We learn about real estate everyday and are getting better and better at evaluating properties! Now we can just look at a property and know whether it fits into our strategy or not, without having to do the math. But sometimes we do the math anyway just for fun.
At the moment we’re still in information gathering mode, not mention still in Europe (Montenegro, soon Croatia!). So haven’t purchased property in Canada yet. But we are actively looking, have contacted a realtor, joined a local investors club that connects us to more resources, and are gearing up to jump in with confidence when that time comes to buy our first property.
WHAT WE WANT – with numbers!
We’re looking for cash flowing multi-family homes in smaller cities for not more than $150K including renos.
We want to cash flow $100 per door, with cap rates of at least 8%, and an ROI of 10%.
Many of the Americans cash flow way more than that and/or look for at least 15%-20% cap rates, with crazy ROI.
But the Canadian market is very different. We can’t buy 5 bedroom houses in good condition for $25K and then rent it out for $650 with no work!
Our ROI is also lower because we plan on doing an all-cash purchase at first, and then later refinancing if possible. I kinda like calculating with all-cash, because I don’t want to mask a bad investment with high leverage.
WHERE: Southern Ontario
Southern Ontario (or a 3-hour drive from Toronto) is my main target. This area is the most populated area of the entire Canada, and borders the USA so has lots of thorough-traffic and business, tourism, etc… Also the weather is supposedly the best in the country, though that’s not saying much. 😕 I’m also slightly more familiar with this region as I grew up in Toronto (which is in south-eastern Ontario), and it’s easier to research since we’ll be living nearby in Toronto proper.
There are 2 cities in southern Ontario where investors are flocking to because they can fetch a duplex or triplex for around $130K depending on condition. These tend to cash flow, with one city in particular having very low vacancy rates. Both cities are known as depressed crappy cities, at least to my friends from Toronto.
From our calculations, we should be able cash flow $50 to $200 per door depending on lots of factors.
WHERE: Northern Ontario
I decided to expand my search to other areas of Ontario, and found another potential city! This one is in northern Ontario and is a 7-8 hour drive from Toronto. Unlike the south, northern Ontario is quite sparsely populated and way less familiar to me.
But the numbers are very enticing!
For the price of ONE duplex in southern Ontario, we can get TWO triplexes in northern Ontario!! ($65K – $85K each)
That means 20%+ cap rates and 9%+ ROIs. I feel like I’m doing something super wrong, because I haven’t seen these numbers anywhere else in Canada. So I’m a bit stumped and need to talk to a local investor about it just to calm my soul. It can’t be right, can it?!?!?!
Which has better cash-flow?
While we hope to cash flow a couple hundred (or at least something) in the south, in the north we could be cash flowing $1,800 per month if we bought the 2 triplexes and had them at full vacancy!! One triplex is full already and cash flowing $800 a month (stated in the listing but also matches my calcs). The other triplex has 2 vacant units (one we would move into ourselves) and 1 long term tenant.
Both triplexes seem to be in good condition, good areas, centrally located, and with some Airbnb potential.
Which has better appreciation?
No one can be sure about appreciation, but everyone likes to guess!
So I’ll take a shot.
Since the northern city’s economy is heavily dependent on ONE industrial company, it’s quite volatile as a long term investment. Appreciation will not be as strong as in other areas. Whereas the southern cities rely on more than one company for their economy, with big universities and colleges, and a healthy population growth. So mild appreciation is expected in the south.
But appreciation of multifamily (MFH) homes are typically lower than single family homes (SFH). SFH’s are usually in better areas and there is more of a market for them.
So what will we do?!?!?!!!
The northern properties are VERY VERY tempting. Also since we intend to house hack (aka live in one unit), we want to like where we’re living and think we would prefer the lifestyle of living in the north rather than the south (even though we’ve never been there!). The north has lower population density and more natural landscapes. It is quite a pain to get to Toronto though, where our family lives and where the Pearson International airport is.
I want to visit the northern city, maybe make a trip out of it with my parents as my birthday gift to them (shouldn’t parents be getting gifts for their kids’ bdays?!?!?!). My parents have NO interest in visiting the southern cities btw, but the northern one has some beautiful scenery especially during the autumn. See above pic!