Looking for Opinions: buying a condo to rent

[marklin]

I need some precious opinions:

Is it worthy to buy a condo in center downtown(1 bedroom apartment - costs about $180K without mortgages) and rent it out at $800/month? I know I've got to factor in the condo fee, property tax, and the risk of vacant condo in some transitions...etc.

In general speaking and in a long term (say 10 years), with the increase trend of ottawa maket and with some net rent income, will it be a better outcome than a GIC or mutual fund invesment?

Thank you for your inputs! :glowface:

 

[dkwan]

Hope this helps:

For this type of analysis, you are looking at yeerly annual ROI(Return of investment), as it to compare other investment since they are shown in yearly Rate of Retrun.

Your annual income:
Monthly Annually Taxable Taxable Income
Rental: 800 9600 100% 9600
RealEstate price increase(7%*) 12600 50% 6300
Approx annual income 15900

You annual expenses:
Property tax (1%) 1800
Condo fee 200 2400
Maintenance 1200
Approx annual expense 5400

Calculate Net Investment income:
Annual taxable income - annual expense
15900 - 5400 = 10500$.

Also, assume tax bracket at 33%, total net pocket will be 10500 * (1-.33) = 7035$.

Therefore, your after-tax annual ROI is 7035/180000 = 3.91%.
and your before-tax annual ROI is 10500/180000 = 5.83%.

If you can find any investment that is higher than 5.83%, you should kindly forget the rental income.

Notes to consider:
1) Assume is 100% rented out, reasonable rental is 75% occupancy
2) According to (*), houses increased very rapidly in the last 10 years, and its not predicting any future trend
3) Propert tax is increasing each year, and also be your rent

*http://www.scotiacapital.com/English/bns_econ/retrends.pdf

 

[marklin]

what a clear analysis! thanks a lot!

 

[marklin]

How about if I mortgage to buy a condo? With a minimum downpaymnet, if I can use the rent to pay off the mortgage payment(with a longer term), I will own a condo, say after 35 years. And a $180k worthy condo today might be worthy $360k (2% increase/year) after 35 years. Is it going to be a different senario? :blink:

 

[dkwan]

Let me create an scenario for you, generally for investment property is put 25% down, to minimize the cost, and the fees.

 

[dkwan]

Lets review this scenario,

If you have a mortgage of 75% of the property value. You will create a whole different ball game.
Assuming mortgage 180000@75%,
5.15% compound semi-annually, over 35 years = 689.58/month
5.15% compound semi-annually, over 30 years = 732.62/month
5.15% compound semi-annually, over 25 years = 796.73/month ( default )

Income will stay the same:
Rental 800/month = 9600/year
^7% 12600/year ( just wanted to compare to above, but you could play with the number a bit )

Total Taxable income = 9600 + 12600@50% = 15900$

Expenses will increase:
Property tax (1%) 1800
Condo fee 200 2400
Maintenance 1200
Mortgage payment: 9560.76
Mortgage interest (1st year: 6815.53 )
------------------------------------------------------
Total expenses: 14960.76
Eligible expenses: 12215.53

Therefore, total net income = 3684.47

Total after-tax income(@33%) = 2468.59
---------------------------------------
ROI( after tax = 2468.59/45000 = 5.49%
before tax = 8.19%

You can put 135000(cash) into other saving vechicles to get additional income

Notes to consider:
1) 7% increase called unrealized gain, means you have to sold your property before you can earn it. Therefore, your expenses is 14960.76 - 9600.00 =5360.76 ( need to come out from your pocket )
2) you can lowered the real estate to 4-5% to play with.
3) Any question, just call me and i can explain to you in a more detail meeting

David

 

[挺傻]

借助DKWAN的计算，我个人的几点意见：
1.一个在市中心，CONDO FEE要200块钱，市价在180,000的CONDO，月租800可能过低了。我个人认为这样的房子要租到1000左右。所以要考虑你选定的房子的位置，如果租金低，价格不低，宁可放弃。
2.除非你没有其他收入或者及其低，要不RENTAL PROPERTY不贷款在税上非常亏。如果你有BORROWING CAPACITY，我建议你DOWNPAY都从银行贷。（不是说你不需要具备首付的资金，那些资金可以用来做其他投资，这个完全是从税的角度考虑的）
3.通过合理借贷方式，你可以实现你投资的INVESTMENT PIE。就是固定资产和基金股票投资都有。而不是单一的固定地产投资。投资的基本原理，多样化，是什么时候都要考虑的。
4，以上都是关于你说的CONDO投资的考虑，我个人认为在你投资房产的时候最需要弄清楚的是你要GENERATE INCOME还是你希望今后的CAPITAL GAIN.因为这两个目标你选的房子的类型和你的投资计划是不同的。
希望可以提供些帮助，谢谢。

 

[marklin]

Thank you both for valuable input! Our main purpose is to divert the portfolio, i.e. not putting all money in funds/stocks, but also looking to generate some income to pay off the expenses the property incurrs (condo fee, property tax..)

So, in summary, it's not a bad investment after all to mortgage a house to rent! Anyone knows anyone who is currently doing so? I just wonder how much troubles i need to bear to be a landlord.After all, you don't want to have a bad tenant or leave the condo vacant most of the time...

 

[dkwan]

I am also landlord for 2 single house properties.

Need a credit check for all tenants, and be sure to understand how to interpret the report.
You would rather to rent lower to good credit than higher to a bad credit.

QQH me for more in depth detail.

 

[dragonLinux]

very good post!

 

[bulaoniu]

The estimates given by David were very thoughtful, but the following add on the positive side. In addtion to a higher than $800 rent, I think: (1) the $1200 maintenance expenses may not be necessary if the condo is relatively new, at least not that much. And since you paid condo fee already and the maintenance expenditure outside of your unit will be covered by that. (2) The rent generally increases 3-5% per year as set up by the Ontario government. (3) Some expenses related to to manage the rental units can deduct your rental income further and thus offer you some tax advantages, for example, you have to drive there to collect the rent and so on. Gas and car related expenditure can be used to reduce your tax. Hope these can help you make decision.

 

[hookedonfishing]

dkwan and 挺傻 :
Ask one question.
Sometimes at the agent's real estate list, there are things like:
"schedul"A"or schedule "B" to accompany all offers."
What does it mean?
Thanks

 

[tim2005]

Looking for Opinions: buying a condo to rent

我个人认为在你投资房产的时候最需要弄清楚的是你要GENERATE INCOME还是你希望今后的CAPITAL GAIN.因为这两个目标你选的房子的类型和你的投资计划是不同的。
希望可以提供些帮助，谢谢。

could you explain a bit more please? Thanks!

 

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[Sean Mama]

I need some precious opinions:

Is it worthy to buy a condo in center downtown(1 bedroom apartment - costs about $180K without mortgages) and rent it out at $800/month?

Is it a new condo?