Investing

How to invest PROPERLY and what you should be looking for…

Every time I hear an investor who wants to buy in Milton, I kind of shake my head and wonder why.

Almost every home in Milton is NOT a good option to invest… at least using the criteria we teach.

Over the last 20 years or so, Milton has experienced mostly positive price increases, with a few short-lived downswings in 2008, 2012 and 2017.  Smart investors know that it’s great to have this type of appreciation, but it’s never guaranteed.  So you aim for it, but if it doesn’t happen, it’s not the end of the world.

We teach first-time investor classes, and what we focus on is a simple formula…

Does the income generated by rent exceed the regular expenses of the property?

In other words, the very first criteria we use is that the property must be cash-flow positive.

If it’s not, we don’t endorse it.  And if we were buying, we wouldn’t go near it.

The income side is pretty easy to assess – how much rent would a property provide?  Generally, if the same property is split into smaller pieces, it will provide more rent.  The same home rented to a single family might rent for $2,300, but if a basement apartment was added, you could potentially have slightly less upstairs (say $2,000), and another $1,300 from the basement.

If that $1,300 basement was split into two units, you might get $800 each for them, yielding a higher total.

You get the picture.

Single family occupied homes are no longer cash-flow positive with today’s 2019 prices.  The entry point for a single family freehold home is $550,000 or more, and those properties might rent for $2,100 a month.

Two-storey townhouses?  $600,000+ and they would only rent for about $2,300.

Condos, semis, and single-family detached homes… they’re all the same.

If you do the numbers, they don’t add up.

The home, purchased with 20% downpayment, will not carry the expenses of the mortgage, taxes and general upkeep.

As an investor, take emotion out of the equation.  If the numbers don’t work, you don’t go any further.

What do these properties have in common?  They were all sold in the $600’s in 2019, they’re all bungalows, and every one of them was a great investment option!

 

The Rule of 1/2

The simplest formula comes from analyzing hundreds of properties from all over North America.

THE MONTHLY RENT MUST BE 0.5% OF THE VALUE OF THE PROPERTY (or more)

That’s the “Rule of 1/2”, and unless a property satisfies this criteria, we won’t look at it.

As you move up in the price range past the small townhouses in the $500’s, you’ll find older bungalows.  Often with side entrances already built-in.

And remember… in order to have a LEGAL second suite, the home MUST be detached.

The lowest priced detached homes in the area are older bungalows.  This isn’t even up for debate.  Many of them cost less than brand new, tiny townhouses.

You can pick these up in the $600’s, and to me they’re the only properties that make sense anymore.

By the time you fix some of them up, you want to be below $700,000.  A well-done bungalow should be able to fetch about $2,200 upstairs and AT LEAST $1,300 for the basement.

$3,500 rent on a $700,000 bungalow.  That just barely makes the mark.

But it’s better than nearly EVERY other option out there right now.

Condo?  Pay $400,000 for a 1-bedroom, and it rents for $1,700.  $500,000 for a two-bedroom and get $2,000.

Believe me… I’ve looked at all of them.

And in this community of Milton, bungalows with basement apartments are the ONLY remaining option for savvy investors that want to be cash-flow positive.

Are there other options outside of Milton?  ABSOLUTELY.  There are even some communities where you can make 1% of the value of the home in rent every month.  As an example, a client just bought a home for $235,000 in Ontario that rents for $2,000 a month.

There are lots of options if you’re looking to invest in real estate.

We believe Milton is a fantastic community to raise a family and to live.  But it’s not a good area for cash-flow positive properties.

The values are too high compared to rents.

If you’re interested in investing in real estate PROPERLY, just reach out to us… or come to a class.  We’ll show you the right way to analyze a property so that you won’t get stuck in a bad investment.

And we’ll also share different real-life examples of properties across Canada and the United States where people are making real profits, safely and predictably.

But it all starts with the numbers.

Hope to see you at one of our classes soon.

-CC

Comments

  1. I’ve been contemplating buying either new (or newer) high rise condos in the downtown Hamilton area or a few detatched homes in Hamilton in or very near to the downtown area. Prices are much cheaper than in other areas in the GTA and it appears that Hamilton might be on the verge of an upswing in housing prices as it is now being cleaned up and is becoming a more desirable and affordable area. Do you thing buying property there is a good idea and if so, what types of property do you thing will be the best investment?

    Thanks in advance for your input.

    • Hi Deon, the problem with brand new condos is the lack of building history. We see quite often that the condo fees rise substantially after a few years. Plus, you would be paying an “occupancy” fee before the building is registered with the City, which many builders don’t explain well to buyers.

      I believe in a bright future for Hamilton for many reasons like the LRT, and more white collar job opportunities. They are reinventing themselves to be more than just a “steel town”. Locke Street has some amazing new & trendy restaurants.

      Our investor clients do well with detached homes in Hamilton. That would be my first and foremost recommendation, depending on the budget. They will appreciate more than condos in the future.

      Glad to chat more with you anytime.

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