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daveto

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daveto said:
945 Queen St
$3200 rental
http://www.realtor.ca/PropertyDetai...rt=1&of=1&ps=10&o=A&Mode=0&PropertyID=9762028

or $850k to buy
http://www.realtor.ca/PropertyDetai...rt=1&of=1&ps=10&o=A&Mode=0&PropertyID=9761914

$38.4k gross income,
minus $350 annual snow removal fee
minus $7,060 annual taxes (http://wx.toronto.ca/inter/fin/tax.nsf/tax?OpenForm&Seq=1)
equals $31k net,

a 3.6% Cap rate. (before taxes, and gross of inflation)
Click to expand...

It is way worse than that Dave.

You need to budget for:

-vacancy allowance (3% of gross)
-managment fee (3%-5% of gross)
-repairs & maintenance
-non-recoverable utilities

My estimate is these costs would bring your return down to 2%.
 
that's a narrow unit as the property is only 13.5 feet wide and the interior width is 12'8" !
nothing like walking into your couch when you open the front door coming home. :)

at that price point (850K) i would have thought the owner would have spent a little bit of $$$ to stage it properly and repaint it some other colour besides PINK taupe ... ewww

the stucco is rust and black stained (or could that be an underlying mold issue) ?
 
Last edited:
Agree one will end up with less than 3.5% and in fact 2% I think is realistic.

As well, will it get a full rental price of $3200. If agent is used, lose 1 month rent +HST.

Also, vacancy allowance of 3%. If it is vacant for 1 month in 2 years, that will be 4%, let alone if it is vacant more.

Cap rates in the big city are coming down. but then, at least at present, it is quite difficult to get large rates of return on any investment. I know, stocks yielding dividends and capital ?appreciation or will it be depreciation.

However, for the "investors" who have to borrow money, not a good investment.
 
interested said:
Agree one will end up with less than 3.5% and in fact 2% I think is realistic.

Cap rates in the big city are coming down. ...
Click to expand...

Hopefully not coming down by that much! The property looks good (assuming no mold, as cdr suggests may be the case). And I like the location. But if you want to become a landlord, hopefully you would want to get a bit more than a current "risk-free" rate of return.
 
Observer Walt said:
Hopefully not coming down by that much! The property looks good (assuming no mold, as cdr suggests may be the case). And I like the location. But if you want to become a landlord, hopefully you would want to get a bit more than a current "risk-free" rate of return.
Click to expand...

I agree one wants more return but the reality is it will be tough to guarantee even 3% here.

There is a reason investors buy 1 bedroom units for renting out. The economics work better.

Houses can make sense but the prices in Toronto make this difficult. Not impossible but difficult.
 
#912, 438 King St. W.
$1950 rental
http://www.realtor.ca/PropertyDetails.aspx?&PropertyId=9618170&PidKey=1108389325

or $400k to buy
http://www.realtor.ca/PropertyDetails.aspx?&PropertyId=9796458&PidKey=1027080721

$23.4k gross income
($4.9k) condo fees
($3.3k) taxes
$15.2k net income, or 3.8% cap rate

and does not include deductions for
-vacancy allowance (3% of gross)
-management fee (3%-5% of gross)
-repairs & maintenance
-non-recoverable utilities

Which brings the cap rate down to 2% before taxes.
 
Last edited:
thanks for starting this thread. Are these typical cap rates, or unusually low cap rate examples selected from MLS? These examples show what little return these prospective landlords will get (2%), and don't even mention the trouble/responsibility of being the owner.

My property has 8% cap rate, but that is only if I use the 2002 purchase price in the denominator. Ive struggled a lot with whether to sell, but decided to keep it because the rental cash flow is more stable than equities, the return is better than fixed-income investments, the prospect of 10% RE transaction costs pisses me off, and I've streamlined the landlord gig pretty well. So I'm staying put for now, but would never consider the examples posted above.
 
ponyboy said:
thanks for starting this thread. Are these typical cap rates, or unusually low cap rate examples selected from MLS? These examples show what little return these prospective landlords will get (2%), and don't even mention the trouble/responsibility of being the owner.

My property has 8% cap rate, but that is only if I use the 2002 purchase price in the denominator. Ive struggled a lot with whether to sell, but decided to keep it because the rental cash flow is more stable than equities, the return is better than fixed-income investments, the prospect of 10% RE transaction costs pisses me off, and I've streamlined the landlord gig pretty well. So I'm staying put for now, but would never consider the examples posted above.
Click to expand...

I think there are a fair number of us in a similar position who have bought real estate a while ago and have become accustomed to a steady rent cheque, even if not neccesarily as good as even your 8%. this is the reason why I said at $400/sq. ft condos were borderline but at $500 did not make sense and I can't understand $600 with a view to renting.
 
ponyboy said:
Are these typical cap rates, or unusually low cap rate examples selected from MLS? These examples show what little return these prospective landlords will get (2%), and don't even mention the trouble/responsibility of being the owner.

My property has 8% cap rate, but that is only if I use the 2002 purchase price in the denominator. Ive struggled a lot with whether to sell, but decided to keep it because the rental cash flow is more stable than equities, the return is better than fixed-income investments, the prospect of 10% RE transaction costs pisses me off, and I've streamlined the landlord gig pretty well. So I'm staying put for now, but would never consider the examples posted above.
Click to expand...

The sale prices and rental amounts for the properties quoted above are comparable to similar properties in the market. I think they provide strong evidence that the current sale prices are likely to only be sustainable in the face of continued speculative increases in resale values, or substantial increases in rental rates.
 
daveto said:
The sale prices and rental amounts for the properties quoted above are comparable to similar properties in the market. I think they provide strong evidence that the current sale prices are likely to only be sustainable in the face of continued speculative increases in resale values, or substantial increases in rental rates.
Click to expand...

Dave is absolutely right in his conclusions here. I will go one step further and suggest that not only will there not be increases (either speculative in resale going forth for the next few years) but that there will also be rent decreases (not significant ones but perhaps $100-150 / month on a 1 bedroom as more product hits the market.

Again, I am talking about downtown Toronto condo markets.

I conclude this based on the following. Rents 10 years ago were $1500 and have not increased. When alot of new product hits the market, competition will drive down prices at least in the short term. Even with an increase in price to double approximately where the condo prices were then, rents did not increase in the past few years other than fluctuate and perhaps go up by 10% maximum despite a doubling of price to buy.
 
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