…. that no one is talking about
Hello Hamilton Real Estate Investors,
Has the rental market turned against townhouse condos?
A client of mine who owns a townhouse condominium (THC) in Hamilton mentioned to me that in the same complex as his property, there are currently three vacancies. That’s a lot! (thankfully he already has a tenant on a 12 month lease) So as any sophisticated investor does, I pushed forward with my research and spoke to my friend Jeff Varcoe (REIN and Rock Star member, Hamilton investor) who operates a well respected Property Management company called Corner Select Properties. Jeff tells me there are several THC vancancies in the east end of the lower city near the Red Hill and to stay away. My next question then is what are the high demand properties and where? Readers, wouldn’t you like to know? Watch the below video where I’ll explain and it may shock you… the answer is not townhouse condos…
httpv://www.youtube.com/watch?v=zMwxQQ29oBk
So what are the numbers?
Here’s your typical THC that I know several investors have already bought vs. a semi in West Hamilton.
(Assumptions: 20% downpayment; mortgage, 3.94% five year fixed, 35 year amortization; total vacancy, repairs, property management allowance = 21% of rent)
Notice how much of a difference the condo fee makes? Big thanks to Jeff from Corner Select Properties for letting me see the property and sharing his insights into the market.
Hope that helps! Till Next Time – Happy investing everyone!
Erwin Szeto
MrHamilton.ca
Real Estate Investment Adviser
e: erwin@mrhamilton.ca
p: 289-288-5019
f: 905.481.2341
PS: If you would like to learn more about investing in real estate in Hamilton please feel free to call 289-288-5019 or email me erwin (at) mrhamilton.ca.
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Update: check out the comments for this post, some great questions, feedback, and comment by Jeff Varcoe
Hey Erwin,
Great insight! nice property.
Can you confirm from Jeff there is enough actual demand to pay $1475?
That’s a large rent payment so you’re naturally selecting from a different tenant pool right?
The other potential pitfall with a semi is the investor has no control over how the other half of the property is maintained or who lives there…
Ever done half a roof?
Ever keep you yard and exterior looking sharp and the other half looks shabby – this is a big one for me since I used to be a lawn maintenance contractor. Some people just don’t have a feel for it and often defer outdoor maintenance/upkeep as a cost savings measure – How do you think I know these things?
Ed R
Erwin,
This is a great post, and very valuable information for anyone looking to invest in Hamilton. As you know, I own Condo Townhouses in Hamilton. However, I am a firm believer that one has to always think about and examine their current situation. If there is an opportunity for them to improve, then improvements should be made.
Any new or experienced investor looking at Hamilton should listen carefully to the advice and insights that you have presented.
Keep on doing great things!
Regards,
Neil.
Hi Erwin,
I think the difference between cash flow on a THC and semi in Hamilton would be a little less. Some of the condo fees cover exterior maintenance which means you can lower your repairs & maintenance budget a little on the THC. This should help to close the cash flow gap a bit.
Either way, I am not a big fan of condos for this reason. The condo fee tends to eat up cash flow and is another expense which is out of your control as an investor.
As your example shows, its not all about price. Even with a more expensive property and higher mortgage payment, the cash flow can be higher for a comparable freehold property.
Cheers,
Andrew
Great analysis, I just have a couple of questions:
1. Is the difference in R&M on a much larger property, with more items to break + exterior maintenance going to be just ~$40/month. At first glance I would think that the R&M difference would be much greater.
2. The calculations don’t include insurance. Insurance on a THC is much less then on a semi.
Hello Ed,
With respect to your questions allow me to respond.
1. Demand at $1,475? Yes there certainly is. I have 3 vacant townhomes near the King St. & Quigley Rd. area listed for $1,250 – $1,295 and I consistently get more activity on this one at $1,475 then I do on all 3 of these town homes combined.
2. Large rent payment = different tenant pool? Yes. At this “snack bracket” you’ll see middle income families or larger families often with 3 generations under the same roof where Grandma lives in the basement bedroom. In some situations this can have a real stabilizing effect and ensures rent is paid on-time, on regular basis.
3. Regarding your choice of neighbours in a semi vs. town house.. we’ll that’s a no brainer. You only have to worry about one side instead of 2. Plus the neighbourhoods tend to be a bit more upscale so the chances of living next to a home owner (vs. another tenant) is pretty good. Also, with semis the dividing walls tend to be concrete block instead of the tissue paper used in most of the older TH’s.
4. The landscaping & maintenance part is handled with good property management. You know where to reach me. :o)
All that notwithstanding, just remember… “good fences make good neighbours”
~Jeff V.
@Ed – great points, I think Jeff got to all your questions. Note also, this semi is located in West Hamilton mountain where the household incomes are higher than the King & Quigley area.
@Neil – thank you sir! Means a lot coming from the Bloginator himself! I too believe in continuous improvement. The Japanese call it “Kaizen”
@Andrew – great points! I agree. THC’s are a great investment for some but for investors like you and I, freehold is the way to go
@Tony – you are correct, I was going for a quick and dirty analysis but have a look at Jeff Varcoe’s comment. The semi on the West Mountain would appear to have lower vacancy so maybe that makes up for the R&M and insurance.
@Jeff – thank you for in depth reply and your contribution to this post
One general comment about condo fees and their coverage of repairs and maintenance. During one home inspection on a THC in the King & Quigley area, we discovered mold in the attic on the underside of the roof sheathing on only 1/2 of the roof because the other 1/2 was replaced two years ago. I suspect someone was cutting corners. Not only was their insufficient venting of the attic but also in not replacing 100% of the plywood. With my team of professionals, this wouldn’t have happened and the lesson is having a condo corp take care of your property is convenient but not perfect.