Montreal real estate: Profitable income properties are not easy to find!
16 Sep 2019
Real estate investment is a popular way to try and build wealth over time, but it isn’t always easy for new investors to tell when a property will be a good buy.
Take all those downtown condo megaprojects, for example. According to a market analysis released by the Canadian Mortgage and Housing Corporation (CMHC) last December, 57 per cent of the condos in newly built towers with more than 300 units were owned by investors. Yet CMHC found three-quarters of those units would be cash-flow negative if buyers made only a minimum 20-per-cent down payment.
Clearly, finding profitable rental properties is more easily said than done, but one Montreal realtor believes he’s created a reliable system to sift through the duds and help buyers find the gems.
Antoine Saker, a broker with Royal LePage Altitude in Griffintown, has come up with a formula to quickly calculate the return on investment for rental properties across Canada based on the rental income provided within MLS listings as well as estimates of the building’s expenses.
Not all investors are looking for cash flow, of course. Some are willing to buy property that only breaks even or even loses money month to month in anticipation of gains because of appreciation when they sell. Others keep an eagle eye out for underpriced bargains that can be flipped quickly for profit.
Many, if not most, investors, however, would love to buy a dependable moneymaker. Yet Saker said the vast majority of income property listings are what he calls “hollow investments” because the monthly cash flow, after expenses, is slim to none.
Saker said he spends up to four hours every day scouring new investment-property listings in Quebec, Ottawa, Toronto and other parts of Canada. On the day we spoke, he said he looked at nearly 100 revenue-property listings from across Canada, and found only five that were cash-flow positive: three in Quebec, one in Ontario and one in Alberta.
On any given month there are typically approximately 10,000 active income-property listings across Canada, he said. He evaluates every listing in Quebec, and as many as he can manage in the rest of the country. On average, only 600 to 700 pass muster, he said, and the majority of those tend to be located here in Quebec.
Although the rising price of real estate in Montreal is shrinking the pool of profitable income properties in the city, he said Quebec still offers more opportunities for real estate investors than pretty much anywhere else in Canada.
“Quebec is very affordable for the average Canadian and Quebec gives the most options when it comes to the quantity of cash-flow-positive properties,” he said.
Saker said Ottawa is another investor-friendly market, while good buys in Toronto are few and far between. He noted he has yet to find a property in Vancouver that qualifies as cash-flow positive in his analysis.
For most buyers, choosing a place to live is an emotional decision. They know from the moment they walk in whether or not it feels right. For investors, the decision is financial. If the numbers don’t work on paper, it’s not worth pursuing. For that reason, Saker said it’s common for clients to make an offer sight unseen so they don’t waste time touring properties that won’t sell at a price that makes the math work. Saker said in this case he includes a clause that the buyer will have up to 48 hours after the offer is accepted to view the property and walk away if it is unsuitable.
While many brokers who specialize in working with investors create their own spreadsheets to help calculate ROI, Saker has gone a few steps beyond. After running the numbers, he posts the cash-flow analysis for listings that are break-even or better on apexrealtyinvestments.ca, which he launched in January.
“I’m very confident in my analysis,” he said. “These investments are solid investments that will withstand interest-rate increases and other surprises because they are above break-even.”
