Any real estate investors out there? I started in the whole real estate game when I graduated from University in 2003. My wife and I bought our current primary residence in the summer of 2003, and our first rental property not long after.

Let me just tell you that being a landlord is like having a second job, and not always fun at that! I’ve had to deal with all kinds of tenants – from very good to insanely bad. The type of tenant that you pick to live in your investment will make a world of a difference. Point being – be picky over your tenants.

Anyways, back to the point of the post, my criteria for purchasing rental property. I have some set rules that have to met before I purchase an investment property.

These rules include:

1. The property must be cash flow positive.

  • Find out what the market rent is for the area, you can typically find this through real estate agents, other real estate investors, or simply by viewing the rental listings in your newspaper.
  • Subtract this by the expected expenses with the rental property. Some expenses include: Mortgage, property/water tax, insurance, maintenance, vacancy, and property management costs.
  • Your CASH FLOW must be positive from day one.
  • If you live in a very expensive housing market and rents don’t cover the mortgage, then I would suggest not becoming a landlord. It simply doesn’t make sense to purchase a property in the “hope” of appreciation. It will only be a matter of time before the property will suck the life out of your own cash flow.

2. Nice neighborhood with low vacancy rates relative to the rest of the city.

  • From my experience, it is ideal if you own a house in a nicer neighborhood because you can charge higher rents with lower vacancy rates. I have also found that nice houses attract nice tenants.

3. I prefer houses that are in good shape and move in condition.

  • I’m personally not the handiest of people (getting better), so I would prefer houses that don’t need a lot of work. I don’t mind buying home that need minor cosmetic changes (paint, cleaning etc), but no major work.

4. I prefer to buy houses that are under market value.

  • You all know that I’m frugal, so I always look for a deal whenever I buy ANYTHING. Housing is no exception.
  • Ways to find houses under market value – landlords who are sick of being a landlord, houses that need cosmetic work, pre-foreclosures, foreclosures, and listed houses that have been on the market for a while. I could go on and on about this topic, but that is beyond the scope of this article.

For you real estate investors out there, what is your criteria for purchasing investment property?

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  1. The Financial Blogger on July 5, 2007 at 7:56 am

    Hi FT,
    What kind of rental property do you have? a single home? Duplex, Triplex?
    I’m actually thinking of buying a rental property and I also want to have positive cash flow on day one. I am starting to think that if I don’t put 35% cash down, it will not be profitable right away. However, I would like to buy the property with a minimum cash down, 30-35% is silly.
    How much (percentage wise)do you suggest to put as a cash down?

  2. FrugalTrader on July 5, 2007 at 8:01 am

    FB, the rental property that I currently own is a single family home. I put 10% down on the property b/c I didn’t have a lot of cash at the time. If I had my time back, I would have put enough to eliminate CMHC fees. So to answer your question, if I were to purchase a property today, I would put a minimum of 20% down.

  3. Q Cash on July 5, 2007 at 10:09 am


    I own a couple rental properties. One is a duplex (house with basement apartment). I have an excellent tennant who is very handy and does all the minor repairs and major stuff he just asks if it is okay and lets me know if there is a bill. When that mortgage was paid off, the house was a great investment and provides great cash flow.

    I have another house closer to home with two apartments and a commercial outlet. That was a nightmare when I made the mistake of letting someone rent both the commercial portion and the residential portion. When the business faltered, I had to still collect rent on the residential portion and the relationship soured significantly.

    I would like to sell the first property and develop the second property. I haven’t listed the first property because I am going to get hit with a big capital gain, so I am waiting until I get a handle on my income tax situation in “retirement”.

    The second property would lend itself to a complete makeover and revitalization in line with plans for our downtown. I am waiting for the town to pass a Community Improvement Plan which will waive development charges and provide incremental tax incentives (I expect this within a year) and I will look at this in greater detail.

    If I could do it all again, I would probably buy a monthly income fund or REIT and just keep reinvesting the dividends. A lot easier, a lot less time and headaches and now that I don’t want to do it anymore, easier to divest :-)


  4. FrugalTrader on July 5, 2007 at 10:15 am

    Q, do you own any REIT’s right now? Which ones do you like today? I’ve been watching REI.UN which own commercial properties across Canada who have tenants like Walmart.

  5. AJ - on July 5, 2007 at 11:50 am


    I’ve been wanting to get into rental units for some time, but various circumstances have held me back. After a recent divorce, I’m back to living in a rental myself. When I began house shopping, I quickly realized that I would not be able to afford the size and quality of home that I really want so I decided to downsize my shopping substantially and to deliberately underbuy (I am buying at about 60% of what I was pre-qualified for).

    The idea was that this would be my first rental unit and I’d be the first tenant for a few years while I get back on my feet and build myself up to where I can buy the type of house I actually want. I put a townhouse under contract last week and I believe it pretty much meets all of the criteria you set above. And what better tenant could I ask for (myself) to start things off :) I’ve never been a day late on rent/mortgage, never damaged a place I’ve been in and in fact have done self fix-up and left many places in a better state than when I began renting :)

  6. FrugalTrader on July 5, 2007 at 1:12 pm

    AJ, great story! Since you are single now, I think a good plan would also be to buy rentals, live in them, then buy another and move into it. Meanwhile keeping your old houses to build your rental portfolio. That is, if you want to have a rental portfolio.

  7. Warren on July 5, 2007 at 2:16 pm

    Great comments. I fell into the landlord gig when I moved out of my small studio to live with my girlfriend.

    I have to agree that tenants can make or break the situation. My rental property is in a strata, with the fees that entails, plus a full time building manager. I think that this type of arrangement helps minimize the work I need to do, and includes a very predictable, regular expense (the strata fees). I’m an amateur handyman at best, and I feel the risk and work involved in being a landlord of a single family home (or duplex) is a little too much for me to handle.

  8. ThickenMyWallet on July 5, 2007 at 2:32 pm

    I have a strange question for the landlords- would you be willing to accept less rent from a tenant who is well-behaved, tidy and handy?

    I would add avoid condos generally- you have no control over your expenses in that a condo board sets your monthly fees (which are rolled into the rent in Toronto).

  9. Mr. Cheap on July 5, 2007 at 2:35 pm

    I recently wrote an 8 part series about my foray into real estate investing (I won’t rehash it here – see my blog if interested), but I agree 100% with each of your points.
    It’s actually surprising, but you can get cashflow positive properties in expensive areas (I got a cash flow positive condo here in Toronto), you just have to look for the areas where the prices are depressed and the rent is decent (Point #4 in the post)
    I’m willing to accept a LITTLE more damage to the unit then you are (paint, repair holes, replace flooring – I’d even gut and replace a kitchen and bathroom if the price was right), but I expect to get a VERY good deal if I’m going to have to renovate (and I just hire contractors to do it).

  10. Warren on July 5, 2007 at 2:38 pm

    I generally price my place a little low when I’m looking for tenants, that way you get your pick. Trying to be greedy and price high is a recipe for disaster.

    I’m from Vancouver and I heard recently that condo fees in Toronto were much higher, so I can’t comment on that, maybe its not such a great idea in that part of the country. In Vancouver we (as owners) vote every year on a budget, where the money goes, etc. Anything left over is held by the strata for use the next year, or for major projects, etc.

  11. Bootsie on July 5, 2007 at 2:44 pm

    My husband and I have two rental properties. As FT suggests, my husband lived in each of them prior to us buying our house.
    Both houses are now student rentals (5-6 bedroom) and are cash flow positive with only 5% down and pretty large insurance premiums. In the early years, we were netting >$1k per house because of very low vacancy rates in the area. Fast forward a few years and things have changed. Many of the family residents in the area started to realize the profits that others were seeing and converted their homes to student rentals.

    We’re still cash flow positive but barely. :( I agree that REITs would be a better bet. Mostly because, as Q Cash says, it’s easier to divest (which we would like to do now).

  12. Canadian Capitalist on July 5, 2007 at 3:00 pm

    I’ve never invested in rental real estate because I just can’t be bothered. I do have friends who are into rental properties and I always find the way they compute the rental yields strange. So, here’s my question to the landlords in this comment thread:

    1. To estimate cash flow do you account for the possibility that the property could be vacant?
    2. Is a positive cash flow enough, or do you look for an yield on your down payment that is at least equal to a GIC?

    I have no expertise in this area, but my friends ignore (1) and (2) and claim that they are getting an extra $50 or $100 in their pocket.

  13. FrugalTrader on July 5, 2007 at 3:13 pm

    ThickenMyWallet: If the tenant was guaranteed to be good (you know them personally), then yip, I would definitely give them a discount.

    CC: The way that I structure my deals is that I ensure that the property is cash flow positive. With that established, I personally look for a minimum of $100/month/unit of profit after all fees (not including vacancy).

    For me personally, I’m making around $250/month on a $12k down payment, which works out to be an annual dividend yield of 25%. This is a bit on the high side as the down payment is low. I expect my yields to be a bit lower in the future as I will put more down.

    Another note that although being a landlord can be highly profitable, it is a second job if you have bad tenants. Find good tenants will make a world of a difference.

  14. Mr. Cheap on July 5, 2007 at 6:21 pm

    CC: Its a little bit tough to give an absolute ROI for real estate. Cashflow is important, but there are other ways you get money out of your property (tax considerations, appreciation, buying at a discount, selling at a premium, etc, etc). If I was deciding whether or not to buy a property, I definitely would take vacancy into consideration, and would probably want to be doing better then prime on the investment (I’d want more then beating a GIC). In terms of monthly cashflow, I may or may not take these into consideration (I lost money a last month when I replaced a dryer, but my tenants are on a least for another 10 months or so).

  15. GlobexInvesting on July 5, 2007 at 6:53 pm

    Yikes – real estate investing makes me uneasy. In Toronto, the cap rates are now below 8%, and in many cases even at no vacancy and not counting unforeseen repairs, it is very hard to even pay the mortgage with your rental income.

    The selling prices of non-rentals has gone up so much that it has actually dragged rentals along for the ride, but rents themselves have not really increased! As a result, you can rent a 2 bedroom apartment in downtown Toronto for $1000 a month, but if you are trying to rent a newer condo (basically a glorified apartment) you’re paying about $1500-2000 a month instead! Therefore, some people are having a hard time renting their units and there is the talk of a bubble forming in the condo market (though I still don’t see how Vancouver hasn’t burst yet – that condo market is even hotter). It is definitely a good time to be a renter – very low rents in Toronto now (in older ‘apartments’, not condos) relative to purchasing. Basically, rents are at the same level they were at 10 years ago, but buying a place has gone up at least 50% over the same period.

  16. sam on July 5, 2007 at 6:57 pm

    investing in canadian REIT index through ishares..

    i was wondering about investing in REIT…a few questions ..if some one could answer..
    1) would REIT’s be affected by nex tax changes for Trusts.
    2)REIT pricing would it reflect real estate sentiment or stock exchange sentiment..

    any further advice/expeiences on REIT investments would be welcome

    thanks in advance..

  17. FrugalTrader on July 5, 2007 at 8:15 pm

    1. REITs are safe from the tax changes (for now).
    2. God only knows the answer to this one. I would say it’s a factor of both.

    I will write about REITs next week.

  18. Q Cash on July 5, 2007 at 11:30 pm


    I don’t currently own any REITs although I have my eye on a couple to add to my portfolio REI is one of them. But, with my current portfolio heavy on realestate (in real numbers), I am hesitant to head there right now.

    I do like the idea of the ishares index, but I haven’t done too much with the ishares (yet, they may be my first foray into leveraged investing — still don’t have my wife’s blessing ;-)


  19. on July 6, 2007 at 12:22 am

    A few random thoughts

    * My preference is still REITs over direct ownership of a property. Since landlording a second job, I’m basically earning a salary rather than passive cash-flows from REITs. Most REITs have yields > 5-year fixed, and they’re diversified and managed by professionals.

    * Is positive cash-flow enough though? If I have a 100% down payment, any house in the city can generate a positive cash-flow. An investment should stand on its own merits independently of how much down payment one has.

    * How does one manage taxes when he moves into a second home, and rents out the previous one? For instance, say he’s mortgage-free. If he refinances to take out a loan against 80% of the equity to buy the second home, the borrowed money is used to buy a primary residence, which doesn’t quality for tax-deductions.

  20. FrugalTrader on July 6, 2007 at 9:05 am

    FJ: Great points! Landlording is definitely more involved that REITs, but buying investment properties @ great prices can yield huge results. But again, it requires a LOT more work to own properties. On top of that, people use leverage to purchase investment properties b/c of the tax benefits, it’s not very often that you’ll see an investor use all cash to purchase a property.

    Great points about the tax deductions when changing primary residences. You are right, when you borrow to purchase a primary residence, the loan is not tax deductible. Probably best to talk to a tax professional to advise on the situation.

  21. Mr. Cheap on July 6, 2007 at 9:23 pm

    FJ: Very good points. I was going to comment on the amount of down-payment to make it cash-flow positive. Basically I want any property I buy to be cash-flow positive by MORE then what I’d earn if I was GETTING the mortgage rate instead of paying it (e.g. if I made a downpayment of $20K and my mortgage was 5.69%, I’d want the property to be over $95 / month cash flow positive. So if I bought a property outright, I’d want to be getting about a prime level cashflow ROI.

    Borrowing 80% out of a investment property to buy a principle residence wouldn’t be a very tax efficient approach (since, as you say, the mortgage wouldn’t be tax-deductible). You’d be better to either get the mortgage (or not pay it off) while you’re living there (and I believe it would then become deductible when you moved out and turned it into an investment property), or else spend the minimum of the 80% on a downpayment on the new house and invest the rest (and your accountant will hate you).

  22. Jason on July 11, 2007 at 4:35 pm

    How does one determine market rents. Do you use the Canadian equivalent to MLS?

    Everyone keeps talking about how hard it is to land lord, what about property managers? It may decrease your profit margins, but if you can manage to find a good one, then your life will be allot simpler.

    As for REITS, i like them, but they aren’t real. I think its a good idea to have a mixture of real assets and paper assets. The stock markets can take a dive just as easily as the real estate market. That’s why I like the idea of having some money in natural resources like gold too.

    Disclaimer: I am in school now, so I don’t actively invest. I fully intend to when I am done.

  23. FrugalTrader on July 11, 2007 at 8:07 pm

    Jason, property managers around here take 50% of the first months rent, then 10% a month. In terms of finding market rent, you can generally get a feel for this by looking in the newspaper classifieds or craigslist for your area.

  24. The Financial Blogger » July Top Ten Posts on August 1, 2007 at 7:32 am

    […] Criteria for Purchasing Rental Property by Million Dollar Journey: As I am looking into buying a rental property in the future (2 years […]

  25. J at Home Finance Freedom on August 4, 2007 at 4:08 pm

    Hello. FT or others wondering about the best downpayment might want to look at the numbers I crunched in “Inflating Leveraged ROI Can Ruin You” (click name link if interested). Thank you.

  26. […] FrugalTrader05:00 amAdd comment So, after you've followed the criteria for purchasing a rental investment property and snapped one up, how do you screen your potential […]

  27. Connie on October 29, 2007 at 11:40 pm

    Buying a rental property and becoming a landlord is not rocket science. I bought my first primary residence with 5% down, (it was cheaper than renting). When the market went up I took the equity out and bought a 2nd home. This one had a basement suite so I rented the 1st one out and the suite. The rents paid both mortgages and I lived rent free. Market went up again so I did it again, took the equity out and bought the 3rd house. Rented out 2 of them and that paid all 3 mortgages, the 2 new purchases I put 20% down to avoid CMHC. Just sold the 2 rentals and put over 500k in my pocket. Now it is income tax time and I have a sizable capital gain so I am looking at super flow thru shares. If you are in a hot rental market it is a no brainer. I did all this in 2 1/2 years following a ugly divorce which left me starting from scratch.

  28. FrugalTrader on October 30, 2007 at 9:04 am

    Connie, you’re like the super real estate investor mentioned in the last money sense magazine.

  29. Connie on October 30, 2007 at 10:43 pm

    I haven’t read it but I must say just about everyone I spoke with while I was buying told me I was crazy…I was gooing to lose my shirt. The way I looked at it, I only had my original 10k down payment invested, if the market went south I would have to let the bank foreclose, my credit would be no different if they took back 1 house or 3. On the other hand if the market continued to soar I stood to make a good buck. At the time the fact that I was living rent free was the most appealing part of it. I am in a very hot real estate market, last I heard we have the highest rent in Canada and an average home is approx 600k. So yeah it is a bit of a gamble and you for sure need to find a “deal” but they are out there. I don’t look at the house per say but at the rental potential. I have had numerous renters most of which have been very good, the odd bad apple. Like someone mentioned earlier I had one renter who was a Mr. Fix It so I cut him a deal on rent to maintain all 3 as I am not handy at all. Now I am actively searching in another market to do it again.

  30. Connie on October 30, 2007 at 10:49 pm

    I found it amazing how once you have 3 mortgages the bank treats you completely different. Now when they need a signature they bring the paper work to my office. No more waiting for appointments. So it is true money talks…kinda sad

  31. Steve on December 19, 2007 at 9:42 pm

    Hi Connie, I as well went down a similiar path, divorce,3 rental properties,banking stories… however still have one left. I’m also exploring the superflow share route as well… mineralfields out of toronto….for tax advantages and cpaital gain offset…does anyone have any information or thoughts….thks in advance

  32. Spydergc on March 25, 2008 at 5:07 pm

    Ill be graduating this April and will be starting a fulltime job. I know I cant afford to buy a place yet until a few years so I will be renting out. The rental property and portfolio game is interesting. How much work is it as I do not want it currently to interfere with my main source of income that is employment. I’m looking to buy my first place, live in it then rent it out if its worth it, get a new place and so on and so on, thus building a portfolio of properties. Is there another detailed article on the Toronto area landlording scene? Advice would be greatly appreciated.

  33. JR on April 6, 2008 at 1:34 pm

    My expeience in REI began way back when I first came to Canada.

    Working for just above minimum wage in T.O, me and the new wife of one year bought a rooming house after being in Canada one year, We came with almost zero, and scrimpped every penny for the down payment. It was the late 60’s when we did this, the house was old, in fact it had 5-rooms in a 3-story link house circa 1918.

    We lived on the main floor, living room, kitchen and one bedroom. The basment was not rentable, too low ceiling, we used for storage and the bath stall was there

    The rooms were rented weekly and the cash flow was positive from day-one. Saving the cash flow (never paying off the mortgage even back then) and taking our net wages, me and the wife after one year delved into small discounted second mortgages, that we got for 80% of there value.

    We ran the house for 7-years, traveled extensively using every opportunity (we were DINKS) limited by long weekends and annual vacations from our employers We did night classes to get those degree’s (took 10-years before the first child came along), but thats not what this is all about, thats another post for later.

    Through the years we have had several rental properties, never more than two at any one time. We have never owned single family units for rental purposes .. doesn’t make any sense.

    It got that we would buy the fixer uppers, got take back mortgages from the seller and we gave or should I say held short term seconds on them when we flipped them, generally holding for no more than 1-2 years.

    Please understand, my version of REI is not everyones cup-of-tea. The rules we have used for REI are infact esier today than when we first began back in the late 60’s.

    Current property in Oshawa (and I always advise owning rental properties in small to mid sized college towns and cities). This property was purchased 3-years ago for $125k, the market appraised value was $140k. We did the roof, fixed a few things. The Oshawa property we called our primary residence, since the home we lived 10km away we say we pay rent to our free-loader daughter that lives there also (tax planning)

    1. Our REI is always to have a property with max leverage, 100% or better, and why, because you can always walk if there is a problem or the market down-turns. In other words, we dont care if its 100% mortgage with full posted rate, as long as we can positive cash-flow.

    The idea always is to have minimum risk, zero down (yes its possible in Canada)and take the cash-flow for other investments. At some point along the road, I advise folks to set up a numbered company when doing this for tax reasons.

    2. On the current property, the income is $2400/mth (6-rooms), after paying the mortgage and all expenses we net $1000/mth. Our mail goes to that address, even though we dont bunk there. Our drivers licenses show we also reside there.

    The property is maintained by a bossman, he collects all the rents and pays us one amount. He can charge whatever he wants. Yes the house complies to fire code, we did that.

  34. MAC on May 6, 2008 at 4:40 pm


    I will be purchasing my first real investment propertey soon. The price is ~249K and is expect to generate ~8%net.

    I have 2 options

    1) A relative can lon me the money for 3%, but i wont be able to use the intrest payment as enxpense

    2) i can finance the whole amout using a secure line of credit at prime (4.75%)

    I also have some cash to use towards the property.

    What should i do, what would you do


    • FrugalTrader on May 6, 2008 at 4:47 pm

      Is it a tax rule that you can’t deduct the interest paid to a relative for business? Perhaps it’s because your relative doesn’t want to report the income on their end?Regardless, borrowing money from family can be messy (imo). In addition, it may be a better deal if you use your own line of credit at current rates. If you are in the 40% tax bracket, your net interest after tax return would be: 2.85%.

  35. pearlygirl on May 18, 2008 at 12:30 pm

    Enjoying reading this very much! I started, luckily, in the property market at the bottom where I live. Have moved several times, each making money (first one doubled in 5 years!) until a few years purchased second proprty and rented out my house. (Current joke of friends is “where are you living your trunk?” I tell them I am doing research for my book…”If you have to spring clean you might as well move and make money” ;)!)

    Biggest plus is watching the value of house increase 50+% over the past 3 years! I know, it can certainly go down from there but…looking at this capital gain at some point being split to purchase more rental property….much better than a second job!

    Recently however, I did run into a wall as I do use CMHC. BEWARE! CMHC has DRASTICALLY changed the way that it assesses your rental income! That house that I was talking about, based on market value had enough value in it that I was going to take on another property by increasing the mortgage on the house to completely pay for the second. Originally banker agreed thinking it a great idea to have one property completely mortgage free….with the rental house holding the full amount (don’t forget about write offs with the rentals…interest on mortgage!) Based on what we knew at the time, banker didn’t envision any problems at all.Then I got the frantic call to not do anything until I called her! Turns out CMHC has changed from being able to look at 70% of the rental income down to about 15% based on a complicated formula! That hurts! So current plans on hold…thank you US subprime mess!
    Just thought anyone reading might want to investigate further if using CMHC for purchases.
    Keep up the great blog!

    • FrugalTrader on May 18, 2008 at 12:50 pm

      Thanks for stopping by pearlygirl and telling us your inspiring story. I have a deep respect for people who make money from moving from house to house making tax free money. I have a question, do you have children? If not, do you plan on moving so often when you do have kids?

  36. nobleea on July 18, 2008 at 8:30 pm

    Quick question, does the term cash flow positive include or exclude the principal portion of your mortgage payment? I assume it includes it.

    For example, if your mortgage (P+I) is $1000 a month and taxes, condo fees, insurance is another $300 a month, you should rent it out for at least $1301/month. But if $400 of the $1000 mortgage payment is principal repayment, are you cash flowing $1/month? Or $401/month?

  37. FrugalTrader on July 18, 2008 at 8:55 pm

    nobleea, I personally do not count the principle pay down as cash flow, but I probably should. I typically pay the least amount possible on a rental property mortgage as it is tax deductible.

  38. salipok on September 6, 2008 at 1:46 pm

    The term “cashflow” is just like it sounds – money coming in minus money going out. Principle pay down can only be realized once the property is sold and cannot be used if you need to pay for a repair for instance. Which brings me to my next point, make sure all of the monthly expenses and debt servicing are accounted for, mortgages, taxes, condo fees (if any), insurance and utilities are the usual. But what about the on going maintenance cost, vacancies, and hiring a management company once you’re tired of landlording? These need to be accounted for as well and often are not.

    Many newbee investors forget or don’t know about these extras that can eat you alive. We usually allocate about 2 months worth of rent into the acquisition costs as a ‘stayin alive fund’. When a tenants moves out, you need to clean up the place, make repairs, advertise before showing it the next tenants which could take 2 months or more to fill. Repairs are usually calculated out at 8% of the annual rental amount. This depends on the type of tenants you have, students might have a higher percentage (10-12%) while a condo will have less (5-6% due to the condo fee covering the exterior portion of the building). Total expenses to run the property properly typically cost 50% of the monthly income plus debt servicing. Some will do worse some better.

    As a side note, using CMHC to help finance a property is a good thing due to leverage. The less of your own money you put down, the better the ROI. Keep in mind the property still needs to at bare minimum break even but hopefully cashflows.

    Here is some simple math – purchase price $100k with 10% down is $10k. to keep it simple i won’t include land transfer taxes, lawyer fees and other acquisition fees required. If the property rises in value say 6% in one year – its worth $106,000 or 60% ROI. This does not include principle pay down, cashflow or depreciation yet. Look at it as the cost to do business and account for the cost in your acquisition fees. Keep in mind that when you sell, you will have legal fees, taxes to pay and realtor fees to add which will reduce the ROI accordingly.

    Hope this helps some.

  39. […] When I first stated investing, I figured I would make my millions in real estate a la Donald Trump. However he declared bankruptcy shortly after I purchased my first property with my university roommate (who remains my good friend, he is still a business partner in other ventures and was my best man at my wedding – we have a David Radler/Lord Black partnership without the criminal leanings and backstabbing deals) in 1990 (great time to by real estate by the way) and we watched as the house fell in value to less than we owed over the first five years. However, I did learn an important lesson – Cash Flow is King. […]

  40. dankind on September 22, 2008 at 4:19 pm

    Anyone by any chance have contact info for ‘JR’ above who has a rental property in Oshawa? If so, could you please ask them to email me at (dankind@)

  41. John A. on October 5, 2008 at 3:51 pm

    Many years ago a friend of mine with several rental houses gave the following rule of thumb. When purchasing a rental property do not pay more than 100 times the monthly rental income. So for a monthly rent of $1,900, do not pay more than $190,000. By this measure, some rental property is now severely overvalued. For example, in Vancouver, a condo with a monthly rent of $1900 may sell for $600,000. That is $410,000 over the rule of thumb.

    Happy renting

  42. mmastran on November 20, 2008 at 2:06 pm

    My wife and I purchased a home (Sept ’07) in our neighbourhood with the intention of fixing it up and selling it to a family member for no profit, when they’re ready to move, to have them close to us. We’ve been renting it since Oct ’07.
    Since then we’ve purchased (May ’08) another more suitable home for the family member across the street from us and have had the family member move in.

    The first home, which was purchased well below market value, and is being rented, still costs us about $400/month to cover mortgage/expenses.
    My wife wants to sell it and purchase a more profitable rental property that actually makes money. My problem with this is the current market conditions. I believe we should keep this rental ,even though we lose monthly, b/c in the end we stand to make more when we sell it in a few years. The tenants are a family that maintain the home well enough.
    I was wondering what others would do.

    Here are the particulars:
    $322K to buy, we put 20% down, we currently have 249K left over around 20 yrs amortized @ prime – 0.6 (5 yr variable, first 3yrs closed MCAP mortgage, 4 yrs left on our term)

    Worse case scenario, could we not just re-amortize the loan to 25 or 30 yrs to reduce the monthly payment?

  43. Rick on December 5, 2008 at 5:55 pm

    I own 2 rental properties and have ZERO of my own money(cash) invested in them. I used the equity in my own home to finance the down payment. My properties are on the lower end of the rental market, so I have had some issues with bad renters, but was able to finance them 100% including closing costs, and still cash flow $150-200 / month combined. I don’t touch the cash flow, preferring to save it for major expenses (unforeseen repairsor improvements).

    Property values have gone up since, which is good for me (more equity and net worth), but makes it harder to find properties that will cash flow.

    If I had to put 10-30% down of my own cash, I probably would not invest in rentals.

    If you do not like to deal with renters, DO NOT become a landlord. Or, be VERY picky about who you let into your property. Get the wrong person in, and they can ruin you.

    Oh, another mistake that I’ve heard people make is to buy a property in an inflated market when interest rates are low, to later find that it doesn’t cash flow when interest rates go up. If a property doesn’t cash flow, then money is coming out of your hard earned income to support it.

    To mmastran, I wouldn’t keep a house that was costing me $400/month. Refinancing might work, otherwise I would sell and use the profits to buy a cash flowing property or invest elsewhere.

  44. nobleea on December 5, 2008 at 6:09 pm


    Most people argue that a fund/savings for repairs and improvements should come out as an expense. $150 a month seems about right for putting in to a maintenance fund. So one could argue your cash flow is $0 or less since you said it was 150-200 combined.

    mmastran; Something’s amiss. You say the house was bought well below market value, but you still can’t get it to cash flow at current rents, even with 20% down. That suggests that rents are waaay too low, or the price paid did not reflect the price that rents supported (even if it was selling cheaper than all others). I suspect you would have a challenging time selling the house, especially with renters. You might be lucky to escape with some of your downpayment, but perhaps not all of it. Realizing that home prices will drop across the country at various rates and at various times, and that rents might drop as well as people lose jobs, well that is a tough decision.

    If it’s any consolation, I’m in the same position with a condo I have. It breaks even with all expenses (incl maintenance), but who knows how long rents will stay at this level.

  45. Nicholas on January 16, 2009 at 5:53 pm

    I am about to be a college graduate in New York. Alike many other college graduates, I happen to be entering a world with few jobs that fit my degree.

    Renting properties out has always interested me, as I am very handy, and believe that I have found properties that are worth the investment. A local person in the town I reside in currently is selling their rental properties that include 24 houses for a total of $1.4M currently. Each unit is rented, and the annual income of properties is around $255,000. The properties when sold, all have the current units rented for another year lease. As I am young, this seems to me like it could pay its self off quickly since I am accustomed to a low level cost of living.

    As for maintance I would take care of it all myself, as I have a high level of knowledge in construction, in all aspects.

    Since it seems that you know alot about rental properties, I was wondering if you could point me in the right direction. Some questions I have are, does this seem like a good investment, and how would I go about financing this. The seller is selling the properties and considers creative financing.

  46. neilmacc on February 3, 2009 at 1:13 am

    lots of interesting comments – I started at the beginning of this thread and then skipped ahead to July/08 and onward. My perspective is as follows: I started by going halves on a house with a friend (no longer a friend-nuf said) in mid 1970’s as a twenty-something and have since grown my porfolio to include home with a rental suite, a duplex, a triplex, a 4-plex and an 11 unit Apt. building (gross worth about $2M with about $650K mort) Gross rents are over $13K per month(with room for another $1600 or more if I wanted to push the envelope – I believe in keeping good tenants long term by NOT jacking the rents all the way – just lost an 8 yr tenant who moved to Florida – darn her ) Rents will go up once I hire a Mngt. Co. to do my work. Comments I’ve read, about having to put up with “bad tenants” are true BUT 30 years of “almost always increasing values” along with the “compounding effect” of taking equity out and re-investing in another place (kind of like DRIPs I guess) seem to be working for me. Don’t get too greedy and try to do it too fast – study the market and jump in when the prices are down. I haven’t always abided by the “25% down rule” to avoid the mort. insurance by CMHC but I do view it as a general rule, if for no other reason than it should insure a positive cash flow. The last few years I have spent a chunk of change on things like new roofs and appliances and water tanks etc to basically insure that there won’t be much in the way of future “surprise costs”, as I am closing in on retirement, and the steady cash flow will go a long way to making my retirement enjoyable (everybody wish me well with great tenants please – so there won’t be any huge surprises :) ALWAYS have a slush fund for those times)

    To sum it up:
    I have not invested anywhere near $2M of my own cash – it has just grown into that over time (and will continue to do so throughout my retirement).

    I believe in “steady as she goes” and don’t rip off your tenants – there are more good ones than bad ones – so find them and keep them.

    When you are starting out – don’t bite off more than you can chew – with my regular job, I always had enough income that (if I lost EVERY tenant – I would be eating Kraft Dinner but I would not have defaulted) As I gained more “suites”, the strain has lessened dramatically – one of the posts here mentioned not buying a “single unit (ie house) as a rental – I absolutely agree
    because if you lose one tenant you still have part of your expenses covered by the other tenant(s). (11 unit building with a couple of empty suites is nowhere near as stressfull as a 2 unit duplex that is without tenants – don’t ya think)

    Anyway, I’ve said enough. Feel free to comment – I’d like to hear your thoughts.

  47. […] some of you know, I purchased a cash flow positive rental property a few years ago. What you probably didn’t know is that the tenants were interested in […]

  48. Adrian on July 23, 2009 at 6:06 pm

    Now is a great time to be investing in real estate. A housing market with heat turned off + emergency mortgage rates = best buying opportunity in my lifetime. My criteria 1) cashflow positive, 2) area with strong appreciation fundamentals and 3) now is the best time.

    With the present economic turmoil, there are strong indicators that the Canadian market place will continue to outperform. Real estate is a long term game and should be viewed with a telescope not a microscope. Keep it simple and boring and you will build an empire.

  49. Brent on August 11, 2009 at 1:57 am

    buying real estate in gambling with leverage. It has worked brilliantly in Canada over the past 10 years; will it over the next 10? A positive cash flow can quickly turn into a big loss when mortgage rates reset. they can currently go no where but up. We cannot compare leveraged and non-leveraged investments using the same yield/roi metrics without discounting the leveraged investments by the risk of costs of borrowing going up. For buying income properties:

    1. stick with multi-unit properties (avoid single residence units)
    2. purchase price of no more than 100 times the gross monthly rent.
    3. living in one of the units makes it more manageable
    4. be weary of buying when prices are high (relative to income) and interest rates are low (prefer a regime where prices are historically low relative to income, interest rates are moderate, and you have a 20% plus downpayment)

  50. Ottawaguy on September 9, 2009 at 5:16 pm

    Brent Said:

    .For buying income properties:

    1. stick with multi-unit properties (avoid single residence units)
    2. purchase price of no more than 100 times the gross monthly rent.
    3. living in one of the units makes it more manageable
    4. be weary of buying when prices are high (relative to income) and interest rates are low (prefer a regime where prices are historically low relative to income, interest rates are moderate, and you have a 20% plus down payment)

    I own 4 rentals and I don’t completely agree with what he said:

    1. stick with multi-unit properties (avoid single residence units)

    Avoid Multi units, buy single families freeholds or condos, especially when you are new. Multi’s are considerably more hassle, if a crime is committed in or near your multi it affects all your units within a multi, not true with singles in different locations. Single can be bought at wholesale and sold at retail. Multi’s are bought by investors and sold to investors, investors as we all know are looking for a deal ALWAYS.

    3. Living in one of the units makes it more manageable

    Only if you are single. As a married person, I would not want my tenants coming down to my unit to bother me for every little thing that is wrong. A clogged toilet, a wasp in the kitchen, another tenants loud music…etc, etc.

    Living away from your tenants means that they have to solve problems on their own, if it is a big problem they will call. The type that you would want to be involved with anyways.

    4. be weary of buying when prices are high (relative to income) and interest rates are low (prefer a regime where prices are historically low relative to income, interest rates are moderate, and you have a 20% plus down payment)

    I partly agree with this statement, 20% plus as a down payment is very important (20/20/35 Rule: 20% down min, 20% under market value (not asking price) and 35 year mortgage).

    The right time to buy is NOW. look for deals, they are everywhere. My last 2 deals net $900/ month each and they are both condos under 200K in Ottawa. Don’t try to time the market get in there and do your homework and your will find a deal.

  51. JOsmith on September 23, 2009 at 6:57 pm

    Here’s a little more of a tricky question. I currently own a small house in a city with a hot rental market. My husband and I are thinking of buying a bigger family home for us (we now have two kids!). We would like to keep the house we are in now as rental property, but we need the money from the sale to cover the downpayment for our new house- any suggestions? the house is worth aprosimately $150,000 and we have a mortgage of $100,000.

  52. FrugalTrader on September 23, 2009 at 7:01 pm

    JOsmtih, are you wondering about the tax consequences? I’ve written about converting a principal residence to a rental here.

  53. JOsmith on September 23, 2009 at 7:33 pm

    the tax stuff is on my mind, but i’m mroe wondering how i can keep it as a rental and get some cash out of it for a downpayment on a new house. i’m guessing remortgaging might be the only way to go- now that could be complicated come tax time!

    • FrugalTrader on September 23, 2009 at 7:48 pm

      JO, yes you could simply get a HELOC on your principal residence and use it for a down payment on your new property. However, the HELOC will not be tax deductible.

  54. caitlin on September 24, 2009 at 4:34 am


    I just found this blog and read brent’s rules and Ottawaguy’s response.

    I am looking at buying a triplex. I have about 33% I could put down (but plan to hold some back for contingency and immediate expenses). With the mortgage at current (low) rates, I would have a +ve cash flow for 5 year. I plan to live in one of the 3 units. The purchase price is about 200x the monthly rental income.

    Does that sound scary??

    I live in a place where vacancy rates are super low – about .3%, and the triplex is in an area that is highly desirable.



    • FrugalTrader on September 24, 2009 at 9:20 am

      Caitlin, from the investors that I’ve spoken with, and from my real estate investing experience, investors typically try to purchase a property around the 10x annual income (rent). However that is simply a rule of thumb, providing that the property is cash flow positive after all expenses (maintenance, vacancy included) and in a high rental area, it may be a decent investment.

  55. Ottawaguy on October 5, 2009 at 3:49 pm


    that 200x the monthly rental income sounds very scary :)

    but if it works on paper and works well then 200x could be ok.

    FT is right about the 10x rule. (All these rules seemed so silly to me at first, now they leap out of my mouth at every opportunity.)

    Basically it goes that when scanning prospective properties to see if you should look at them in more depth they need to have a sale price of NO MORE than 10x the ANNUAL GROSS RENTS.

    To make it more simple, mulitiply the monthly rent by 120x and it should be GREATER than the sale price. If this is true then you should look at the property in more depth.

    So 200x seems out of the ballpark but….others things can come into play.
    You should get yourself a good analysis spreadsheet and work it out like that.

    I hear alot of talk about people accepting negitive cashflows on multi-units so that they can get the capital gain. I am of the school cashflow is King. Capital gain is excellent but I personally prefer the nice 4 extra paychecks that I get every month, especially considering our current economic situ.

    So if this deal doesnt work, just keep looking.

    To quote one of the best investors par none:

    Be fearful when others are greedy
    Be greedy when others are fearful.

  56. […] For me,  I will most likely keep the existing HELOC balance (and portfolio) but use the freed up cash flow to invest with instead of increasing the investment loan.  Perhaps it’s my conservative side coming out, but why leverage if cash is available to invest with?  I may, on occasion, dip into the HELOC balance to invest in opportunities that require large amounts of cash, such as an investment real estate transaction. […]

  57. Canadian Freedom on November 14, 2009 at 10:43 am

    I definitely agree on points 1, 2, and 4. Although it’s nice to buy a house in good shape, sometimes it’s better to buy a house with the “right” things wrong with it. When I bought our triplex 4-5 years ago it was cash flow positive and nestled in a fairly nice neighbourhood. It was the dump that all the neighbours hated with a leaky basement, old windows, and not a stitch of insulation. Since it was cash flow positive from day one (I got 12 months of utility bills from the previous owner before I bought it to make sure), a few cheap fixes like insulation and a truckload of dirt to regrade the yard made it even better. My basement is dry and the gas bill was cut in half.

    Just my 2 cents.

  58. […] is $1,300/month, the property would be barely cash flow positive over  a 15 year amortization (my number one rule).  If Mark is determined to make this work, he would need to contribute a large down […]

  59. […] is the story: We’ve got a rental property which we decided to try and sell. We located an investor who is interested. We’ve agreed on a […]

  60. […] debt” and “bad debt”, tax savings strategies and how to find and buy more real estate investments using joint […]

  61. Neil Uttamsingh on January 19, 2010 at 1:40 am

    All important points that you raise in your article.
    I especially agree with your point regarding tenant selection.
    It is best to be overly picky at the beginning, and select a tenant that you are comfortable with.
    Onwards and Upwards,
    Neil Uttamsingh.

  62. htk07 on January 21, 2010 at 2:33 am

    I just came across this tonight and there was some very helpful information. Me and my husband bought our first house a little over a year ago with 5% down, we just recently bought a second home with 10% down and we are renting the other home out. We make 350$ after all expenses and the renters have been great! We are about to embark into buying either 1 or 2 more condos but would like to do so as more of a business- by renting executive fully furnished suites by the night, week or month. In order to purchase the 1 or 2 condos that we would like to convert into 2 suites each we will need about 150,000-200,000 in order to put 20% down plus have enough money to furnish them. We don’t have enough equity in our 2 homes to use as a downpayment. My question, is it possible to get a business loan for 150,000-200,000 to use for a downpayment and furnishings? (if its for a business) How else could one go about financing the downpayment? Once we come up with the downpayment the rentals will easily pay for themselves plus more. I hope this isn’t too confusing- if anyone has any advice please share. Thanks!

  63. FrugalTrader on January 21, 2010 at 9:50 am

    htk, you would need to approach the bank to see if you would qualify for a loan. My advice would be to accumulate the cash flow from the rentals and your day job to put down on the next property.

  64. investo canman on February 8, 2010 at 7:56 pm

    Ah, the elusive positive cash flow rental property with 15% down. In my 20 years experience they never appear. Even in a large metropolitan Canadian areas. They are like Bigfoot. You hear stories about them and they make fun TV shows but they don’t actually exist.

    And as to a “purchase price of no more than 100 times the gross monthly rent” rule. Ha that’s a funny one too.

  65. Rob on March 29, 2010 at 12:42 am

    Hi FT, I am only 18 but i have been interested in investing and real estate from a young age. I have been fortunate to have such a great aunt as a role model who has taught me many great things that most adults don’t learn untill they are older. Other than pruchasing one of her small businesses in the future, two years from now her and I plan on buying a duplix together when im 20. She will put 20% down on her mortgage and I will have mine separate.

    With that as my foundation and an experience in itself, I will be able to see if I like Real Estate. My goal long term would be to have a Holdings Company with two subsidaries: a property management company (to collect rents; enter contracts, run day to day operations) and then a company to own the property. with intentions to minimize liabilities, tax and increase cash flow.

    Sitting here now and working on my plan I do not intend to withdraw income from the Holdings Company but keep the profits circulating to purchase new properties in the future etc.

    If you have any ideas to perfect my idea that would be greatly appreciated.


    • FrugalTrader on March 29, 2010 at 9:26 am

      Rob, I’m inspired by your business vision and enthusiasm! It seems that you are really focused on the efficiency of the structure of your business, which is fine. However, an accountant can really help you out with that. If I were you, I would focus on the business itself. Such as, how to properly valuate properties, how to deal with tenants/contractors/vacancies and everything that comes with property management.

      If you are interested in holding companies, I have a article here that explains the process a little more. (how holding companies work)

      All the best in your endeavors!

  66. Joel on April 20, 2010 at 7:56 pm

    Hi FT, I started reading at the top but only found someone like me at the bottom (Rob). I am in a similar boat as him, I’m 25 out of university, not really satisfied with what I took and am looking for a change. I want to start a company that will manage properties and also buy/sell them. I want to grow it so I can atleast live off what it makes as well as re-invest into the company continually. I’m wondering what you have for advice to get started? How should I go about drawing up a plan? Where can I look for financing? My family has always had a 4-unit building so I have some experience with everything but not enough of anything. I hope I can find the right direction,
    an eastcoast dreamer,

  67. Miles on April 21, 2010 at 2:25 am

    Thanks to everyone for this valuable advice. I am happy to have found this blog based on Canadian $ advice, and not just the US stuff out there.

    Here’s my situation – am I crazy to have done this?

    Bought a 1 bdrm condo in Vancouver in Feb. 2007 for $225K, it rents for $900/month. The vacancy rate is very low in the area. I borrowed 100% of the purchase price against my home, and it costs me $ 500/month to service the debt – this is on top of what the rent pays for (the rent does not pay the whole monthly payment)….

    The value is now $ 275K – $280K – in just over 3yrs. I think this gain in investment is a good thing, considering I put no money down and it costs me only $6K per year (this cost will be reduced over time)….I did this with the point of view as a forced savings endevour.


  68. Janet on April 29, 2010 at 11:42 am

    I have a 4 plex (nets $1100) a 3 bedroom townhouse (nets $200) and a one bedroom condo (that suprisingly nets $150)… I am a 38 year old single Mom and I own my own home as well. I bought that last rental/condo before the 20% down on rentals came into play. I have a fulltime career and find that the 4plex is extremely time consuming. Thank god i have alot of patience and am somewhat handy. My goal is to buy a large “dream” house with a pool, etc for my kids and I am rent out the smaller 3 bedroom home that I currently live in. It will not net more than about $25 per month according to my calculations, HOWEVER… I plan on living in this “dream house” until my kids move out… then selling it and taking the profits to pay off my smaller house and move back in. In a perfect world the other 3 rentals will have nice chunks of equity in them and I can pull some out to renovate my house to make it my “forever home” and then purchase another rental to earn positive cash flow as I near the last 10 year stretch to retirement.

    My advice to anyone wanting to get in the Landlord game is KNOW YOUR RIGHTS. Also… so important to check up on your properties and let tenants know that you do frequent the property often. I have found this to be a bit intimidating to tenants and they tend to keep things in order a bit more than if they knew I was never around.

    Remember… as the saying goes “Homeowners get rich…but Landlords get RICHER!”


  69. Kelley on May 15, 2010 at 3:52 pm

    I am about to purchase my first rental property so I am very new to this. What are REIT’s?

  70. Envision on June 17, 2010 at 1:57 pm

    I was hoping someone can point me at the right direction. I am very new at investing and only planning to start it. My situation is simple: I bought a brand new condo 5 years ago for 150K with 10% down. I now have 110K left on my mortgage. I estimate the value my condo at around 200-210K right now. So by using the equity in my condo I should I expect to have from 60 to 80K for the down payment of my investment property. I have absolutely no experience in being a landlord and/or doing maintenance. Also I don’t have any cash in reserve for repairs. I still haven’t made my mind as to what rental propert should I buy. I have a couple of options:
    A. Buy an old triplex around 300K (maximum I can borrow with my downpayment) and use a higher rate mortgage (tax deductible anyways) with cash back option (to have extra in case of repairs)
    B. Buy a brand new condo around 250-300K in the area of high appreciation
    C. Buy a brand new triplex around 600K in the area of high appreciation with a partner who may put 300K down payment in cash. According to him, with so much cash down banks should provide a very good rate. Also, he suggested for me to open a corporation to buy this property and save on GST/HST. Obviously his name would figure on the contract as well. This idea seems very interesting to me since owning even half of such a huge asset in an area of high appreciation may turn out to be very beneficial in a couple of years. Also I would never be able to afford this by myself. There’s a company that finds people to lease your place, they do credit check and so on, so by the time the triplex is built you don’t need to seach for tennants. The rent from tennants would be half/half but unlike him I would have to pay off my mortgage.
    One of the greatest benefits of buying a new residential investment is that everything is under warranty for 5 years and you don’t need to do any maintenance.

  71. Chris on July 2, 2010 at 10:31 am

    I bought my first house about 1.5 years ago, and have been renting out 2 of the 3 rooms since the first month of buying it. This has been going great (renting to one good friend (student) and a random off the internet (turned out great).

    I’ve now noticed a house friends used to rent back in college a few years ago is now for sale for 160K, it’s literally a 45 second walk to the college, it’s a split, and has 3 bedrooms and bathroom in the downstairs/basement and 3 bedrooms and bathroom in the upstairs.

    I calculate the mortgage to be $870/month + utilities + property tax

    I figure if I can get 4/5 rooms rented for $400/month (lower end of rent for the area), that will get me $2000/month .. assuming they are full year leases, does this sound like a viable idea? I’m just starting to toy with the idea and need to check property tax, electricity costs etc.. and see what would happen to my taxes.

    • FrugalTrader on July 2, 2010 at 11:00 am

      @Chris, best to calculate all your expenses to see what your cash flow would be like. Make sure to count vacancy (5%), maintenance (10%), property managment (7%) and any capital upgrades to the property required. At first glance, $24,000 annual gross revenue on a $160k property is something worth investigating.

  72. Chris on July 2, 2010 at 11:07 am

    Thanks for the quick reply!

    I’m going to price it out this weekend and see where I stand, I’ll let you know.

    I’m a long time reader (well, 3~ years) and get a lot of valuable information from here, thanks a lot for all you’ve published!

  73. Ottawaguy on July 2, 2010 at 11:56 am


    The property sounds GREAT.

    The only thing that you need to be very careful of when renting to students is renting to more than 3 people who are not blood or marriage related. The reason for this is that the rental can then fall into the category of “rooming house”. We ran into this problem. A rooming house is rental that is rented by the room and not as a whole house rental. They are deemed “not compliant” in most residential neighbourhoods.

    Look at your local government website for information on this topic.

    An upset neighbor of our student tenants called the municipality and the inspectors came over to do a spot inspection of the property. No warning, no notice.

    Fortunately I had heard of this issue when you have student rentals and took precautions from another landlord.

    Precautions taken:

    *Have lease signed by all tenants on same document.
    *Have a statement in the lease that they all know each other prior to signing the lease (they are all not separate individuals renting rooms)
    *No key locks on bedroom doors.
    *Make sure that there are common area in the house (living room, dining room, etc. don’t convert all rooms to bedrooms to get more rent).

    The rooming house bylaw is a very blunt instrument, open to interpretation, specifically ambiguous in its wording and can be used to force your tenants out.

    If they conclude that your house is a rooming house you can try to apply for a license but they are quite difficult and expensive to obtain.

    If you take precautions when renting to groups of students then you should not have any problems.

    We have a number of student rentals, if you have any questions about it we would be happy suggest things.


  74. Chris on July 2, 2010 at 12:13 pm


    Thanks a lot for your input, I had not heard of the rooming house by-law until just now, I will absolutely do some research into that.

    I’m glad to hear you think the property sounds good. I think so, mind you, I haven’t seen it yet…not for about 3 years (since when college friends were renting it).

    I know it’s currently rented out right now as 2 separate apartments, the basement taking in $675/month rent and the upstairs getting $800/month totaling $1475/month…I think changing this and renting out 5 of the rooms for $400/month (making the 6th room storage) would be a better idea.

    I did some quick calculations (guessing the electrical and water for now, got property tax from the city’s website) and got this so far:

    Mortgage – $774/month
    Property Tax – $229/month
    Electrical – $250/month
    Water – $150/month
    Internet – $50/month

    Coming to $1,454/month in expenses

    Given the current rental status, I suppose if I didn’t change a thing, I would just be getting a bit more then what I need to break even, which would be eaten up by maintenance, vacancy etc..

    Do you sign only on year leases? Do most people do that for student housing? I can’t see only having the rooms populated for 8 months of the year and still turning a profit?


  75. Brandon on July 8, 2010 at 10:08 pm

    Just a general question in regards to downpayments on investment properties.

    I currently have ~$100,000 equity in my place worth $200,000 and would like to purchase an investment property. Is there a way I can put $40,000 down on an investment property (ie 20% of $200,000 rental property) by using my HELOC and write off the interest of the downpayment as well as part of a investment writeoff?

    Could this be done based on a sort of Smithe Manuouver ?

  76. FrugalTrader on July 8, 2010 at 10:11 pm

    @ Brandon, my understanding is that yes, you can use a personal residence HELOC to put down on a rental, thus making it deductible. However, I would caution using that HELOC for the rental property only and not mixing it with other expenses.

  77. AG on August 6, 2010 at 6:03 pm

    My primary residence (HouseA) has equity of about 100K. I would like to buy a new house (HouseB) and make that as my primary residence and rent out HouseA.
    – Can I use equity from HouseA to buy HouseB?
    – How accounts should be setup to make taxation easy?

  78. FrugalTrader on August 6, 2010 at 9:53 pm

    AG, yes you can use the equity to buy house B, but the $100k would not be tax deductible as you are borrowing for a principle residence and not an income producing property.

  79. Draino on September 3, 2010 at 7:20 pm

    Most people on this site are likely savvy enough financially to do the legwork on determining if a property is going to be cash flow positive.

    The real question is a person’s appetite for leverage and tenants.

    In my situation I have now pulled equity out of my home twice (and learned a lot along the way).

    Property #1:

    ROI: 21%

    100% leveraged. 20% out of my HELOC, 80% vendor takeback.

    This is a mixed use building. 3 retail/office spaces + 4 residentials on the upper floor. It is an older building that does require maintenance. It is also at the lower end of the residential rent scale. Initially I did the maintenance and rent collection in my ‘spare’ time. I have since learned that I can afford a property manager and he is now responsible for repairs and rent colllection. Tenants can be a nightmare in a lower rent area. My suggestion is a rigourous screening process, and to keep the units and common areas in as good of condition as possible. Good tenants attract good tennants.

    Property #2

    ROI: 17%

    100% leveraged. 20% out of my HELOC, 80% mortgage.

    This one is a 4 plex with very good tenants. It is a 10 year old building so maintenance is minimal. Again, property management allows me to be a silent partner.

    Notes on the 2:
    Commercial – it is much more difficult to obtain a mortgage and insurance and the hoops that you go through for property valuations is a lot. Plus the mortgage rates are higher. On the plus side, commercial rent is more profitable. I find that the mixed use building is a good hedge of high commercial rent + easy to rent residential spaces.

    Residential – Tenants, tenants, tenants. That is all there is to say. Good ones make it work. Life is easy. Bad ones….tribunals are not fun and cost you even more money.

    For the most part I figure I get some extra cash flow each month and I have other people paying off the mortgage on my assets – one day I will be able to sell them for a handy sum, thanks to someone elses rent.

  80. Dave on September 19, 2010 at 5:48 am


    My wife and I are about to be transfered to Kingston, a city we know and love. We’d like to live downtown (reasonably expensive for a city that size) and at the same time have an interest in owning some rental property. One option to hit both bases is to buy one of the large old redbrick homes near the university that have been split into duplexes and be live-in landlords, renting the other half. The vacancy rate there is virtually zero thanks to the perpetual student housing market and no, we’re not terribly concerned with sharing a roof with students….knowing the area and the market, we think we can be picky with tennants. Expecting to be posted out again in a few years, we would likely keep the house, rent both units, pull some equity and take a no-cost move to our next home and pocket about $10K for not selling and saving my employer the realtors fees etc…

    I also understand that by renting 4 rooms of a 7 bedroom duplex I am only able to claim about 60% of the overall deductible expenses, CCA, etc. That said, is it healthy to consider (on paper anyways) an arangement like this as two properties, my principle residence and my investment property? As long as I only account for 60% of the totals where they exist this should remain accurate I think? Any profit simply reduces my share of combined expenses.

    PROBLEM. This will inevitably be a negative cashflow situation. By my calculations, as much as $7K/yr in the early years. However, an expected tax benefit of greater than $3K/yr would offset this, just not in terms of monthly disposable cashflow. We can reasonably afford this increase in cost of living but we’re not into foolish financial decisions either. Tax deduction, debt reduction and nearly undoubtable appreciation (LOCATION-LOCATION) become the main financial carrots of this situtation. The real benefit to my wife and I would be that we could afford to live in an area we love and enjoy the lifestyle that brings (minus $500 a month mind you).

    Thoughts anyone?

  81. Dave on September 19, 2010 at 6:08 am

    Let me expand on my last.

    Asking price for the whole home would be somewhere approaching $600K (meaning about $360K attributed to the unit we would rent out). I’d put a 20% down payment on the total.

    Gross income from the rental unit about $1700/mo

    Further thoughts?

  82. David on November 18, 2010 at 10:15 pm

    Hi FT.

    Could you please right an article or two about your experience as a land lord and about your rental property.
    How do taxes from rental property work?
    How do you calculate property taxes?
    What are the rental property expenses that you deduct from your income?
    Maybe something else
    Thank you in advance

  83. FrugalTrader on November 18, 2010 at 10:58 pm

    This article may help: How investment property taxes work.

  84. Bradford on January 18, 2011 at 10:39 am

    Interested in buying a rental property down the road and not sure of the formula to make sense/qualify. We live in PEI – low cost geography. Gross annual income around 110,000. home worth 240,000 we have a mortgage for about 125,000 however line of credit for about 25k. Our net worth increasing about 10-15k / yr. we want to buy an investment property for around the 180,000 mark a 5 yr old home when should we consider this seriously?

  85. DUPLEX on February 2, 2011 at 1:29 am

    I would like to get into rental, and want to purchase a duplex. live in one side rent the other. also i would rent rooms to reduce my living space and increase my tax benefits. the duplex together is 745k and i only have 5% down. should i wait to have a much larger down payment? and would there be too much trouble with owning and living in the duplex.

  86. FrugalTrader on February 2, 2011 at 10:19 am

    @DUPLEX, you would have to see what the cash flow is like. What if all units are vacant? Can you afford to make the payments with just 5% down?

  87. Queen j on March 30, 2011 at 3:04 pm

    Hi everyone:

    I would like to get into the world of real estate and am currently looking into buying my first rental property. However, I do not have the 20% required as a downpayment and am planning to take this from my line of credit. Is this wise? How do I figure out if I will profit or at the very least break even after paying the line of credit, mortgage, property taxes, insurance etc. I am very confused and any help will be most appreciated. Thank you all…

  88. RetireInFifteenYears...maybe on April 28, 2011 at 3:08 am

    Just read this article now. Great info, comments and feedback. Some info still applies after almost 4yrs of this writing. Good job FT!

    What didn’t make sense for me was 100x rental income. Maybe in other cities but not here in Vancouver, BC. I have a rental property. Market value approx $600K. Rent is $2000/mo. This is 300x rental income. There’s nothing out here that has market value 100x rental.

    I’m break even or +$100/mo at most. Way to have positive cash flow is variable mortgage rate and 35yr amortization. However, what I also take into account is principle paid down per month and appreciation. Plus I’m 20% down so I’m leveraging 5:1 ratio so appreciation is 5x too. For example, mutual funds, etc. may average 10% at a high. If I put my $200K into that, after a year I’m up $20K. However, even if condo market goes up a measly 5% (past average in Vancouver was 15-25%+), 5% of $600K is $30)…which means 15% gain on my $200K. On a good year if condo market goes up 15%, that’s $90K gain on the $600K or 45% return based on my $200K investment. Of course this doesn’t include interest (which is tax deductible by the way), realtor fees, etc. but you get the picture…I’m a fan of rental properties.

    I’d really want to get another rental property but I think I’m stretched out to the max with my current house and rental condo. One option is to buy a new development. Just need a deposit for now, then rest of down payment 2-3yrs from now and secure a mortgage at that time when the building is complete. This will buy me 2-3 years to save up for the down payment I don’t have now.

    My question is do this or better to buy a smaller, less expensive and start renting now as opposed to delaying 2-3 years for a new development to complete.


  89. Jeremy on June 26, 2011 at 2:09 am

    I just bought my second rental property with 5% down the key here is just move into the house first, or else you have to pay 20% down(ps. Will take you forever to get your money back). I am currently living for free plus making $200 on my rental properties. Also me and my wife have become very good landlords we believe, and we both work fulltime jobs, thus does not interfere to much. When we accept someone’s application we also ask for the I.D.

  90. Mark on August 5, 2011 at 9:04 pm

    Well I’ve gone through all the comments here and must say it’s all quite interesting. I was wondering if some would buy rental property if they could afford to buy it flat out. It seems like most look at the ROI, and when you only put 10k down, you can get a big ROI if you play your cards right. I believe FT mentioned 20% on one property which is excellent, but would go lower as he made extra payments.

    I’m asking because I could buy a place outright (no mortgage) but the ROI is considerably lower. In the 4-10% when not taking into consideration any possible property value increases (which obviously play a part but it’s too difficult to gauge so I rather not include it in any potential ROI). Would I be better off getting a mortgage and investing my money elsewhere? A lot of these posts were made around 2007, so I’m guessing the situation has changed a lot. I also find the “rules” set out quite unrealistic. I live in Montreal and there are no such properties available. I think most large urban centers would be the same. It’s just not possible to get a property at the price of 10X annual rental income. Any advice would be appreciated.

  91. Jayboard on August 11, 2011 at 9:18 am

    My Question is regarding home insurance. We are thinking of buying a student rental unit and was wondering if there is a special home insurance requirement? EI. more laibility etc

  92. FrugalTrader on August 11, 2011 at 11:14 am

    @Mark, personally, I think it depends on comfort. If you are happy with a 4% return, and not comfortable investing in the markets, it’s probably a good idea.

    @Jayboard, home insurance for rentals generally have higher premiums. In my opinion, one of the bigger risks of having them is liability, so the higher the coverage the better!

  93. OttawaGuy2 on August 22, 2011 at 4:03 pm


    Would you be able to recommend any good condo or other investment property in Ottawa?

  94. Countryjaan on November 24, 2011 at 4:15 pm

    My husband and I have purchased a single family home this past April. This will not be a long term plan for us. We are planning on selling is the next three to five years. It was more to get monies for our kids future by building up equity. So for us, we want to minimize our capitial gains as much as possible. Also because it is a single family home, we want to assure that when we go to sell, that we will not have the HST Tax implication that is tied to a Rental property. Is there any claims I should not do that would no longer make this a residential single family home? We are also not claiming any CCA because we do want to sell in the short term. Any thoughts or ideas??

  95. jan on December 22, 2011 at 1:57 am

    Hi there,
    I’m a single girl getting my fingers wet in the rental world. It’s a little scary, but i’m loving it. I own my home and now I own 3 condo’s. I’m from manitoba so it is much easier to cash flow property here than some other provinces/states.
    I have done really well with tenants so far. They are all fantastic (knock on wood). My biggest tips for anyone out there interested in trying it out.
    1) choose your tenants wisely. I’d rather make payments for an extra month and hold out rather than just take anyone.
    2) bank that cash flow. i have a separate account for each condo. I don’t touch my cash flow and let it stack up for a while. I find it just takes the stress out of it. I’m prepared now if anything were to go wrong or if there were any unexpected expenses. It is a long term investment for me. My retire on the beach someday fund :)
    Great forum! I’m loving the insight. I don’t really have anyone I know who is into investment property so it’s nice reading about others who are into it as well.

  96. Tanya M-Z on January 13, 2012 at 11:31 pm

    Now that it’s 2012 I was wondering if the minimun downpayment for purchasing a rental property has changed any. My husband and I are thinking about buying a duplex/triplex that we might have our son live in to be able to take care of collecting rents etc. If he does live there would that make a difference with qualifying for a mortgage? We don’t plan on moving into it ourselves. Any advise for brand new bies?

  97. Ciaron Gogarty on February 8, 2012 at 5:14 pm

    I would also like to ask a quick question. If you don’t own a property already, but you plan to buy a house, would it make sense to buy an investment property first – pay down the mortgage as quickly as possible (ie let the tenants pay the interest and contribute to the principle, but use your own money to pay down the principle in triple quick time. Then use the equity you build up in the rental home to buy a principle property for myself to live in… the reason I ask is this, buy going down the investment route first, I’m building up equity in a rental property with interest that is tax deductible, then re-mortgaging that property to contribute a sizesable chunk toward the mortgage of my own (principle) property, thereby using the capital to reduce my own mortgage size significantly, while making the majority of the interest tax deductable and on the 2nd property?

    Does that make sense?

  98. OttawaGuy on April 5, 2012 at 11:30 am


    Ottawa is becoming a more and more difficult market to get investment properties to cashflow. I can imagine that there are other tough markets but this is the one that we know well.

    To make a recco on condo’s here in Ottawa I would say that you should focus on “infill properties” in areas that are highly desired for maximum capital appreciation if you want to do a buy and then sell after build completion. An example would be something like Stonebridge. You need to be cautious regarding MLS boundaries they affect appraisal value of properties more than you would think. Our advise if to find a property appraiser and bounce location ideas off of that person to get info that is as close to the “inside” as you can be WRT to buy and sell’s.

    One last word is, this type of investment is pure speculation through and through. These properties if turned over to a rental will more than likely bleed you month to month because of debt service, condo fees and taxes. Make sure this investment if it goes sideways will not break you.

    Good Luck!

    Ottawa Guy.

  99. candy-factory on April 11, 2012 at 12:03 am

    hi all,

    I’ve been a real estate investor for 3 years now and have purchased 3 rental properties that are all cash flow positive. I rent them to students in a mid size college town in Ontario. Overall it’s been a very positive experience as I have screened well and am an involved (although not nosy) landlord by being very responsive.

    My question- how do I move beyond 3 properties? the bank is looking for 20% down from me, but I don’t have $50-$75K accessible. I’d love to start a business for this as I seem to have a knack for it, but am at a bit of a standstill

  100. alex on April 30, 2012 at 2:33 pm

    @candy-factory. The easies way is to refinance your 3 properties and use the equite as the 20% down-payment. Another method is to use the 3 properties as collateral for the 4th one but many banks will refuse that approach. U can also, borrow agaisnt an investment you own, find a partner, use sweat equity as downpayment, etc.

  101. Ntex on May 2, 2012 at 3:58 am

    I’m 19 looking to buy a rental property i’m approved for about a 100k property based on my income cant be to high i goto schoold fulltime

    Any suggestions on cities i can find a good property i was leaning towards hamilton i live in toronto

  102. Joel on June 15, 2012 at 12:44 am

    I’m curious if any readers out there have any comments/suggestions from Calgary? The market seems to be somewhat flat (for now) and I noticed most comments on here are from 2007 – a completely different picture in terms of housing market here in Calgary. Any thoughts/advice from a current landlord appreciated

  103. Neil Uttamsingh on June 27, 2012 at 11:35 am


    If you are in Calgary, you might want to considering checking out The Real Estate Investment Network (REIN). There are a lot of investors in Calgary and Edmonton that are part of REIN. That would be the best source of information for you in my opinion. If you can, try to attend one of their upcoming events. It is a great place to network and meet experienced real estate investors who are actively purchasing rental properties. Best Regards, -Neil.

  104. Tom on November 3, 2012 at 12:10 am

    When determining positive cash flow, does one generally consider income tax on the rental income as an expense?

    I have a two bedroom townhouse that I’m considering renting out. If I consider the income tax on the rental income as an expense, I need to rent it out for $2400 a month to get positive cash flow. If I don’t consider it, $1780 will do it.

  105. FrugalTrader on November 3, 2012 at 12:12 pm

    @Tom, I do not consider income tax, but not including it should not make you cash flow negative. Income tax is on the “net” rental income, which means after all your expenses (mortgage interest, property tax, utilities, insurance etc).

    For example, if you rent it out for $2k per month, with $1500k/month in expenses, then only $500/month is taxable. No matter how high your tax bracket, cash flow will never be negative because of income tax.

  106. Jas on November 12, 2012 at 12:54 am

    Just an FYI for those who are thinking of investing in rental real estate at this point in the RE cycle.
    worth reading posts at Garth Turner’s blog at

  107. Landlord by mistake on November 17, 2012 at 1:51 pm

    My husband and I recently found ourselves as landlords by mistake. That is, a condo that we purchased with the intention to move into was delayed by at least two years. By the time it was ready, we had two children and the small layout was not conducive to our growing family. Hence we rented it. It has been extremely profitable for us thus far, but I am wondering how we might best shelter the capital gains when we sell? Both of our incomes are quite low right now because we are working pt to raise the kids. Does the capital gains change based on our annual incomes? If so, by how much? I was also wondering if we pay capital gains on the difference between what we purchased it for (3 years before it was finished) and what we sell it for or the difference between what it was worth when it was finished and when we sell it? The difference might be quite significant, I think….Also, how does the tax on the rental income change as our incomes increase?

    • FrugalTrader on November 17, 2012 at 2:00 pm

      Basically subtract your purchase price from your selling price, and you have your profit. 50% of your profit is taxable as your marginal tax rates. If both you and your husband own the property, then you can split the profit (depending on your circumstances). So say that you profit $100k from the sale, $50k is taxable. If you are 50% owner, then $25k will get added to your income, and $25k to your husband. Depending on your income for that year, the tax you pay on the $25k will vary. As for the purchase price to use, you’ll need to consult a tax pro for further information.

  108. Snazzy Checks on March 20, 2013 at 5:18 pm

    I’ve always wanted to be a landlord. Mainly for the income. I’ve known so many people who started young with rental property and became “property moguls” at an early age.

    I think the key is to realize that it’s not until the property is paid down that the true “wealth accumulation” really begins.

    So, I’m the hunt for my first property. I appreciated you thoughts about watching monthly value and vacancy rates for an area. Our market is still a little depressed from the recession, so I’m hoping to land something for under $30k and get one of my handy friends to help me with the fix-up.

    Hopefully by this time next year I will be a successful landlord!

  109. jqueen on March 21, 2013 at 9:06 pm

    My husband and I have always wanted to venture into the real estate market but waited until the mortgage on our primary residence was paid off. We then bought a condo but unfortunately didnt have enough downpayment and ended up borrowing from our line of credit to put down 5%, The rent we receive barely covers the outgoings and we end up in the negative every month. If we had to wait until we had a decent downpayment we probably would never be able to buy the property. In your opinion, do you think we made a mistake? All the while I hear that a rental property should be cash flow positive from day one.

  110. Danielle on March 21, 2013 at 9:51 pm

    @snazzy: where can you find a property for $30k and what would it rent for? Here in Calgary I’ve seen titled parking spots for $30k !

  111. Ottawaguy on March 22, 2013 at 2:42 pm

    @JQueen: The question you always have to ask yourself is how many of those cash flow negative properties can you afford to keep? Sometimes people say that they are investing for capital appreciation which in itself is speculation, we simply don’t do that, but that is our choice.The reality is that if you are inexperienced you really need that cushion of monthly cash flow in case the price points on properties in your region start to go sideways or even down. When you buy a property and rent it out you are taking a risk and when you take a risk you should be getting paid. Not helping to pay someones rent. We started off buying condo as they have a lower barrier to entry than other RE investments. I would say you should look at other investments in the area and start doing analysis, there are always good deals to be had you just need to keep looking. There are may resources out there to help you find a good solid cashflowing deal. I would be happy to push you in the right direction.

  112. Don Neill on April 24, 2013 at 12:05 pm

    I agree with the author’s advice, and would like to add my tips based on my experience with my 15 unit apartment building.
    1. ensure that you live within a reasonable distance from your rental property as you will be travelling back and forth a great deal. (15 minutes is ideal)
    2. Screen your applicants with a screening service which does background checks of previous tenancy (evictions), employment history, and credit checks.
    3. Remember; good tenants do not force out bad tenants, but bad tenants will certainly result in good tenants leaving.
    4. Know your rights and those of your tenants.
    5. Act immediately when there is a problem or a non-payment situation.

  113. Kirk on June 23, 2013 at 11:59 pm

    Where’s a good place to look for commercial real estate investment properties? I feel that most properties that would pass investment filters are not on icx/mls and in fact are “gone” before they hit the general market. Any recommendations on where/with whom one would start their search? Do the good deals depend on who you know?

  114. InvestAsian on May 21, 2014 at 8:03 am

    To be honest, I don’t see a reason to purchase rental property instead of REITs. REITs are diversified into types of property such as commercial and industrial that in general, have higher returns that residential property in most cities. Not to mention that the minimal fee is more than worth the hassle of dealing with tenants and gives me more time to research and pursue other types of investment.

  115. Jerry Wyshnowsky on November 22, 2015 at 2:17 am

    Don’t make the same mistake that we did! We borrowed against our fully paid for house to buy a condo which we moved into. We then successfully rented the house to good tenants and everything seemed just fine until we found out that we could not write off the mortgage payment. This was because the intent of the loan was to buy a new primary residence for ourselves. We found ourselves subsidizing the rental property for 5 years in the hopes that it would appreciate which it never did. In fact it became such a money pit and time-sucker that we finally dumped it with great relief.
    Yes, we spoke to 3 different accountants over the years looking for a way around this CRA rule including deemed dispositions and the Smith Maneuver but found that there really wasn’t a practical (and legal) way out of this situation short of moving back into the old house and renting out the condo.
    This was some time ago and I may be forgetting some of the details but regardless my message is to do your homework before jumping into the landlord game.
    Good luck!

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