Real Estate Investing By The Numbers
What numbers are we talking about when it comes to investing in residential rental properties in Calgary, Alberta?
Only three numbers to start with. Net Rental Income per month. Mortgage Interest Rate. Mortgage Amortization in Yrs.
These numbers are important right from the start because that is all we need to calculate the cash-flow break-even price we could potentially pay for a rental unit.
Lots of folks start looking at properties and sometimes with a Realtor before they even pull out a calculator. We believe the calculator should be looked at before spending valuable time looking at rental properties.
The net income a property generates is where the money comes from to pay a mortgage, pay you or pay a bit of both.
Let’s say homes in your area are renting for a maximum net income of $3,000 per month. $3,000 is what’s left after you pay taxes and insurance and maybe set a bit aside for a reserve fund. If you pay 100% cash for one of those properties in your area renting for $3,000, the entire amount goes into your pocket.
Savvy real estate investors would never pay 100% for an income property. If possible, they would finance it to the monthly cash-flow break-even point with the least down payment allowed.
Okay, so how do you determine the cash-flow break-even point on a property that gives you $3,000 (or any amount) a month to work with?
The first calculation is How Much Mortgage Would $3,000 a month carry at current interest rates. Then, you would divide that amount by 80% to get the Purchase Price you could pay with 20% Down.
Now you know the highest price you could pay, the amount of the down payment needed, and the least amount of rent you would need.
To improve on breaking even, find a property you can buy for less and rent for more. It’s actually very easy to do if you know your numbers before looking for rental properties to buy in Calgary.