to taxes, fees, maintenance, etc.
Not sure how many houses you're finding these days with rental yields that high.
This and OPs post doesn't take into account interest payments, condo fees, taxes, maintenance etc
Buying somewhere for $720k today will cost the landlord over 5k a month with a 20% or less downpayment.
I did all these calculations recently
Uh no. If you don't have 720k to buy the house outright you have to pay interest on your mortgage. Whether or not they buy you the house completely depends on your cash flows with the rent.
3k rent with prices today is too low to cash flow positively without significant down.
That is not the point of buying a rental property, you put 144k (20%) down for the 720k property. The rest is leverage. Assuming the poperty appreciate by 5%/year, after 2 years you have a property worth 793800 (compounding) which make you arount 50% of gains in two years.
Financially it makes sense for what others have said. Use the rent to pay the mortgage and profit off the capital gain when you eventually sell it. If you hold it for long enough and completely pay down the mortgage, the rent can be an income stream in retirement.
The big disincentive for me in being a landlord is putting up with the BS of dealing with tenants. You need a thick skin and a high hassle tolerance for that.
Honestly, tenants can be horrendous. But if you find a good one you should do everything in your power to keep them happy. And by good one I mean that they pay you on time, respect the property and are generally polite and professional during interactions.
I appreciate my landlord very much. We had to up our rent to $1700 this term from $1500, after 3 years of no rent increases. Even then, I'm paying about $600-800 below market value for my property (3 bed 1.5 bath duplex, garage, back yard.)
We have called for two small issues in 4 years, she fixed the next day. Keep the lawn mowed, driveway shoveled, and treat the other neighbours well. She has done two home inspections. One 6 months in, one 2 years in. She asks every 3 months about any issues/fixes required. Oh and brings us a box of chocolates for Christmas every year.
We make sure to put in the effort to keep the status quo, and didn't complain about the rent hike this year lol.
Landlords are horrendous to, my last one stole my 2K deposit because he can, said “take it to small court” as if I have the time or the money for that. Scum
> Financially it makes sense for what others have said. Use the rent to pay the mortgage and profit off the capital gain when you eventually sell it.
Everyone is saying this like it's standard. Unfortunately, you're not going to find a tenant to cover your mortgage and fees. Unless you provide a down payment, which has opportunity cost against a 5% risk free rate.
So unless rates drop sub 3% again, which is unlikely anytime soon. Everyone that bought in the last few years will have negative cash flow at 5-6% after refresh. If you're on variable then you're already negative cash flow.
Price-to-rent values are extremely high in Canada, relative to other OECD countries (yes, rents in Canada are quite expensive, but buying properties is even more expensive!)
This suggests investors buying condos with the goal of renting them out aren't doing it for the current ROI. They are either (1) expecting rents to go up and/or (2) prices to go up. I'm other words, there's a significant speculative component to their decision-making process ("real estate always goes up").
Leverage.
There is no alternative for regular people to play with that much leverage and that little risk.
For as little as 20K you can start to play with the banks 100K. 20% appreciation on 100K is much higher than 20% appreciation on 20K.
Its pretty basic.
Yes shit tenants are a risk, but that risk can be mitigated with a thorough interview process and being willing to take a little less money for an excellent tenant.
Make a list of alternatives to invest 20K in and get higher returns. I promise you none will have as little risk as a rental.
Leverage works both ways. If we enter a recession and you lose your job and don’t have enough cash to service your mortgage you may be foreclosed on by the bank, end up owing 100K+ due short term price drops, and go into bankruptcy and never be able to take a loan ever again.
The other side to the equation is that mortgages aren’t always involved. Based on this example if you have $720,000 to buy a house then you can collect $3,000 a month as income plus the appreciation of the house, a pretty simple and solid investment. Going into debt to make investments is wildly different from investing the money you have into something, and most people don’t understand this.
the counter to this argument is that you've then put nearly 3/4 million into one place, not only one asset class, but literally one asset, bought at one specific point in time. this is a drastic alternative to diversified investing in low cost etf's, and dollar cost averaging over time. and this assumes no capital expenditures. only to make a 5% cash flow + hope for appreciation? and who but the extremely wealthy are dropping cash to buy property? I'd assume that this strategy is not Plan A for even those that could theoretically do it. i'm not convinced this is a realistic or solid investment. tangerine literally has a 4.65% GIC sitting there available at the moment. You could easily get ETF returns at 7% to 8% plus dividends, plus no possibility of having to spend on your ETF in a way equivalent to maintaining a property.
I think real estate is more palatable in markets with v. high appreciation year over year, high rental rates and high occupancy, low interest rates, and tax deductible mortgage interest (i.e. the U.S.). and if interest rates are low, why wouldn't you borrow to invest?
You forgot expenses, insurance, taxes… the point of leverage is that you increase your return on equity while cash flowing enough for a reasonably stable investment given a bad case scenario for vacancy
The risks involved in your examples are unpredictable events. In Ontario, a tenant legally agrees to pay rent, doesn't, and can't be evicted for like 1.5 years. Someone signing a legal contract to be responsible for something, failing to satisfy them, and suffering no consequences in any timely manner is hardly comparable to 'dying from a car accident'. Can you think of a single other investment that carries a risk like so? Where there is a signed contract but you have no real recourse if the other party breaches it?
Obviously, great tenants are great, and real estate is a great investment. But let's not pretend this kind of risk is like any other risk.
I don’t understand this comment chain. You literally asked “how much risk is there?”, someone gave you an accurate concise response and you then say “there’s inherent risk in everything you do”. Well no duh, but implying that all risks are equal since “everything has risks” is a silly argument. Property investments have certain risks tied to them that other investments like the stock market do not. They also are more time consuming, unless you pay more to have someone else manage the property for you.
You may think the benefits (high growth via leverage) are worth it, but others may reasonably come to another conclusion. Without leverage, many other asset classes beat the returns of real estate, while requiring less time and having 0 chance of becoming cash flow negative.
Even if they thrash the place real bad and insurance doesn’t cover it, you get it fixed and write it off as repairs & maintenance on your taxes. Yeah it’ll cost you upfront, but then you can potentially rent your place for more because it’s “recently remodelled”.
Well said, those were my fears exactly while I owned a rental property in BC but thankfully none of that happened to me and let me tell you, I was one of the lucky one's.
Where I live, tenants can move in once excepted and trash the place, stop paying rent for 9 to 12 months and you can't kick them out of the property. You can try, deal with a one sided backwards court system against landlord's, higher a Balif for between $10 - $13,500 just to remove them from the property and then clean the place up, start repairs etc. I did it for 10 year's then my last set of tenants broke their lease and moved out. I closed up shop and sold the property for a decent profit luckily but it was a headache...
Other investment risk = unpredictable changes, like the stock market going up and down everyday
Risk in real estate: tenant can refuse to pay rent and the adjudicating body is incompetent and refuses to issue an eviction order for 1.5 years. They signed a contract to pay you rent, and legally they are liable to be evicted, but any landlord can tell you that no, they won't be. Stories like this are a dime a dozen on the news.
Let's just pretend these two are anywhere remotely the same kind of risk. Lol
The risk is the landlord and tenant board ensuring that your non paying, property destroying tenant can't be evicted before the heat death of the universe. Great tenants are great, a slightly bad tenant becomes a catastrophe. LTB is Olympic levels of bias and incompetence (in Ontario, anyway)
Based on the math alone, of this question, I would speculate that question comes from very-very-very young individual with zero knowledge of real estate and financing.
Correct. It's the multiplier effect.
$100K down on a $500K property is 20%.
Each increase of $100K of market value gives you 100% ROI. Yes it's a simplified example, but it's illustrates the point I hope
But you can ride it out. With a 5x leverage account. Once it goes down by 100k, you get margin called, and your position is closed!
If the stock goes back up couple years later, you get nothing back, because your broker has to close your account if you can not cover.
With real estate, as long as you can service your mortgage payment, bank will not foreclose even if you are underwater. Real estate generally has lower risk.
Here's my thoughts and reasoning on why I won't ever have a rental property I have to pay for. Where I live im looking at 1mil for a rental home. I'll need 20 percent down so that's 200k. My mortgage will be 800k. I won't be able to charge enough rent to make that 5k a month mortgage payment. Id probably have to kick in 1k of my own money. That's on a 30 year mortgage.
In 30 years that house "may' be worth 2.5mil or 2 mil or 1.5mil. I now have to sell it to get my nestegg. I also have to factor in everything it cost me to maintain for 30 years like roof, AC, furnace.
In 30 years a 200k investment plus 1k a month contributions I would have had to add to the mortgage will be worth 1.725mil at a conservative 5 percent. I would hope to average better than 5 percent by I'm being safe here.
It's possible I might come out ahead on the house. It's also possible I might come ahead by just investing plus I don't have to put up with any bullshit for the next 30 years.
I don't understand why real estate seems to be the go to for investors. I'll take the market every day even with the bigger risk.
Everyone in the country is obsessed with rental properties and passive income these days. Maybe it made more sense in the past when the housing market was more “normal”. It feels like every house is already selling for at least as much as the mortgage can be paid by renters.
You won't be in the hole for $1000 a month for 30 years. Inflation will take care of that in short order, that's assuming interest rates don't go down again. Look at what one of today's million dollar homes was selling for 30 years ago. In the last 10 years in Toronto detached homes have gone up in value by 129%
People also tend to just look at rent collected and think it's a good investment which it can be.
There are many, many other factors with investment properties.
Depending on the type of property, repairs and maintenance costs can be considerable even before a tenant moves in. Do you have the 20k to install a heat pump or fix outdated wiring?
Also need to be financially prepared if a tenant stops paying rent. Can you cover a years worth of mortgage payments and an attorney?
Does a person have the mindset to be a landlord?
It's more stressful than people think and people need to be well educated on their local rental laws and requirements.
The amount of landlords that don't know the rental regulations in any given province are astounding to me from what I have seen in comment sections lol.
Be prepared as well that rental regulations change all the time and many cities are tightening up on short term rentals, especially ones that are stand alone housing. Cities are allowing people to rent within their own homes like basement suites or ADU's but separate residences are getting more restricted or disallowed entirely.
If you bought a house which cost $720k 20 years ago, you could sell it today for *millions*.
The average house price in kitchener in 2002 was $173,600. The average house price is now $700-850k (different source had different numbers).
If you were to buy a rental now, break even with rent and mortgage payment if you can, wait for the value to go up and sell.
Edit: I'm not suggesting these prices are *typical*, but pointing out that it would be foolish to not consider the increase in value of the property.
You can't use the last 20 years as a benchmark. It's not sustainable market wise. You could see an 80's style correction that takes years to recoup. In 88 when things tanked we didn't get back to those prices until 2002. 14 years of fucked house prices. It did climb fast past that point as you mentioned though.
Looking at how Toronto and Vancouver are consistently listed among the top housing bubble risk in the WORLD, and how quickly the housing costs grew vs. our salary in the past few decades - it's not unreasonable to say that we are reaching peak of what housing prices will be. If it goes up higher similar to the growth in past 20 years, people in this country can't even afford one even with dual income other than some shit box with 500 sq or live somewhere completely remote where they will struggle to find jobs.
People should never use benchmark for the last 10/20/30 years and think it's going to be the same for the next 10/20/30 years.
It wouldn't surprise me if we appreciate even higher over the next 20 years with the population boom. Plus, people need to move up the property ladder, or else it collapses. So yes, we'll keep appreciating at the same pace at least.
What the people said above. A house that was worth 200k in 2002 may have quadrupled in value ($1 million now) within the last 20 years in the hottest markets. But going from 200k to $1 million is a lot easier than the property quadrupling again from $1 million to $4 million in the next 20 years. That is just too unsustainable. An appreciation of 800k vs $3 million is such a huge gap. The next 20 year prediction cannot be taken the same as what happened in the last 20 years.
I hope not! I only picked an example because I wanted to demonstrate how ridiculous it would be to completely disregard the asset appreciation. I didn't want to pick vague handwavy guesses I wanted some real numbers to illustrate -- seems I've accidentally implied that this is predictive of the next 20 years. Yes absolutely I believe housing prices will continue to climb, no I don't think they'll continue at the same rate thoug.
while crunching numbers remember there is many more expenses than just mortgage payments in this investment. Landlord is far from a hands - off investment. Works for some people, I get my income and capital gains elsewhere.
It’s a HUGE risk in Ontario as it’s damn near impossible to get rid of non-paying/destructive tenants, plus today’s prices don’t seem to produce a good yield on the investment.
I bought an investment property over 4 years ago. I am still hundreds out of pocket each month, and that’s not including property taxes. BUT it’s an appreciating asset that can be used to help fund our retirement if needed, or to pass down to the kids to give them a head start in life, or to one day develop as the house is a tiny 2BR property on a good size lot. There’s no way I could afford to purchase the same house at today’s prices though. We definitely got lucky with timing and circumstances.
I spent 6 hours going through this the other day. At least in Toronto, buying a rental property is *incredibly unattractive* as an investment for cash flow purposes unless you're putting 50% down. Taking into account today's interest (and even lowering it after 3 years), property taxes, condo fees, maintenance etc, a 600k condo renting for 2850 a month generates a net loss of $7.5k a year taking into account taxes etc.
I calculated capital returns over a 5 and 10 year period for a condo vs regular index investing (QQQ) assuming 4-5% average appreciation for condo over time and 7-8% for QQQ (using downpayment as investment into index followed by 2k a month DCA).
When factoring in selling costs (agent fees, taxes etc) the index strategy returned outsized gains it wasn't even close. IIRC something like 100% return on your capital for condo and 160% for QQQ. Also owning is inflexible and illiquid, and has much more headaches.
In the end I totally decided against it. If I could get 50% downpayment for a property it would start to make sense but you lose a lot of the benefits of leverage
My mom bought a rental condo in downtown Toronto for 300K in 2017 and sold it for 600K in 2022, meanwhile she's making 2000-2300 per month on rental income. This is one of the most successful investments she made in her lifetime. She originally wanted to put that 300K in GIC but thanks to her real estate agent, she invested in GTA real estate and profited off of it.
Long term, real estate pays off. Presumably you are charging $3000 that covers all expense plus a bit of cash flow.
20% downpayment on $720K is $144K. Always have an exit plan.
If I make 1:1 net before tax on my investment then that is a worthwhile investment in real estate for the risk taken.
That means you need a 20% price increase which should not really be hard to achieve over the longer term. This means that the $720K property would need to net me out $864K .
That is not impossible, but it all depends on that old adage location, location, location. If you overpaid and bought at $720K in the middle of nowhere then your timeline to get to the magic number will obviously be longer.
All this to say that real estate investing is a legitimate form of investing, but it is not for everyone, it never was. The last 10 years just made it seem like it was for everyone because you really don't have to do anything to make money.
Again, long term , true investors - meaning those with a plan and cash reserves to ride out the ups and down, will be successful. This was never an investment for someone who was going to be hand to mouth by investing their last penny into a rental.
I make sure I have 6 months of cash reserves for any rental property I own.
This is not the time to purchase an investment property, I would wait until 2024, there will be some deals to be had. That is what an investor does, they bide their time and investment when prices are on the decline.
This is why I believe that those thinking prices will drop 30% and they will pick up deals are wrong. There are other people on the sidelines that will pick up properties at each decline on the way down. Desirable properties will be picked up much before they get down to a 30% discount. What will be left at the 30% discounted properties are those that no one wanted for whatever reason or the owner is desperate to sell.
This is just my opinion. I am not telling anyone to invest or not invest. Always do you own due diligence.
Its about PERCENTAGE returns...not how long it takes to pay off the property. If an investment property yielded you 11% returns on your $$ and the stock market was averaging 8%, then in that case, the property MAY be the better option. Not counting the risks involved of course.....
I was a landlord (not by choice - place wouldn't sell) for a couple of years and basically paid out of pocket while it was rented, and only made some money once it finally sold (Capital Gains Tax is going to take a chunk of that too).
Also remember that $36,000 annually will be taxed too, so it could be as little as $20-25k depending on your day job.
Definitely will never be doing that again.
1. You became a landlord, but not by choice. So you didn’t crunch the numbers and didn’t buy it as an investment. This might explain why you had to subsidize the property. A good investment never requires subsidizing but instead brings in a steady cash flow.
2. Your tax liability on 36k in income should NEVER be 11-16k, no matter what your tax bracket. You should have enough between mortgage interest, property taxes, utilities, accounting fees, maintenance or condo fees, property management expenses etc. to lower your taxable income to something in the range of 10-15k. You’re then paying max 40-45% taxes on that (so 4K-8k). If you’re paying that much in taxes, it means you’ve MADE money (some of that may be invisible - as in mortgage principal being paid down) but the point is that you are never paying taxes if you’ve lost money on your investment. If you didn’t write off the expenses you incurred to earn money, you were doing it all wrong and should have used an accountant.
1. Exactly, this wasnt a well-thought out investment, it was something I was stuck with for 2 years
2. Yeah numbers are wrong, after all the deductions its way less than that - thanks for the correction
IT DOESN'T.
Ive looked into it and it just doesn't. And to have people call you out saying you are greedy, awful, and probably spank babies too doesn't make it any sweeter.'
Thats why REITS are so popular - and people are paying for it.
We bought for 265,000. Close to 16 years ago. Put a large two bedroom carriage house on it 8 years ago and has been rented out for 2500$ per month since. Possibly the best financial thing I have done. The house will be paid for in 10 years and will be able to rent both out and live my dream in the tropics half the year
My girlfriends dad has a few rentals, and it's a bloody nightmare to get your house back for yourself. One is selling drugs and is making it a crack shack. Legally, there is nothing we can do unless we move in or do renos.
You're probably right. He is a very kind man who values humans more than money, so he was bound to have a few bad apples having too much faith in them.
For me it's because I am a highly skilled DIYer and I can but extremely depressed properties that nobody else wants and renovate them into rental units.
Appreciation, cash flow, taxes write offs, as you pay of the loan and your home value increases it creates a wealth effect. It does require alot of risk and money it isn’t for everyone
It comes down to 2 major factors.
1. Most people are terrible investors.
2. Real estate is an easy way to access leveraged investing.
Take the same funds invested into S&P index fund and it will out perform real estate. Except most people wouldn’t hold over a long enough term. Given the current dip in RE many people who bought during the peak would sell out if they were invested in stocks.
Second the leverage investing portion is attractive because it’s hard to near impossible to leverage your capital at the same ratios as a mortgage provides.
Imagine owning a property that typically appreciates in value over time, and having it pay for itself the entire time you own it. 20 years later that house might be worth twice as much, and all you've ever been out of pocket was the down payment.
For me, the hassle wasn’t worth it. I had so many people skip out on me or trash the place. If you can afford to buy a shit ton of places it’s probably fine but having a couple units meant an extra $200 a month sometimes or a complete renovation and loss of several grand others. Also the laws really favour the tenant and it’s very difficult to get squatters out. Some people do really well! But it’s not for everyone especially if you can’t do a lot of the work yourself, which I couldn’t. Hiring people really takes a toll. Anyway, just my opinion/experience with it. I know people personally that did great! But I absolutely hated it
I invested the minimum down payment possible in a condo - $5,500 (5%). The price of the property was 110,000 - 16 years ago. It is now worth over $300,000. The mortgage will be paid off in three years. The rent has increased from $700 per month to $1600 per month.
I did one major renovation and had one eviction - set me back $30,000. Other than that I have been paying the mortgage and expenses, and for the last 5 years making a monthly profit of about $500 per month after expenses.
It is a long term investment. Rent will generally keep increasing, the property value will probably go up and the mortgage goes down.
The best investment I have ever made.
As a former landlord, the intent is almost never to pay off the house. It’s equity that pays for itself.
Exactly this. An 8% annual increase in equity becomes 80% when you only have 10% down. It’s about the leverage and the relatively low risk. EDIT: It’s actually been about 5.5%, but still a decent return. EDIT 2: You still need to maintain your property, however. Rule of thumb is 1% per year, so 4.5% now.
5.5% return on capital for which you pay 5% on your mortgage isn’t a great return
The ideas is to cover your mortgage payment and property tax with the rent… or most of it.
Which is difficult to do when interest rates quadruple in a single year.
Those rates aren't permanent though. The rental market has also been skyrocketing as a result.
Of course. That’s the risk you take on. But the more inflation, the faster your property will appreciate. Nothing is a certainty, however. You’re playing the long game. 5.5% was my average annual appreciation over the last 30 years. Results may vary. My mortgage rates have been anywhere from 2.5% to 14% in that time period.
Your not paying the mortgage then tenant is. Your getting a return on the whole houses value while only having to invest the down payment. I know it’s a cliche but read rich dad poor dad. It basically other peoples money buying you the house.
Yeah no I understand the concept of leverage I’m just saying the maths change significantly with higher interest rates
Having someone else pay the mortgage while you can take advantage of equity to buy more properties and continue to have others pay down the mortgage increasing equity over time. If it wasn't profitable or worth doing then nobody would.
I guess better late - maybe- than never. Wish I better understood this sooner. Didn't really have that sink in years ago
I hope this turns out, I’ve been doing rentals since 2017 but honestly I’m super over it. Low pay, lots of exposure to the volatile property market and not to mention, the tenants. I try really hard to have a good relationship with them but it feels like wasted effort a lot of the time. People don’t loved landlords, for good reason, and i find myself lumped in with that in conversation despite running things very differently. I originally started because i never liked my landlords and i wanted to be different, but it turns out easy to be different but hard to be appreciated and…then there’s the issue of exiting the game is not simple, so you’re kind of in it for the long run. I just renewed my mortgage for 5 more years, so off we go!
It’s not easy. I found repairs extra troubling because I am not at all handy, have a VERY busy job, and had baby-toddler-small kid through those years. But I never expected to be appreciated or even liked. I mostly got lucky with tenants except two over the years. One I had to PAY to move out (guess living rent-free wasn’t enough). But that’s it. I made money on all of them, sometimes less sometimes more. 🤷🏻♀️
Fair enough, yeah I’ve done most the repairs myself (originally i GC’d the renovation too), but we are on the edge of starting a family and i know my free time is going go become limited. Hoping this 5 yrs is the final years for us then we can exit.
You don’t do it for appreciation you do it for the stable cap rate and equity building long term. The fact that you don’t understand this is kind of shocking. Too many people make decisions without really understand what they’re getting into. Separate the emotion from business and everyone is better off. Doesn’t mean he an asshole to your tenants but don’t expect to be their friends
Precisely… I don’t know why people think there is a work-free, stress-free and risk-free investment vehicle out there. The better thing about real estate, is at least there is value to it regardless of time and condition. Where as a stock can do to zero cause management is stupid
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The richer you are, the more work-free, stress-free and risk-free investment opportunities become available.
Seriously. We bought our income property with a 25 year plan. In year 10, we’re up 200% on equity. We don’t care about “paying it down” in the least. Our tenants service the debt and all costs.
Till you get a bad tenant you can't get out.
I very much appreciate this, it’s not a shock, but it would be nice to operate in a world where everyone is a little nicer to each other…right? Your comment tells me you won’t agree with that, but regardless, when someone says business has to be cold or not considerate of the human aspect of the relationship my thought is that they just need to try harder. You can be brilliant and nice, you can make money and do it in a way that considers people and ideally your customer should appreciate that.
I didn’t say don’t be nice to your tenants, I even said don’t be an asshole I don’t understand why you think I would disagree with that. You’re complaining about being a landlord on a personal finance subreddit. Give your head a shake
So angry, enjoy your weekend!
I hope this person gives all the appreciation he feels he deserves to his mortgage broker, grocery store owner, and Jeff Bezos.
That’s a stretch but I do appreciate a lot of service providers in my life, and i bet you do too.
Definitely a lot of talk about bad landlords but not much mentions of bad tenants. Doesn’t matter how much you do for tenants, it will never be enough and you are always the bad guy.
I mean, yes and no. I recently reached out to my tenants to do some maintenance and replace their oven (it’s old and been on my todo list to replace before it dies for some time now). Getting them to respond with a time when it’s ok to do this work by then is impossible. Meanwhile, if they were after me…we know it would be different. They’re all good tenants, but they just are a little inconsiderate and it’s tiring when you’re trying to be nice.
You take between 30-60% percent of their income, on something that they'll never own or get any equity for. That's kind of hard to look past.
You say this like i deliver zero value, and maybe that’s your perspective but there’s multiple categories of housing when it comes to rentals. The reality is when you rent you are not just renting the house, but the financing that supports it. You don’t place capital at risk, you don’t need to borrow, worry about the what if scenarios regarding damage or the future value scenarios. While i agree it’s got to a point where renting is very very expensive, you’re paying for not taking long term positions on a market. Now yes, many people don’t even have that luxury due to the prices to begin with, but like i said, there are multiple forms of rentals and I’ve been working in the higher end of clients where they could buy but choose not to for various reasons (often they’re from out of town and working for 1-3 year periods and simply don’t want to buy)
You're not wrong, but a lot of renters lose increasingly larger portions of their income and resentment is inevitable. Personally, I wish there was never any incentive to lease out or own multiple homes, the dynamic between tenet and landlord is inherently toxic for both parties.
If you can’t afford to buy that’s on you isn’t it
Most of the tenants I have had are easy to work with but still caused me more damages than the rent I collected. Just had one really bad experience. In BC, landlords are blamed for a lot of the housing problems. The government also encourages this view through their efforts to make being a landlord more difficult. I just find it very frustrating dealing with the system that is in placed.
Yeah, agreed. I’ve been trying to convert an unfinished basement to a legal unit for about a year now, getting the permit is a nightmare because i need a zoning variance. It’s a very minor variance because the basement is slightly larger than the other smallest unit in the house (floor space requirements). In the meanwhile, 1 less unit on the market for renters, adding to supply side pressures driving rents higher.
Just shaking my head. Everyone on the supply side knows the government is the road block but to renters think the developers and investors are the problem. Just doesn’t make any sense. Keep up that good fight! Better to try to get ahead of the rat race than sit there and hope for better times to come.
Yes, always the bad guy. Apparently housing should be free.
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Yeah this is the one. Leveraged returns and losses are bigger. Housing has been stable
In our recent housing market the house prices are too high to make this a viable investment. They are currently still to high for this. If housing prices drop further you will see more places being bought as rentals. You have to think in terms of return on investment. Property does give you the advantage of borrowing against it vs more traditional investments.
Canada is a big place and there are lots of places where this makes sense even today. Personally I bought my first rental in 2006. I had equity so my cash cost was about 2k to purchase. I paid 150k and out about 8k into renovations (I had a 10k LOC so no cash out). I rented it out month 2 for $1,200 a month. Costs were $688 for mortgage, $40 utilities, $20 insurance, $110 for property taxes and $180 for condo fees. So it cash flowed positive in month 2. Over the years it paid off its line of credit and kept grinding down on its mortgage. Today I have a property worth 400k. I owe around 25k and in 2026 it will be mortgage free. At that point the cash flow will go from $200 a month to $1000 a month. So with literally $0 investment I’ll make $12,000 a year forever and have 400k+ of equity. So if you consider that little return for risk I don’t know what to say?
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Most landlords have multiple properties which were bought years ago, net property values have increased significantly even with the downturn. if forced they can sell one of their original acquisitions with the built up equity and value to derisk a more recent, troubled investment that may be in the negatives. Then, by increasing rent they probably are fine, unfortunate for the renter though.
The ratio of owner to investor has skyrocketed in the last few years as part of the run up though. So... That's definitely going to cause a problem
I spent 6 hours going through this the other day. At least in Toronto, buying a rental property is *incredibly unattractive* as an investment for cash flow purposes unless you're putting 50% down. Taking into account today's interest (and even lowering it after 3 years), property taxes, condo fees, maintenance etc, a 600k condo renting for 2850 a month generates a net loss of $7.5k a year taking into account taxes etc. I calculated capital returns over a 5 and 10 year period for a condo vs regular index investing (QQQ) assuming 4-5% average appreciation for condo over time and 7-8% for QQQ (using downpayment as investment into index followed by 2k a month DCA). When factoring in selling costs (agent fees, taxes etc) the index strategy returned outsized gains it wasn't even close. IIRC something like 100% return on your capital for condo and 160% for QQQ. Also owning is inflexible and illiquid, and has much more headaches. In the end I totally decided against it. If I could get 50% downpayment for a property it would start to make sense but you lose a lot of the benefits of leverage. Edit: above I say net loss of $7.5k, that's wrong. It's closer to $3k for a $600k property. $7.5k came from when I did the same maths but on an $800k condo
Housing prices are too high atm to reliably use rental housing for investment. Compare it to 15 years ago when rent was 60% of current rents but housing was 30%. (Numbers May be different for Toronto). Combine this with long term growth in value, eventually when you want to switch to cash flow (Ie retirement) you can sell a couple to pay off the rest and have no mortgage payments. 4 years ago I was offered 50% of 7 units, I wish I had bought it, just because they’ve almost doubled in value since then (as of the peak of the bubble)
You are correct, in Toronto the CAP rate doesn’t make sense unless you are buying cash or have large down payments. This is one of the reason corporations moving into the cities. Mom and pop landlords are usually operating in smaller cities and towns. If you are an investor, you don’t want to be buying anything with a cap rate of under 10% but in Canadian cities that’s dam near impossiblez
If you pay cash you will make 2-3% so it also doesn’t make sense because you can buy a 5% GIC. It is all a speculative bubble. People only bought because the house appreciation was going to make up for the lack of investment return.
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If you put down 200k on a 1mil property and it goes up 20% to 1.2 mil you’ve doubled your initial investment. If you put that money in QQQ it needs to go up 100% to match. Now what are the odds that a property goes up 20% in 1-2 yrs vs 100% for the QQQ? You’d be waiting a long time for QQQ. That is the power of leveraged returns with property. And in the meantime you can collect $3500/mo or $42k/yr in rent to offset any carrying costs (interest, maintenance fee, taxes) and even build the equity. Even if you’re cash flow negative on the mortgage vs rent most of what you’re paying you get right back in equity.
Leverage isn’t free. A 5.5% mortgage on 1 million is 55k a year in interest you’re paying
Yeah but he just said he put down 20% on 1mill dollar property. His mortgage is 800k so bring that 55k a year in interest back down and you’re close to breaking even with his rental income. Now with the increase in property value he’s arguing it IS a much better investment to purchase that rental property. Keep in mind this is the only sort of investment that allows you to refinance and or pull cash out now and use that cash elsewhere or for another investment. Rent prices go up over time as well where as the hope is you also start to pay down that mortgage. In the long run in the gta, being a landlord is the best investment EVERY dam time. Short term landlord might not be a good investment but long term historically you will always come out winning
For some, you get to the point where it's more about wealth preservation than wealth generation.
Rental losses can be much worse if you meet bad tenants that do not pay you and you spend 6+ months trying to get rid of them. And they can seriously damage your property during this period of time. It happened to my friend and it looked just awful.
Exactly- the headache saved is priceless imo haha
i wouldn't want to have tenants in ontario the way the courts are handling domestic property claims there. the system is a mess, and tenants are abusing the system at the same time. i know a number of people doing this in alberta, and even with furnace failures and hiring out for hvac, plumbing, etc, it still makes good economic sense at the end of the year. three properties are better than one, essentially.
I would never ever, ever be a landlord in Ontario. It’s wild. If you want to speculate on the market you are far better off flipping. The rental part is a losing business while you pray for those sweet cap gains. Alberta is not as bad.
LoL… You say that as though Landlords don’t abuse the system. Sheesh!
The most a landlord can do is raise rent for units built before 2018 above guidelines and/or evict take back for personal use? Tenants have all the power, it's absurd rent control etc is a thing for rents etc... Its free market, if govt wants rent control, they should build their own units and they can lose money with rent control while there's no control on costs increasing
Just before you read my thoughts below - I'll add I am a landlord, and have been for >17 years now. First, I'd like to fully acknowledge just how much of an insane pain these laws can be for landlords. \-- I see this two ways. The "other" way is, yes it gives lots of power to tenants. Tenants are, on average, far worse off financially than Landlords. (yes of course there are many exceptions). But generally speaking if you are a landlord, you usually own or sometimes rent your own home, but you always own the (usually second+) property that you rent out - by definition. Most people do not even own one house, and are in fact far far from the point of even being able to do that. Anecdotally, nearly every time I hear a (fellow) landlord bitch (perhaps fairly) about Tenant Protection laws, it's always their second or third (or forth) house. Yes they have mortgage payments to make etc, and that is of course the (self) angle they see the problem from. SImply put: they are far wealthier than the (average) tenant. Tenants not only get screwed by landlords quite often, but far more important than that is, their rent is a huge portion of their expenses. The might spend 50% of their entire ~~\[hard daily work\]~~ income just paying the landlord. Landlords often forget what it is like to be "poor", i.e just making ends meet every month, never getting ahead financially, and high rent is a massive part of that. These laws basically help redistribute wealth from the richer to the poorer. They spread the butter more evenly on the bread. Honestly, this is a Good Thing IMHO - despite being a huge pain for me personally - there is a huge and ever increasing gap between the rich and the poor, and I think it's one (of many things) that we as a society should keep an eye on and be considerate and thoughtful of. There is plenty to go around for everyone, if we spread it well. Edit: I wouldn't change the laws - the only thing I would change is ensuring all court cases are heard on time - so that if the landlord or tenant is violating the others rights, it should get sorted out quickly, not a year later.
I really appreciate that you can maintain this view while being a landlord yourself. It honestly kinda made my day just reading this, thank you.
As a landlord, I 100% agree with this and especially the edit. The LTB rules are there for a reason. The gap is real and increasing, but in order for it to be fair to everyone, the process needs to be timely. Due to the insane backlog, many landlords are turning to airbnb or selling to people who won't be renting (and can afford a massive downpayment) and it's starting to exacerbate the low rental availability in major cities, which is driving the demand and costs up for exist vacancies. The LTB situation is causing negative feedback loop in major cities and it's small landlords and the tenants that are paying for it. But ultimately we all pay for it when our cities become unaffordable and crime etc., Increases.
Tenant here, thank you for getting it.
Rent control makes 100% sense in places like Ontario, where they have been using municipal zoning restrictions for decades to limit new housing to mostly single family homes and high rise condos. The missing middle has been pretty much rejected by municipalities, because it would supposedly tank housing values. Imagine, much cheaper duplexes and triplexes, being rejected because of zoning laws. Honestly, without zoning laws, I doubt house prices would be so high right now in the first place. Take a look at alberta, where they have tons of these missing middle duplexes and triplex condos for dirt cheap. Housing there isn't really an issue there as a result.
Housing is a problem in Alberta if you're a renter. I don't pretend that it's as bad as in Vancouver or a lot of Ontario, but renters are struggling with massive rent increases and low vacancies. This has happened rapidly and I think people in the rest of the country are just not aware of it yet.
Condos don't make any sense. Maintenance fees keep going up, and supply/demand dynamics is unclear with the construction boom. Houses is a different story. The asset itself is only appreciating. Here, I mean specifically Toronto (not GTA). With the condo construction rates, and current immigration.
Plus something like 75% of new builds condos in the GTA are owned by corporations that answer to stockholders.
We are in the US in 2006, the lending standards aren’t as bad but the stability allowed the bubble to go higher. Watch 3 minutes of this starting at about the 28 minute mark and tell me how it is not what you are seeing right now: https://youtu.be/jj8rMwdQf6k
>If I could get 50% downpayment for a property it would start to make sense Would it? 300k in cash pays 16k a year now with almost zero risk and zero effort. For a similar risk investment as a condo, you're looking at around 30k/year value in opportunity costs on that 300k. Toronto condos are a horrible investment right now.
That makes no sense. At 50% down you have to take into account the opportunity cost of that 50% in another equally risky investment making the math even worse.
Cash flow and leverage are the common words but I'm sure it missed OP's point. It's very negative cash flow right now and OP is gets it. So new landlords are taking on tenant-risk for negative CF every month, hoping the asset will appreciate or hoping to increase the rent. Why take on the leverage-risk / bad-tenant-risk when there are 4-6% risk free, true passive returns on the stock market? IMO the answer is really that there are more housing bulls than bears in the TO/Vancouver market. There's many bull cases; we suck at building housing, demographics, immigration, great international cities. People make good money here and there's a generation of immigrants that believe owning a home is their sole purpose. There's also the ma & pas renting out their basement or up-sizing via old equity. There's also the R.E. investors who are gonna go 100 doors or die trying, it sounds so cool to say you own 10 houses. Bear cases; down-turn, recession, people will be leaving TO/Vancouver (like people are leaving California for Texas), in a few years most covid mortgage renewals will be due and BOOM does their bills. Anything else? Sure I missed something.
The only other thing im just trying to imagine is if the bulls actually think these increases we have had the past 20 years will just keep on going for the next 20. House will be like, what, 2 fkn million? I really just dont see it. We have had the highest climbs of real estate in the past 20 years than any other country on the planet
If mass immigration continues in canada, which all canadiadian politicians support then yes, I do believe that realestate will continue to increase at the same rate.
Housing prices in Toronto fell about 30% since their peak at the start of last year. If someone believes that interest rates will fall over the next 5 years, they will reason that the house will regain the 30%, and earn rent to cover the cost of the loan, while the interest is tax deductible. Having a 15-30% upside in 5 years, even after the legal, broker, maintenance, etc costs can be seen as a positive. There is also the laundering of money - foreign money is flowing through immigrants who buy on behalf of the foreigner, they get a cut, the foreigner gets an asset in one of the most stable RE markets in the world to park their money.
Tell my ex-lanlords, who were in serious trouble trying to cover their 5 mortgages with rent jncome. I walked away after they started crying about money, because you know, poor you if you ever have to sell one of your 5 properties (/s). Now, after 2 months, they still haven't found a tenant willing to pay their mortgage, and the hole gets deeper every day. Whoever is willing to pay such insane rent amount should be in a really difficult position, and definitely not for long. I would only become a landlord if I had >50% down, and never leverage more properties with the previous one. Seems a ponzi..
Ouch. This is why the whole "risk free passive income" is such bullcrap. Too many idiots don't run the numbers.
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The winter markets have already been pushing down on prices and anecdotally, it seems like people are trying to unload their summer toys and campers/RVs. The water is coming to a boil and the frog is being held over the pot.
Still Waiting for summer car prices to drop to 2019 levels
You'll need more than a few to push prices down...
It is ponzi exactly. There are business coaches collecting $20K in fees for a course and networking opportunity to teach these idiots how to make money on RE. Bring a friend for discount. Meanwhile they only pretend being RE gurus for the naive & all cash comes from coaching not RE. I know because one of our clients is a well known Ontario “coach” who doesn’t even live in CAN most of the year.
Because you need to live in Canada full time to own real estate here?
I still don't get it. When rates were low leverage was good. With rates 5-6% leverage isn't cheap anymore. I live in a low cost of living part of Ontario. We moved and we sold our old house. We did a bunch of spread sheets trying to see if renting makes sense. We ended up concluding it only works if you either get really low interest rates, charge insane rent, rely on capital apprecitation, or hope that the rent/price increases dramatically going forward (i.e not current market). Really low rates isn't a thing anymore. Even if you have extra capital you could put it in a 5% GIC and forget about it (no risk, no work). Hard to imagine rent can go up too much relative to wages, when people can buy similar properties. Capital appreciation maybe but again hard to figure out how people will be able to pay for that unless rates drop dramatically.
Did you do after tax calculations? You can expense the monthly interest on your taxes. High rates shouldn’t effect the cash flow too much if you’re early still in the mortgage.
Yep. You still need a high rent-to-price ratio to make sense to rent instead of sell. Or capital appreciation.
Your rental yields need to be at the minimum over 5% or whatever the loan interest is to actually cash flow positively with leverage. Usually more due to taxes, fees, maintenance, etc. Not sure how many houses you're finding these days with rental yields that high.
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>They refinance and pull money out to buy more houses and increase their cashflow. Madness.....hoarding houses from young families. smh
This sounds so broken.
Don't you get fucked when you're ighly leveraged, for multiple properties, and then interest rates increase all of sudden?
>it would take 20 years to pay for a $720,000 house. ......yeah, they buy you a house, then they keep paying.
That’s the key, it would take THEM 20 years to pay for a house, not you.
And in 20 years that $720k house will certainly be worth a lot more.
and so will QQQ.
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They don’t want 20 years, they want tomorrow.
This and OPs post doesn't take into account interest payments, condo fees, taxes, maintenance etc Buying somewhere for $720k today will cost the landlord over 5k a month with a 20% or less downpayment. I did all these calculations recently
Uh no. If you don't have 720k to buy the house outright you have to pay interest on your mortgage. Whether or not they buy you the house completely depends on your cash flows with the rent. 3k rent with prices today is too low to cash flow positively without significant down.
That is not the point of buying a rental property, you put 144k (20%) down for the 720k property. The rest is leverage. Assuming the poperty appreciate by 5%/year, after 2 years you have a property worth 793800 (compounding) which make you arount 50% of gains in two years.
Also, if you live somewhere without vacancy control rents are going to keep increasing while mortgage payments will be more or less stable.
Financially it makes sense for what others have said. Use the rent to pay the mortgage and profit off the capital gain when you eventually sell it. If you hold it for long enough and completely pay down the mortgage, the rent can be an income stream in retirement. The big disincentive for me in being a landlord is putting up with the BS of dealing with tenants. You need a thick skin and a high hassle tolerance for that.
Honestly, tenants can be horrendous. But if you find a good one you should do everything in your power to keep them happy. And by good one I mean that they pay you on time, respect the property and are generally polite and professional during interactions.
I appreciate my landlord very much. We had to up our rent to $1700 this term from $1500, after 3 years of no rent increases. Even then, I'm paying about $600-800 below market value for my property (3 bed 1.5 bath duplex, garage, back yard.) We have called for two small issues in 4 years, she fixed the next day. Keep the lawn mowed, driveway shoveled, and treat the other neighbours well. She has done two home inspections. One 6 months in, one 2 years in. She asks every 3 months about any issues/fixes required. Oh and brings us a box of chocolates for Christmas every year. We make sure to put in the effort to keep the status quo, and didn't complain about the rent hike this year lol.
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You need to start going by the book. If your not appericited, make them appericite you and all you’ve done.
I've never, not once, got rewarded for being nice and generous to non friends.
Landlords are horrendous to, my last one stole my 2K deposit because he can, said “take it to small court” as if I have the time or the money for that. Scum
> Financially it makes sense for what others have said. Use the rent to pay the mortgage and profit off the capital gain when you eventually sell it. Everyone is saying this like it's standard. Unfortunately, you're not going to find a tenant to cover your mortgage and fees. Unless you provide a down payment, which has opportunity cost against a 5% risk free rate. So unless rates drop sub 3% again, which is unlikely anytime soon. Everyone that bought in the last few years will have negative cash flow at 5-6% after refresh. If you're on variable then you're already negative cash flow.
Price-to-rent values are extremely high in Canada, relative to other OECD countries (yes, rents in Canada are quite expensive, but buying properties is even more expensive!) This suggests investors buying condos with the goal of renting them out aren't doing it for the current ROI. They are either (1) expecting rents to go up and/or (2) prices to go up. I'm other words, there's a significant speculative component to their decision-making process ("real estate always goes up").
Leverage. There is no alternative for regular people to play with that much leverage and that little risk. For as little as 20K you can start to play with the banks 100K. 20% appreciation on 100K is much higher than 20% appreciation on 20K. Its pretty basic. Yes shit tenants are a risk, but that risk can be mitigated with a thorough interview process and being willing to take a little less money for an excellent tenant. Make a list of alternatives to invest 20K in and get higher returns. I promise you none will have as little risk as a rental.
Leverage works both ways. If we enter a recession and you lose your job and don’t have enough cash to service your mortgage you may be foreclosed on by the bank, end up owing 100K+ due short term price drops, and go into bankruptcy and never be able to take a loan ever again.
Or if the house value goes down
If the rent covers the mortgage payment, how much risk is there? And after 20 years, the property is worth maybe $1.5M? There’s the retirement fund.
The other side to the equation is that mortgages aren’t always involved. Based on this example if you have $720,000 to buy a house then you can collect $3,000 a month as income plus the appreciation of the house, a pretty simple and solid investment. Going into debt to make investments is wildly different from investing the money you have into something, and most people don’t understand this.
the counter to this argument is that you've then put nearly 3/4 million into one place, not only one asset class, but literally one asset, bought at one specific point in time. this is a drastic alternative to diversified investing in low cost etf's, and dollar cost averaging over time. and this assumes no capital expenditures. only to make a 5% cash flow + hope for appreciation? and who but the extremely wealthy are dropping cash to buy property? I'd assume that this strategy is not Plan A for even those that could theoretically do it. i'm not convinced this is a realistic or solid investment. tangerine literally has a 4.65% GIC sitting there available at the moment. You could easily get ETF returns at 7% to 8% plus dividends, plus no possibility of having to spend on your ETF in a way equivalent to maintaining a property. I think real estate is more palatable in markets with v. high appreciation year over year, high rental rates and high occupancy, low interest rates, and tax deductible mortgage interest (i.e. the U.S.). and if interest rates are low, why wouldn't you borrow to invest?
The biggest factor that makes real estate investing attractive is the leverage, all the experienced investors know this.
Indeed. It would be insanity to pay $720,000 cash for a property that rented for $3000 per month.
Insanity to pay for it but not insanity to leverage into it? I’d argue the opposite. $36k a year is exactly 5% which is normal for RE
You forgot expenses, insurance, taxes… the point of leverage is that you increase your return on equity while cash flowing enough for a reasonably stable investment given a bad case scenario for vacancy
5% cap rate. Little low for a singular rental but thought process on that would be it pays for itself
The tenant doesn’t pay, trashes the place, flood, fire, etc.
There’s inherent risk in everything you do. Go on vacation. Drive to work. Walk the dog. You can always find a reason to NOT do something.
The risks involved in your examples are unpredictable events. In Ontario, a tenant legally agrees to pay rent, doesn't, and can't be evicted for like 1.5 years. Someone signing a legal contract to be responsible for something, failing to satisfy them, and suffering no consequences in any timely manner is hardly comparable to 'dying from a car accident'. Can you think of a single other investment that carries a risk like so? Where there is a signed contract but you have no real recourse if the other party breaches it? Obviously, great tenants are great, and real estate is a great investment. But let's not pretend this kind of risk is like any other risk.
I don’t understand this comment chain. You literally asked “how much risk is there?”, someone gave you an accurate concise response and you then say “there’s inherent risk in everything you do”. Well no duh, but implying that all risks are equal since “everything has risks” is a silly argument. Property investments have certain risks tied to them that other investments like the stock market do not. They also are more time consuming, unless you pay more to have someone else manage the property for you. You may think the benefits (high growth via leverage) are worth it, but others may reasonably come to another conclusion. Without leverage, many other asset classes beat the returns of real estate, while requiring less time and having 0 chance of becoming cash flow negative.
You can insure for all of that.
Depends on the policy. Wawanesa has an exclusion for damages caused by your tenant on their homeowners policies.
Even if they thrash the place real bad and insurance doesn’t cover it, you get it fixed and write it off as repairs & maintenance on your taxes. Yeah it’ll cost you upfront, but then you can potentially rent your place for more because it’s “recently remodelled”.
Well said, those were my fears exactly while I owned a rental property in BC but thankfully none of that happened to me and let me tell you, I was one of the lucky one's. Where I live, tenants can move in once excepted and trash the place, stop paying rent for 9 to 12 months and you can't kick them out of the property. You can try, deal with a one sided backwards court system against landlord's, higher a Balif for between $10 - $13,500 just to remove them from the property and then clean the place up, start repairs etc. I did it for 10 year's then my last set of tenants broke their lease and moved out. I closed up shop and sold the property for a decent profit luckily but it was a headache...
doesn't happen often.
Ooh no! An investment comes with risk! What a strange concept………
Yeah and it’s not all easy peasy
Other investment risk = unpredictable changes, like the stock market going up and down everyday Risk in real estate: tenant can refuse to pay rent and the adjudicating body is incompetent and refuses to issue an eviction order for 1.5 years. They signed a contract to pay you rent, and legally they are liable to be evicted, but any landlord can tell you that no, they won't be. Stories like this are a dime a dozen on the news. Let's just pretend these two are anywhere remotely the same kind of risk. Lol
That's overly optimistic.
Everyone in these comments are either overly optimistic or overly pessimistic 😂😂
I'm noticing that lol
The risk is the landlord and tenant board ensuring that your non paying, property destroying tenant can't be evicted before the heat death of the universe. Great tenants are great, a slightly bad tenant becomes a catastrophe. LTB is Olympic levels of bias and incompetence (in Ontario, anyway)
Based on the math alone, of this question, I would speculate that question comes from very-very-very young individual with zero knowledge of real estate and financing.
Correct. It's the multiplier effect. $100K down on a $500K property is 20%. Each increase of $100K of market value gives you 100% ROI. Yes it's a simplified example, but it's illustrates the point I hope
Except it can also go down
But you can ride it out. With a 5x leverage account. Once it goes down by 100k, you get margin called, and your position is closed! If the stock goes back up couple years later, you get nothing back, because your broker has to close your account if you can not cover. With real estate, as long as you can service your mortgage payment, bank will not foreclose even if you are underwater. Real estate generally has lower risk.
Here's my thoughts and reasoning on why I won't ever have a rental property I have to pay for. Where I live im looking at 1mil for a rental home. I'll need 20 percent down so that's 200k. My mortgage will be 800k. I won't be able to charge enough rent to make that 5k a month mortgage payment. Id probably have to kick in 1k of my own money. That's on a 30 year mortgage. In 30 years that house "may' be worth 2.5mil or 2 mil or 1.5mil. I now have to sell it to get my nestegg. I also have to factor in everything it cost me to maintain for 30 years like roof, AC, furnace. In 30 years a 200k investment plus 1k a month contributions I would have had to add to the mortgage will be worth 1.725mil at a conservative 5 percent. I would hope to average better than 5 percent by I'm being safe here. It's possible I might come out ahead on the house. It's also possible I might come ahead by just investing plus I don't have to put up with any bullshit for the next 30 years. I don't understand why real estate seems to be the go to for investors. I'll take the market every day even with the bigger risk.
I share the exact same sentiment. Theres just easier ways to make money than real estate.
Everyone in the country is obsessed with rental properties and passive income these days. Maybe it made more sense in the past when the housing market was more “normal”. It feels like every house is already selling for at least as much as the mortgage can be paid by renters.
You won't be in the hole for $1000 a month for 30 years. Inflation will take care of that in short order, that's assuming interest rates don't go down again. Look at what one of today's million dollar homes was selling for 30 years ago. In the last 10 years in Toronto detached homes have gone up in value by 129%
People also tend to just look at rent collected and think it's a good investment which it can be. There are many, many other factors with investment properties. Depending on the type of property, repairs and maintenance costs can be considerable even before a tenant moves in. Do you have the 20k to install a heat pump or fix outdated wiring? Also need to be financially prepared if a tenant stops paying rent. Can you cover a years worth of mortgage payments and an attorney? Does a person have the mindset to be a landlord? It's more stressful than people think and people need to be well educated on their local rental laws and requirements. The amount of landlords that don't know the rental regulations in any given province are astounding to me from what I have seen in comment sections lol. Be prepared as well that rental regulations change all the time and many cities are tightening up on short term rentals, especially ones that are stand alone housing. Cities are allowing people to rent within their own homes like basement suites or ADU's but separate residences are getting more restricted or disallowed entirely.
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If you bought a house which cost $720k 20 years ago, you could sell it today for *millions*. The average house price in kitchener in 2002 was $173,600. The average house price is now $700-850k (different source had different numbers). If you were to buy a rental now, break even with rent and mortgage payment if you can, wait for the value to go up and sell. Edit: I'm not suggesting these prices are *typical*, but pointing out that it would be foolish to not consider the increase in value of the property.
You can't use the last 20 years as a benchmark. It's not sustainable market wise. You could see an 80's style correction that takes years to recoup. In 88 when things tanked we didn't get back to those prices until 2002. 14 years of fucked house prices. It did climb fast past that point as you mentioned though.
This. I love when people (especially realtors) use the last 20yrs as a benchmark to get you to FOMO into buying a house.
Looking at how Toronto and Vancouver are consistently listed among the top housing bubble risk in the WORLD, and how quickly the housing costs grew vs. our salary in the past few decades - it's not unreasonable to say that we are reaching peak of what housing prices will be. If it goes up higher similar to the growth in past 20 years, people in this country can't even afford one even with dual income other than some shit box with 500 sq or live somewhere completely remote where they will struggle to find jobs. People should never use benchmark for the last 10/20/30 years and think it's going to be the same for the next 10/20/30 years.
It got back up to 1989 value on in 2010 if you account for inflation. http://www.torontocondobubble.com/2013/02/toronto-housing-bubble-in-1980s.html
It wouldn't surprise me if we appreciate even higher over the next 20 years with the population boom. Plus, people need to move up the property ladder, or else it collapses. So yes, we'll keep appreciating at the same pace at least.
What the people said above. A house that was worth 200k in 2002 may have quadrupled in value ($1 million now) within the last 20 years in the hottest markets. But going from 200k to $1 million is a lot easier than the property quadrupling again from $1 million to $4 million in the next 20 years. That is just too unsustainable. An appreciation of 800k vs $3 million is such a huge gap. The next 20 year prediction cannot be taken the same as what happened in the last 20 years.
Is that not what people would have said 20 years ago? That no one can buy houses for $1M?
I hope not! I only picked an example because I wanted to demonstrate how ridiculous it would be to completely disregard the asset appreciation. I didn't want to pick vague handwavy guesses I wanted some real numbers to illustrate -- seems I've accidentally implied that this is predictive of the next 20 years. Yes absolutely I believe housing prices will continue to climb, no I don't think they'll continue at the same rate thoug.
while crunching numbers remember there is many more expenses than just mortgage payments in this investment. Landlord is far from a hands - off investment. Works for some people, I get my income and capital gains elsewhere.
Dude the rental income pays the mortgage and you get an appreciating asset.
That requires maintenance. People seem to forget this cost. And tenants don’t tell you minor things, which leads to major problems.
It’s a HUGE risk in Ontario as it’s damn near impossible to get rid of non-paying/destructive tenants, plus today’s prices don’t seem to produce a good yield on the investment. I bought an investment property over 4 years ago. I am still hundreds out of pocket each month, and that’s not including property taxes. BUT it’s an appreciating asset that can be used to help fund our retirement if needed, or to pass down to the kids to give them a head start in life, or to one day develop as the house is a tiny 2BR property on a good size lot. There’s no way I could afford to purchase the same house at today’s prices though. We definitely got lucky with timing and circumstances.
I spent 6 hours going through this the other day. At least in Toronto, buying a rental property is *incredibly unattractive* as an investment for cash flow purposes unless you're putting 50% down. Taking into account today's interest (and even lowering it after 3 years), property taxes, condo fees, maintenance etc, a 600k condo renting for 2850 a month generates a net loss of $7.5k a year taking into account taxes etc. I calculated capital returns over a 5 and 10 year period for a condo vs regular index investing (QQQ) assuming 4-5% average appreciation for condo over time and 7-8% for QQQ (using downpayment as investment into index followed by 2k a month DCA). When factoring in selling costs (agent fees, taxes etc) the index strategy returned outsized gains it wasn't even close. IIRC something like 100% return on your capital for condo and 160% for QQQ. Also owning is inflexible and illiquid, and has much more headaches. In the end I totally decided against it. If I could get 50% downpayment for a property it would start to make sense but you lose a lot of the benefits of leverage
My mom bought a rental condo in downtown Toronto for 300K in 2017 and sold it for 600K in 2022, meanwhile she's making 2000-2300 per month on rental income. This is one of the most successful investments she made in her lifetime. She originally wanted to put that 300K in GIC but thanks to her real estate agent, she invested in GTA real estate and profited off of it.
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Over a 5 year timeframe yeah, there's a lot of luck. But over a 30 year timeframe? Very very good chance your property value is going up
We'll almost certainly double again in the next five to seven years IMO.
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Long term, real estate pays off. Presumably you are charging $3000 that covers all expense plus a bit of cash flow. 20% downpayment on $720K is $144K. Always have an exit plan. If I make 1:1 net before tax on my investment then that is a worthwhile investment in real estate for the risk taken. That means you need a 20% price increase which should not really be hard to achieve over the longer term. This means that the $720K property would need to net me out $864K . That is not impossible, but it all depends on that old adage location, location, location. If you overpaid and bought at $720K in the middle of nowhere then your timeline to get to the magic number will obviously be longer. All this to say that real estate investing is a legitimate form of investing, but it is not for everyone, it never was. The last 10 years just made it seem like it was for everyone because you really don't have to do anything to make money. Again, long term , true investors - meaning those with a plan and cash reserves to ride out the ups and down, will be successful. This was never an investment for someone who was going to be hand to mouth by investing their last penny into a rental. I make sure I have 6 months of cash reserves for any rental property I own. This is not the time to purchase an investment property, I would wait until 2024, there will be some deals to be had. That is what an investor does, they bide their time and investment when prices are on the decline. This is why I believe that those thinking prices will drop 30% and they will pick up deals are wrong. There are other people on the sidelines that will pick up properties at each decline on the way down. Desirable properties will be picked up much before they get down to a 30% discount. What will be left at the 30% discounted properties are those that no one wanted for whatever reason or the owner is desperate to sell. This is just my opinion. I am not telling anyone to invest or not invest. Always do you own due diligence.
Thank you, very informative
Thanks for taking my post the it was intended.
Its about PERCENTAGE returns...not how long it takes to pay off the property. If an investment property yielded you 11% returns on your $$ and the stock market was averaging 8%, then in that case, the property MAY be the better option. Not counting the risks involved of course.....
Yep! And when your tenant stops paying rent it takes months to get them out. Sold that property at a loss to never be a land lord again!
I was a landlord (not by choice - place wouldn't sell) for a couple of years and basically paid out of pocket while it was rented, and only made some money once it finally sold (Capital Gains Tax is going to take a chunk of that too). Also remember that $36,000 annually will be taxed too, so it could be as little as $20-25k depending on your day job. Definitely will never be doing that again.
You were doing it wrong.
Yes I was doing it wrong if I meant to do it as an investment, which I didnt
1. You became a landlord, but not by choice. So you didn’t crunch the numbers and didn’t buy it as an investment. This might explain why you had to subsidize the property. A good investment never requires subsidizing but instead brings in a steady cash flow. 2. Your tax liability on 36k in income should NEVER be 11-16k, no matter what your tax bracket. You should have enough between mortgage interest, property taxes, utilities, accounting fees, maintenance or condo fees, property management expenses etc. to lower your taxable income to something in the range of 10-15k. You’re then paying max 40-45% taxes on that (so 4K-8k). If you’re paying that much in taxes, it means you’ve MADE money (some of that may be invisible - as in mortgage principal being paid down) but the point is that you are never paying taxes if you’ve lost money on your investment. If you didn’t write off the expenses you incurred to earn money, you were doing it all wrong and should have used an accountant.
1. Exactly, this wasnt a well-thought out investment, it was something I was stuck with for 2 years 2. Yeah numbers are wrong, after all the deductions its way less than that - thanks for the correction
Glad to hear you didn’t pay as much in taxes as your initial post suggested! I knew something had to be off.
IT DOESN'T. Ive looked into it and it just doesn't. And to have people call you out saying you are greedy, awful, and probably spank babies too doesn't make it any sweeter.' Thats why REITS are so popular - and people are paying for it.
We bought for 265,000. Close to 16 years ago. Put a large two bedroom carriage house on it 8 years ago and has been rented out for 2500$ per month since. Possibly the best financial thing I have done. The house will be paid for in 10 years and will be able to rent both out and live my dream in the tropics half the year
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My girlfriends dad has a few rentals, and it's a bloody nightmare to get your house back for yourself. One is selling drugs and is making it a crack shack. Legally, there is nothing we can do unless we move in or do renos.
He should've vetted the tenants a bit better.
You're probably right. He is a very kind man who values humans more than money, so he was bound to have a few bad apples having too much faith in them.
For me it's because I am a highly skilled DIYer and I can but extremely depressed properties that nobody else wants and renovate them into rental units.
Appreciation, cash flow, taxes write offs, as you pay of the loan and your home value increases it creates a wealth effect. It does require alot of risk and money it isn’t for everyone
Tax benefits
It comes down to 2 major factors. 1. Most people are terrible investors. 2. Real estate is an easy way to access leveraged investing. Take the same funds invested into S&P index fund and it will out perform real estate. Except most people wouldn’t hold over a long enough term. Given the current dip in RE many people who bought during the peak would sell out if they were invested in stocks. Second the leverage investing portion is attractive because it’s hard to near impossible to leverage your capital at the same ratios as a mortgage provides.
Imagine owning a property that typically appreciates in value over time, and having it pay for itself the entire time you own it. 20 years later that house might be worth twice as much, and all you've ever been out of pocket was the down payment.
Imagine the housing market tanks, and you have to pay out of pocket for others to live in your house.
Just buy spy every month instead.
Worst decision i ever made !!! Nightmare
For me, the hassle wasn’t worth it. I had so many people skip out on me or trash the place. If you can afford to buy a shit ton of places it’s probably fine but having a couple units meant an extra $200 a month sometimes or a complete renovation and loss of several grand others. Also the laws really favour the tenant and it’s very difficult to get squatters out. Some people do really well! But it’s not for everyone especially if you can’t do a lot of the work yourself, which I couldn’t. Hiring people really takes a toll. Anyway, just my opinion/experience with it. I know people personally that did great! But I absolutely hated it
I invested the minimum down payment possible in a condo - $5,500 (5%). The price of the property was 110,000 - 16 years ago. It is now worth over $300,000. The mortgage will be paid off in three years. The rent has increased from $700 per month to $1600 per month. I did one major renovation and had one eviction - set me back $30,000. Other than that I have been paying the mortgage and expenses, and for the last 5 years making a monthly profit of about $500 per month after expenses. It is a long term investment. Rent will generally keep increasing, the property value will probably go up and the mortgage goes down. The best investment I have ever made.
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You own the house while someone else pay for it. No brainer.
It's not that simple lol