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Discussion Starter · #1 ·
Hi,
We have bought a 2 storey house with "inlaw suite" on the west coast just before the latest hike in prices due to the influx of workers leaving Vancouver to work from home... in our wonderful coastal area.
I am renting my own (much smaller) house nearby for 1600$ and don't intend to move out.
Paid a total of 633k;
235k of cash down plus 14k for lawyer, taxes, realtors and whatever else.
mortgage, municipal taxes, and house insurance sum up to 1910$/month.
We have already invested 15k in repair materials and have roughly 30-40k of additional repairs (material + labor) expected within 12 months.
Our investment in time isn't calculated thus far.

I hope to rent the house for a total of 3500$ and allow for two households under the roof.
I came to this number by adding the following;
  • mortgage, municipal taxes, and house insurance sum up to 1910$/month.
  • rough 2.5% noncompoundable yearly loss on cash down: 490$/month
  • 2%/year of purchased home for maintenance and repair: 1055$/month

My goal is not to make a profit but hold to build equity. Also, I believe I believe I follow the market even though it's hard to assess as there aren't too many 6 bdrs out there.

Is there a better way or a more accurate way of doing these calculations? looking forward read comments from people with more experience.
Cheers,
 

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No, I think you’ve locked into the “hope and pray” strategy for investing...good luck.
 

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What I learned from 40 years in the rental business
You don't set the rent, the market does
Cost of property and rent are not connected. They are related but not directly connected
Rules of renting apartments or houses
The property needs to be clean and in good condition. It doesn't need to be Buckingham Palace but good for the price range, think of what you would want to see in a good hotel. On one hand over improving is a waste of money. On the other hand you don't want the kind of tenant who will accept a sub standard apartment.
You need to price it in line with similar properties in your neighborhood. This could be more or less than you think it should be. Remember the market sets the rent not you.
Everyone is a hanging judge of rent. If you are not getting enough applicants, lower the rent. If you are $100 or even $50 cheaper than the competition tenants will flock to you.
You want to have 20 applicants to pick from. If you only have 3 it's probably not enough.
You have to check references and vet potential tenants carefully. The only thing worse than trying to get a good tenant for an empty apartment, is trying to get a bad one out.
Good luck. We've all trusted tenants, and we've all paid. When this no longer sounds mean and cynical you are ready for the rental business.
 

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Discussion Starter · #5 ·
What I learned from 40 years in the rental business
You don't set the rent, the market does
Cost of property and rent are not connected. They are related but not directly connected
Rules of renting apartments or houses
The property needs to be clean and in good condition. It doesn't need to be Buckingham Palace but good for the price range, think of what you would want to see in a good hotel. On one hand over improving is a waste of money. On the other hand you don't want the kind of tenant who will accept a sub standard apartment.
You need to price it in line with similar properties in your neighborhood. This could be more or less than you think it should be. Remember the market sets the rent not you.
Everyone is a hanging judge of rent. If you are not getting enough applicants, lower the rent. If you are $100 or even $50 cheaper than the competition tenants will flock to you.
You want to have 20 applicants to pick from. If you only have 3 it's probably not enough.
You have to check references and vet potential tenants carefully. The only thing worse than trying to get a good tenant for an empty apartment, is trying to get a bad one out.
Good luck. We've all trusted tenants, and we've all paid. When this no longer sounds mean and cynical you are ready for the rental business.
Thanks for your time, Your comment was relatable and reaffirming. I confess, I secretly wished there was a magical algorithm. I tried 4 different methods in an attempt to fix a price for rent. It's all madness really. At the end, we got the most value out of our time from keeping track of all rentals since august 2020 to build a database of comparables. We ended up lowering the asking price for the house as you mentioned and had lots of applicants.
We now have awesome tenants who like the house.
 

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Sorry for the dose of reality.

Let’s look at your “investment“ then...

you paid $633k, put a down payment of $235k (which isn’t earning you any return on investment). You’re hoping to generate enough in rent to cover the expenses of the remaining $395k (totally ignoring the dead $235k), plus taxes and maintenance...but have no idea what local rents are. Then you’re praying for capital gains in the long term to make money.

yet you wonder why i don’t take you seriously? It’s people like you who usually lose your shirt then complain about how real estate investments don’t work...why not go down to Vegas and invest in roulette?

investors do the work beforehand, they know what rent they can generate before they buy...they don’t count on capital gains and they account for all the money they invest, not just the amount that looks good on paper.

you aren’t an investor, you’re a gambler. Unfortunately, being the west coast, you’ll probably come out alright and think your some kind of genius when, in reality, you’re just part of an insane market.
 

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Just a guy you are being
Sorry for the dose of reality.

Let’s look at your “investment“ then...

you paid $633k, put a down payment of $235k (which isn’t earning you any return on investment). You’re hoping to generate enough in rent to cover the expenses of the remaining $395k (totally ignoring the dead $235k), plus taxes and maintenance...but have no idea what local rents are. Then you’re praying for capital gains in the long term to make money.

yet you wonder why i don’t take you seriously? It’s people like you who usually lose your shirt then complain about how real estate investments don’t work...why not go down to Vegas and invest in roulette?

investors do the work beforehand, they know what rent they can generate before they buy...they don’t count on capital gains and they account for all the money they invest, not just the amount that looks good on paper.

you aren’t an investor, you’re a gambler. Unfortunately, being the west coast, you’ll probably come out alright and think your some kind of genius when, in reality, you’re just part of an insane market.
Just a guy you are being a little harsh. Most people are pretty green when they started in the rental business, I know I was, and there was no internet back then, not even any books on rental real estate. The OP is trying to learn. I eventually made a rule to buy only positive cash flow properties and that includes interest on my down payment. Sometimes that was impossible to find, and in the end those times turned out to be good times to stay out of the market. Today with interest rates so low and properties selling so fast the old rules don't hold water, one of the reasons I got out of the rental business. You are right, as an investment you have to reduce the property to dollars and cents, income minus expenses vs cost. You might explain the GRM and Cap rate, two keys to successful investing.
 

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So, today he has the internet, he has books, and is still making the same mistakes without the same excuses.
 

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I wouldn't touch the rental business today, not when I can make more money so much easier in the stock market. But, we all have to learn and unfortunately it usually has to be the hard way.
 

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Discussion Starter · #10 ·
I wouldn't touch the rental business today, not when I can make more money so much easier in the stock market. But, we all have to learn and unfortunately it usually has to be the hard way.
Agreed, I only wish I would of poured much more into the stock market in April 2020.
Thank you for the input. Both the Cap rate and the GRM aren't appealing. Even more so are any property on the market right now. Almost a year has passed since we've purchased and don't regret it.
To conclude my original question on how to fix the rent; What we already knew and the leg work (compiling xls sheet of all local rentals for months) we had done seems to be the most rational way to calculate such a thing as rent price. Other than that, there are no magic or savvy formulas out there.
Rusty, the suggestion about lowering the price to have "tenants flock to you" has had value to us. I'm happy to have good tenants, which has value to me, and don't miss the "extra" money that could have been made. Plus, It's super expensive to rent as it is, I don't have the urge to ask them for more.
I know! I know! Rusty, You're thinking "this guy is soft, he might have a soul. Not good for investing...". Fair enough.

So! Let's all go to Vegas to be geniuses, we'll make our prayers along the way with or without computers.
 

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Cam I am gratified I could help. You can be soft and have a soul, but business should be done in a businesslike way. Do you know what happens if you don't pay your hydro bill, or your car payment, or your credit card bill? You get in trouble until you pay up that's what happens. Why should your policy be any different? It can't be if you wish to pay your bills and stay out of bankruptcy court.
I don't know why everyone thinks houses should be free. But they resent paying rent where they don't resent paying for clothes, food, lottery tickets, cars or anything else. I must say some landlords - including me - encouraged this line of thinking by being too easy on people. How can I blame someone for being late with the rent when I taught them it was ok by letting them away with it 5 times before? That is why you need to set a policy and stick to it. It's not a matter of being mean, it's a matter of running a business.
 

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Comparables; size, location, condition.

Discount the rent by a hundred or so as rusty said before and you should make out okay. Eventually the good tenants you gather up helps you attract higher paying but still good tenants
 
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