Sunday, April 08, 2007

To Enforce Or Not Enforce? That IS The Question.

Unlike B.C and Ontario there are no government enforced rent increased guidelines in Alberta. Landlords are free to raise their rents as much as they like every six months. These rent hikes are important to make the property investment work, of course most landlords work with integrity and raise rents in reasonable increments.

"....a young family facing a total rent increase of $375. They faced a hike in December and one that's coming in June. They'll wind up paying $1,175 for their north-end condo, a full 50% of their take-home pay." Kerry Diotte

However, after a 52% increase in real estate prices last year, the rents MUST increase, sometimes drastically, to make investment properties work. It is next to impossible to find a property that will give you positive cash flow, but most investors are aware that Edmonton is a capital gains market.

For Example:

"Realtor Stan Gallant tells of a recent example where a six-suite apartment unit in the Ritchie neighbourhood recently sold for $775,000. Rents currently bring in $46,000 annually.

But the new owner must pay out $50,000 per year on a mortgage, $3,500 in taxes and utilities and $8,000 in maintenance costs.

In order to get a small return on his investment the new owner is being forced to increase total annual rents to $77,000."
Kerry Diotte Edmonton Sun

Once you factor in mortgage, insurance, taxes, repair and maintanence and all the other expenses a good investor takes into account you are left with massive negative cash flow. Money flowing out of your pocket and into a crocodile property.

I don't want old ladies and young families out on the street. I also don't want to ask my investors for $400 a month negative cash flow to cover the solid investments we go into.