Quote:
Originally Posted by idga-f
Say I have a house and a mortgage but I would like to get into another house as strictly a rental property, how would I go about doing this?
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Find house, buy house, rent house.
Its not very hard, yet sounds like you haven't run the numbers:
1. What are rents in the area you want to buy?
2. What are mortgages in the same area? property tax? condo fees?
3. Can you rent and make a profit? (not just break even, I'll explain why below)
4. What is the vacancy rate in the area you want to buy?
Quote:
Originally Posted by idga-f
If i've got a 10% downpayment saved up already for a second home is that all I would need?
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You may find it hard to get a rental property with only 10% down. When I looked 5 years ago many places wanted 15% down or $100K net worth (not including home equity).
Plus you'll have to pay CHMC fees.
Quote:
Originally Posted by idga-f
I could probably afford both mortgages but ideally I would not want to be stuck in that situation.
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That's a huge plus. Means when the worse occurs, and it will, you won't be forced to sell.
Quote:
Originally Posted by idga-f
My guess is that I would have to figure out how much rent I could get from my tenants and then be able to cover the balance of the mortgage payment per month. That is what i'm guessing.
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Don't guess, do the math.
Example monthly expenses ($500K 2bd condo in Kits, $400K mortgage, 20%/$100K down):
$1730 mortgage ($1300 interest, $430 principal)
$250 property taxes (0.6% of $500K)
$300 condo fees
$172 income tax ($430 principal taxed at personal income rate, lets say 40%)
$XX property management fees ($0 if DIY)
==
$2452 monthly rent required just to break even
Notes:
1. The
underlined portion is what most people forget. Sure you can write off expenses to try and reduce this, yet with only a single rental property the number of expenses you're allowed to right off is limited.
2. Rents in Kits are $1800-2200 for $500K 2bd condos. You'd be losing money in Kits. Prices are similar in West End, Yaletown, North/West Van, ...
3. $1730 is at 4% over 35yrs. It could be ~$2200 when you renew if rates are 6%. Do you think you can get $500 more in rent in 5 years?
4. Vacancy rates are up this year compared to last, and should go higher after the Olympics. How long can you afford to have a rental sit unrented? How low can you lower rent to entice renters?
I'm looking for a place to rent currently and have noticed this:
- vacancy rate is much higher, many more units available than last year
- some units are sitting empty for at least a month between renters
- some units have reduced prices for Oct 1, since they didn't rent for Sept 1
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Using the example, if you broke even renting, after 5 years the only "profit" you've made is the money paid down on the mortgage (we're going to assume house prices stay flat in Vancouver for 5 years, very possible) == $430 x 60 mns = $25.8K
Consider the 20%/$100K initial investment, at 5%/yr would have made you: $27.6K Without the hassles of renting/maintaining a rental property.
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Moral of story: Unless housing prices go up, there's very little money to be made in buying a rental in the over-priced Vancouver market since its near impossible to rent and make a cash flow profit.
My advice: You'd make more buying investments with low yields for the next 5 years, then buy a rental property before the next housing boom.