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Ahem, don't change the subject. Please explain your mortgage at $950 a month to pay of the interest and principle on $250k in 20 years.

ps. No, I don't think prices will increase, adjusted for inflation, in either the next 5 or 10 years.
http://cuer.sauder.ubc.ca/cma/data/ResidentialRealEstate/HousingPrices/housing-pri-toronto.pdf

Don't forget when you buy a property by leverage, you will have 5 times the return on investment. An annual inflation rate can be same as housing price at 2%, bu with 20% down payment you will have a 10% return on investment just by capital gain.


In terms of the mortgage payment, my friend bought condo earlier and he got better rate. But I just said, even if you borrow money from banks today, you can still make way more benefit than just break even.
 
In terms of the mortgage payment, my friend bought condo earlier and he got better rate.

$950 a month = $11,400 a year
20 years x $11,400=$228,000

Unless he received a negative mortgage rate, its not possible to pay off $250k in 20 years at $950 month.
 
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$950 a month = $11,400 a year
20 years x $11,600=$228,000

Unless he received a negative mortgage rate, its not possible to pay off $250k in 20 years at $950 month.

Sorry I just ask my friend and he told me he got a 25 year term. Other information is accurate. Really sorry for the confuse.
 
For example, a 1+1 at city place with parking and locker is now renting around $340,000 to $350,000. After 30% down payment, you borrow around $250,000 from the bank for 20 years, and your monthly mortgage payment is $950, and your maintainence fee is $350, and tax is $150, which totally added up to 1450. Such unit can be rented at $1700 to $1750 in the market. You can easily make a $250 to $300 cash gain. Also, never forget you have around 50% of mortage payment goes to yourself, only another 50% is waste as interest payment, so there will be another $475 income. These totally add up to around $750 income per month even if without any capital gains! Btw most maintainence fees do include water and heat, and for hydro bill, everyone knows tenants pay for this! There are many more examples here. Can any other investors give a live example to show us how you make a positive cash flow here?


several points:

* you now have an investor putting more equity than usual with 30% down payment !
any proper r/e investor would be looking at calculations with 20% (or less dp).
a good r/e investment should carry itself fully with 0% down but not realistic as a down payment will be required

* your original assertion had to do with pre-construction selling for $750-1000 psf (ie. "$750-$800 psft such as Casa2, Massey, Indx, 1000 Bay, Britt, Karma, Five etc. Some newly added units at One Bloor, U condo, Aura, Exhibit, Yorkville Plaza, Yorkville Condomium etc all selling at $800 to $1000 psft." )

* in your current example with a CP condo you have provided completely inaccurate figures for the mortgage payment in both scenarios of 20-year and 25-year amortizations;
in addition as someone else noted, one cannot get a fixed rate for the full term of the amortization Canada, unlike our neighbours to the south;
you can NOT say the principal portion goes to the owner, as s/he has borrowed the funds and all of it needs to be repaid to the financial institution

> $250K for 5-year term / 20-year amortization @ 3.0%:
monthly mortage payment is $1,384/m with principal and interest portions ranging from $763-883 and $621-501, respectively.
at the end of 5 years, $200,695 balance is outstanding.

in this example, $1,384 mortgage + $350 maintenance (where is the parking and locker maintenance fee?) + $150 tax = $1,884; which is more than the $1,750 top rent you illustrated.
btw, the total cost of $1,884 has not included owners' property insurance and other auxillary costs, etc.

> if in the next 5 years the rate goes up by 2% to 5% from 3%, $200,695 balance for 5-year term / 15-year remaining amortization :
monthly mortage payment is $1,582/m with principal and interest portions ranging from $754-961 and $828-620, respectively.
at the end of 10 years, $149,480 balance is outstanding.

$1,584 mortgage + $350+ maintenance + $150 tax (both which are sure to go up in the future) = $2,084+
considering rents have been mostly stagnate the past decade and this building will be 5 years older, $1,750 rent will most likely either remain the same or decline because of being an older product.


>> $250K for 5-year term / 25-year amortization @ 3.0%:
monthly mortage payment is $1,183/m with principal and interest portions ranging from $562-651 and $621-533, respectively.
at the end of 5 years, $213,687 balance is outstanding.

in this example, $1,183 mortgage + $350 maintenance + $150 tax = $1,683; which is JUST under the $1,750 top rent you illustrated. again, the total cost of $1,683 has not included owners' property insurance and other auxillary costs, etc.

>> if in the next 5 years the rate goes up by 2% to 5% from 3%, $213,687 balance for 5-year term / 20-year remaining amortization :
monthly mortage payment is $1,404/m with principal and interest portions ranging from $523-961 and $667-738, respectively.
at the end of 10 years, $178,169 balance is outstanding.

$1,404 mortgage + $350+ maintenance + $150 tax (both which are sure to go up in the future) = $1,904+



and to repeat important details daveto stated:

your assumption has left out the following:

1. Acquisition costs (land transfer costs, etc).
2. Sale costs (if you ever wish to sell)
3. Vacancy costs. (it is unrealistic to presume 100% occupancy for eternity)
4. Maintenance/damage costs (at some point you'll need to fix something or replace something)
5. Special assessment condo fees (it happens to most condos at some time)
6. Management costs. (if you do this yourself, then you must factor in your time as a cost)
7. Finally, you have assumed 3% interest rates unchanged over the life of your mortgage. I trust you realize that is unlikely?
 
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For example, a 1+1 at city place with parking and locker is now renting around $340,000 to $350,000. After 30% down payment, you borrow around $250,000 from the bank for 20 years, and your monthly mortgage payment is $950, and your maintainence fee is $350, and tax is $150, which totally added up to 1450.

I think there's some maintenance calculation errors. Maintenance fee for a 1+1 isn't $350 especially with locker and parking added in. Tax is also incorrect. It should be over $200/month. Previously, maintenance fee is around 50 cents / sq ft excluding parking and locker. Since the addition of the HST, it has caused maintenance to increase by around 8%. Tack on another $35-45 for parking fee and around another $15-20 or so for locker fee.
 
I've said my friend's mortgage term is 25 years, and he paid $120,000 for his down payment, so his monthly mortage is around $1000. His unit is 590 sft and $350 maintainence fee includes parking and locker. Thank you for your guy's calculation but in reality is that he's far above the break even, and in the future he will continue to raise the rent.
 
several points:

* you now have an investor putting more equity than usual with 30% down payment !
any proper r/e investor would be looking at calculations with 20% (or less dp).
a good r/e investment should carry itself fully with 0% down but not realistic as a down payment will be required

* your original assertion had to do with pre-construction selling for $750-1000 psf (ie. "$750-$800 psft such as Casa2, Massey, Indx, 1000 Bay, Britt, Karma, Five etc. Some newly added units at One Bloor, U condo, Aura, Exhibit, Yorkville Plaza, Yorkville Condomium etc all selling at $800 to $1000 psft." )

* in your current example with a CP condo you have provided completely inaccurate figures for the mortgage payment in both scenarios of 20-year and 25-year amortizations;
in addition as someone else noted, one cannot get a fixed rate for the full term of the amortization Canada, unlike our neighbours to the south;
you can NOT say the principal portion goes to the owner, as s/he has borrowed the funds and all of it needs to be repaid to the financial institution

> $250K for 5-year term / 20-year amortization @ 3.0%:
monthly mortage payment is $1,384/m with principal and interest portions ranging from $763-883 and $621-501, respectively.
at the end of 5 years, $200,695 balance is outstanding.

in this example, $1,384 mortgage + $350 maintenance (where is the parking and locker maintenance fee?) + $150 tax = $1,884; which is more than the $1,750 top rent you illustrated.
btw, the total cost of $1,884 has not included owners' property insurance and other auxillary costs, etc.

> if in the next 5 years the rate goes up by 2% to 5% from 3%, $200,695 balance for 5-year term / 15-year remaining amortization :
monthly mortage payment is $1,582/m with principal and interest portions ranging from $754-961 and $828-620, respectively.
at the end of 10 years, $149,480 balance is outstanding.

$1,584 mortgage + $350+ maintenance + $150 tax (both which are sure to go up in the future) = $2,084+
considering rents have been mostly stagnate the past decade and this building will be 5 years older, $1,750 rent will most likely either remain the same or decline because of being an older product.


>> $250K for 5-year term / 25-year amortization @ 3.0%:
monthly mortage payment is $1,183/m with principal and interest portions ranging from $562-651 and $621-533, respectively.
at the end of 5 years, $213,687 balance is outstanding.

in this example, $1,183 mortgage + $350 maintenance + $150 tax = $1,683; which is JUST under the $1,750 top rent you illustrated. again, the total cost of $1,683 has not included owners' property insurance and other auxillary costs, etc.

>> if in the next 5 years the rate goes up by 2% to 5% from 3%, $213,687 balance for 5-year term / 20-year remaining amortization :
monthly mortage payment is $1,404/m with principal and interest portions ranging from $523-961 and $667-738, respectively.
at the end of 10 years, $178,169 balance is outstanding.

$1,404 mortgage + $350+ maintenance + $150 tax (both which are sure to go up in the future) = $1,904+



and to repeat important details daveto stated:

your assumption has left out the following:

1. Acquisition costs (land transfer costs, etc).
2. Sale costs (if you ever wish to sell)
3. Vacancy costs. (it is unrealistic to presume 100% occupancy for eternity)
4. Maintenance/damage costs (at some point you'll need to fix something or replace something)
5. Special assessment condo fees (it happens to most condos at some time)
6. Management costs. (if you do this yourself, then you must factor in your time as a cost)
7. Finally, you have assumed 3% interest rates unchanged over the life of your mortgage. I trust you realize that is unlikely?

I guess in your calculation you tend to ignore that in the monthly mortgage payment you have around half the amount ($500) goes to yourself! As I've stated above, after adding this amount, you will be definitely well above the break even.

Plus, can you guarantee that rental fee won't go up in the next 5 to 10 years? Also are you sure there won't be any capital gains in the period? No one will deny in the long run R/E price always go up, right?
 
I've said my friend's mortgage term is 25 years, and he paid $120,000 for his down payment, so his monthly mortage is around $1000. His unit is 590 sft and $350 maintainence fee includes parking and locker. Thank you for your guy's calculation but in reality is that he's far above the break even, and in the future he will continue to raise the rent.

With a monthly mortgage of around $1,000 per month, I would estimate that based on an interest rate of 3.5%, the total mortgage amount would be roughly $200,000, so I'm assuming original purchase price was in the $320,000 range. Using the figures in the aforementioned posts, add in $350 for maintenance and $150 for taxes, bring your friend's monthly expenses to $1,500/month. Best-case scenario is that there are no maintenance/repair issues, vacancies or tenant issues and he would bring in $1,700/month in rent for a positive cash flow of $200/month or $2,400/year. All this with a 37.5% down payment. Are these figures more or less accurate?
 
I've said my friend's mortgage term is 25 years, and he paid $120,000 for his down payment, so his monthly mortage is around $1000. His unit is 590 sft and $350 maintainence fee includes parking and locker. Thank you for your guy's calculation but in reality is that he's far above the break even, and in the future he will continue to raise the rent.


either your friend isn't giving you the full accurate figures, or you're misleading us.
again, do the calculations yourself and you will see they do not add up.
i've provided you factual numbers based on your figures AND they do not match the ones you gave us.



I guess in your calculation you tend to ignore that in the monthly mortgage payment you have around half the amount ($500) goes to yourself! As I've stated above, after adding this amount, you will be definitely well above the break even.

Plus, can you guarantee that rental fee won't go up in the next 5 to 10 years? Also are you sure there won't be any capital gains in the period? No one will deny in the long run R/E price always go up, right?

mortgage principal repayment (MPR) cannot be used in your 'positive' cashflow theory.
again, this is money that was borrowed from the financial institution and has to be paid back. it's part of one's expenses.

if one didn't get those funds (MPR) , the 'owner' would have to pay for it out of pocket to the bank, thus it would be negative;
if one gets those funds (MPR), the 'owner' would pay it to the bank, thus neutral;
if one gets more (MPR), the 'owner' gets to pocket the difference, thus positive.

can i guarantee that rental rates won't go up in the next 5 to 10 years?
no, but history is a good indicator. can you guarantee rental rates will go up?

am i sure there won't be any capital gains in the period?
No, but can you guarantee (in writing would be appreciated) there won't be capital loss?

no one will deny in the long run R/E price always go up, right?

historical data (400 years) shows in the long term it goes up a mere 0.2 percent per year more than inflation.
models created using post-1950 U.S. data give a biased picture of reality. there will be troughs and peaks during cycles than can give impressions of large gains or losses.

http://www.nytimes.com/2006/03/05/magazine/305tulips_shorto.1.html?pagewanted=all
 
either your friend isn't giving you the full accurate figures, or you're misleading us.
again, do the calculations yourself and you will see they do not add up.
i've provided you factual numbers based on your figures AND they do not match the ones you gave us.





mortgage principal repayment (MPR) cannot be used in your 'positive' cashflow theory.
again, this is money that was borrowed from the financial institution and has to be paid back. it's part of one's expenses.

if one didn't get those funds (MPR) , the 'owner' would have to pay for it out of pocket to the bank, thus it would be negative;
if one gets those funds (MPR), the 'owner' would pay it to the bank, thus neutral;
if one gets more (MPR), the 'owner' gets to pocket the difference, thus positive.

can i guarantee that rental rates won't go up in the next 5 to 10 years?
no, but history is a good indicator. can you guarantee rental rates will go up?

am i sure there won't be any capital gains in the period?
No, but can you guarantee (in writing would be appreciated) there won't be capital loss?

no one will deny in the long run R/E price always go up, right?

historical data (400 years) shows in the long term it goes up a mere 0.2 percent per year more than inflation.
models created using post-1950 U.S. data give a biased picture of reality. there will be troughs and peaks during cycles than can give impressions of large gains or losses.

http://www.nytimes.com/2006/03/05/magazine/305tulips_shorto.1.html?pagewanted=all

I think I don't need to explain too much and everyone will easily understand MPR will be the benefit to investors since tennants pay for this amount. It is like a monthly saving account deposit to investors. And this is the largest theory weakness for doom and gloomers because with this MPR, investors can always win in the forseeable future!
 
With a monthly mortgage of around $1,000 per month, I would estimate that based on an interest rate of 3.5%, the total mortgage amount would be roughly $200,000, so I'm assuming original purchase price was in the $320,000 range. Using the figures in the aforementioned posts, add in $350 for maintenance and $150 for taxes, bring your friend's monthly expenses to $1,500/month. Best-case scenario is that there are no maintenance/repair issues, vacancies or tenant issues and he would bring in $1,700/month in rent for a positive cash flow of $200/month or $2,400/year. All this with a 37.5% down payment. Are these figures more or less accurate?

Please, where is the MPR? When your tenants pay back $1000 mortgage, for you, you cab accumulate $500 in your MPR; when your mortgage is $2000, you will accumulate $1000 per month!
 
I would like to see some analysis done on the ROI being proposed by Chris_Hull.

I did some quick research on MLS. Cityplace units 550 - 650 sf are going for between 300 - 350k.

For the sake of argument lets say total purchase price for a 1+den including closing cost is 350 k around 600 SF. Assume a Down payment of 100k leaving you with 250k mortgage.

Here is the cost of carrying the unit

mortgage at 3.1 % (5 year) $1200
maintenance $320
Tax $180
Hydro/Misc $100

Total (give or take) $1800

I looked at going rate for rentals of this nature and average is $1600 - $1800. So lets say best case scenario your carrying costs are covered.

Here is where it gets interesting based on Chris_Hull. I pulled the amortization table for the first 5 years since your rate is fixed, your mortgage payments will not change during this period.

1 $250,000.00 $14,507.04 $7,850.76 $6,656.28 $243,343.72
2 $243,343.72 $14,507.04 $7,636.05 $6,870.99 $236,472.73
3 $236,472.73 $14,507.04 $7,414.42 $7,092.62 $229,380.11
4 $229,380.11 $14,507.04 $7,185.64 $7,321.40 $222,058.71
5 $222,058.71 $14,507.04 $6,949.48 $7,557.56 $214,501.16

Based on this roughly 35k is what you would earn on your 100k investment in 5 years. This is a 6-7% return before taxes per year.

However, after the fifth year assume interest rates have gone up 2 % (This is very realistic). your mortgage payment goes up by $300 and assuming same rental rate you will be losing around 4k a year. Your amortization return based on principle being payed down shrinks to 2-3k.

From year 5-10 your ROI would be more along the lines of 2-3% against the initial 100 k you invested.

These are all high level estimated, i don't want to get into what the unit will cost in 5-10 yrs etc. My assumption is it will not go up in value.

So I am looking at this as purely ROI on my initial 100k investment.

love to hear others thoughts on my estimates?
 
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I would like to see some analysis done on the ROI being proposed by Chris_Hull.

I did some quick research on MLS. Cityplace units 550 - 650 sf are going for between 300 - 350k.

For the sake of argument lets say total purchase price for a 1+den including closing cost is 350 k around 600 SF. Assume a Down payment of 100k leaving you with 250k mortgage.

Here is the cost of carrying the unit

mortgage at 3.1 % (5 year) $1200
maintenance $320
Tax

My friend's monthly mortgage payment is less than $1200 because his borrowing rate is under 3% and his term is 25 years. But I can take $1200 here just as an example because people always get slightly different rates. Tax is about $150 per month so totally $1670. Don't forget to deduct $600 as MPR so the total cost will be $1070. All other expenses such as utilities will be on renters' burden. If the owner rented out his unit at $1750 as my friend did, he will make $680 profit monthly or $8,160 annually. The annual ROI is 8.16% in this case without any capital gains. Even if a merely 2% price increase will lead to another $7000 extra income to the investor, which will push up the ROI to 15% annually. Needless to say the average annual price increase of 6-10% in the past several years.
 
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