Cashflow Positive Rental Property Guidelines
With the recent upswing in interest rates, many Canadians have put on hold their plans to purchase more rental property real estate.
Unfortunately, the mortgage rates that we have enjoyed over the past 10-15 years may never come back.
The Canadian federal government and Bank of Canada kept these rates artificially low through various market manipulations.
Historical mortgage rates in Canada sit in the 5-6% range rather than the 2% we’ve seen more recently.
With that in mind, let’s get into some examples and best practices that will ensure your rental property is, and stays, cashflow positive.
#1 Consideration BEFORE YOU BUY YOUR NEXT RENTAL PROPERTY
Make the decision upfront in your mind that you are NOT purchasing this property for potential price appreciation.
Canadians love to say that real estate values always go up and this has been true over the long term. However, this is not a criteria on which to purchase or not purchase a piece of rental real estate.
If you purchase a property and it happens to go up in price, this is an awesome bonus.
So…how should I determine whether to purchase rental real estate?
Once you’ve accounted for all of your rental property’s expenses, you should show positive cashflow, or at minimum, break even.
The last thing you want is to have to cover cashflow deficits waiting for property price appreciation that may not come or may not come for awhile.
Breaking even and ensuring positive cashflow allows the property to “pay for itself” from rental income without straining your out of pocket finances. This is not a Huber Mortgage metric. This is backed by the Real Estate Investment Network and Robert Kiyosaki of “Rich Dad Poor Dad” fame.
This is a Long Term Investment.
It makes sense. Rents pay for your rental properties fully while any price appreciation is a bonus!
Then…think about how nice life will be once your property (or properties) are paid in full.
You will still have maintenance, insurance and property tax costs but that money that used to go to the bank each month for your mortgage payment will now land in your bank account to fund retirement, new properties, college education, travel…you name it!