Harpreet’s perspective
Real questions. Real properties. Real numbers.
You show me a rental. Rent: $2,800. Mortgage, tax, insurance and other expenses: $3,200. You say: ‘It's only negative $400 per month.’ I say: ‘Okay. Why are we buying it?’
Negative cash flow doesn't automatically make a property a terrible investment. But I need to understand the strategy.
Analyze the Strategy
Maybe you're buying in a location where you believe there is strong long-term potential. Maybe the property has redevelopment opportunities. Maybe you're planning renovations that could increase rent. Maybe there's potential to add another rental unit, subject to approvals. Fine. Now let's analyze it.
How Much Negative Can You Actually Handle?
Today it's $400. What happens when something breaks? What happens during vacancy? What happens if expenses rise? What happens when the mortgage renews? Can you comfortably carry the property without putting the shortfall onto your line of credit every month?
If yes, then we can discuss whether the long-term investment thesis justifies it. If you're already uncomfortable with $400, the property probably won't become more enjoyable when the furnace asks for $6,000.
Appreciation Is Not a Monthly Payment
Property values may rise. They may also stagnate or decline. I don't like strategies where the entire investment depends on: ‘Calgary real estate always goes up.’ Markets move. Good investments should have more than one reason to own them.
Show me the cash flow. Show me the location. Show me the value-add opportunity. Show me the long-term plan. If we're intentionally accepting negative cash flow, I want to know exactly what we're expecting in return.