Just buying real estate blindly and hoping it will increase in value is no longer an option. A recent analysis found that recently nearly all Toronto homes purchased would lose money for their owners in the rental market.
What? Does that mean you should not invest in Real Estate? No, you just need to approach it differently.
It takes careful consideration on what property you will purchase and how it will generate rent. You need to examine the surrounding neighbourhood to understand the appeal it offers residents, take a look at the local economy to ensure it’s supportive of long-term housing demand and evaluate the property itself in terms of rentability.
Cashflow is very important. Though ideal, positive cash flow isn’t necessary for a property investment to ultimately be considered successful. A negative cash-flowing home can still be a winner in the long run — if it appreciates in value over time, and if you can afford the monthly cost. Negative cash-flowing building gets more into speculating and it can get investors into trouble. You never know when money will be tight and positive cash flowing property will be a welcome addition instead of a constant drain on your monthly finances.
To calculate cashflow simply take all the monthly income less all expenses. Also don't forget to budget for repairs and vacancy. Also if you are hiring a property manager that's an important expense. Otherwise you will need someone available 24/7 in case an issue occurs at the property.
Here is the cashflow formula:
Determine the property’s gross income. Based on the home’s condition and local rent values, how much will you realistically be bringing in from rental income every month?
Add up your monthly expenses and subtract them from the gross income. Taxes, maintenance fees and property management costs all need to be included here, as do utilities if your tenants won’t be paying them.
Include maintenance, management, and vacancy. This means potential repairs on the property, property management costs, and a bucket for when the property becomes vacant... and chances are that it will from time to time.
Cash flowing properties can be found... they are just not easy to come by. Read our report on investing fundamentals to learn how to start researching. Link below.
If you would like to understand more about real estate investing fundamentals we use and apply them to your portfolio download this report: mike-report.gr8.com
An alternative is to invest passively with an experienced partner in a larger deal that will cashflow using our proven system and team. It takes the headache out of the equation. Sign up here to find out more about our current opportunities: https://www.mikebeer.ca/bookings-checkout/direct-investment-multifamily-comm/book