Don’t Make This Real Estate Investment Analysis Mistake
I'm guilty of making this mistake when calculating how much a new condo is going to cash flow. When I look back at projects I turned down, I know it has cost me a lot of money.
I was inspired to do this video because The Mondrian Condos in Calgary just launched which is another fantastic condo project by Truman Homes. What I really liked about this project is that when I’m talking to clients, I often get asked, “Kyle, what are the existing rental rates in the market?” . While that is an important question, you shouldn't be using that number for a pre-construction property that's closing five or six years from now - this is one of the biggest mistakes that investors do is simply being too conservative for their rental assumptions and forecasting no growth.
The Mondrian is the perfect example because literally right beside it is a Gateway Condos (another project by Truman that is complete and people are living in), It allows me to do an apples-to-apples comparison (same location, same neighborhood, same builder, same product type, etc.) and to check the rental market versus the rental guarantees to see how conservative the developer is being and what cash flow you can actually expect.
One of the other most common questions I get is “Kyle, it comes with the two year rental guarantee, what happens after that guarantee's done? Am I gonna be able to rent my unit?”. Again, this is the perfect example because I was able to look up rental listings in the building by Truman Rentals (this is Truman’s in-house management company that takes care of rental guarantees for them). What did I find? Gateway has 216 units in it, currently, there are zero available for rent. It shows the incredible demand for this area, and for Truman products.
This allows me to do a fantastic comparison between Gateway and The Mondrian. Currently rental rates at Gateway are:
1 Beds for around $1,650
2 Bed, 1 Bath around $1,800
2 Bed+Den almost $2,000
3 Beds about $2250
Now, the rent guarantee at the Mondrian, it is a little bit higher because they're expecting price appreciation for the rental market, but keep in mind, you're starting to get that rental guarantee when it's completed in 2026, and then have the 2 year rental guarantee with free property management.
So, if we take a look at today's rental rates, and apply basic increases, let's take a look at what those numbers are actually gonna look like in a conservative scenario. I took a look at the 2 Bed+Den, because this is gonna be the most popular unit in the Mondrian condos:
Today, it would roughly rent for about $1,950 (I am being very conservative for today’s rent - it is likely higher because the prices listed are now several months old)
The rental guarantee that you're getting from Truman Homes is $2,275 a month, so there is a bit of a spread.
Assuming just a simple 5% rent increase each year, by the time that you actually have to worry about renting out the property in 2028, that unit will be renting for almost $2,750. Once you take away your mortgage payment and operating expenses, it will cashflow over $500 a month, that's over $6,000 annually, at only a 5% price appreciation from today's rental rates.
That is insane money! I know what you're saying, “There's no guarantee that that's how it's truly gonna happen”, and you're right, but I do strongly believe rents are going up, because they are rapidly increasing. Take a look at this Calgary Herald article:
Rents in Calgary have jumped 21% year over year, and even with that increase, Calgary ranks 24 out of 35 for major cities for average rent for a one bedroom, and 26 out of 35 for a two bedroom home. Rents are still incredibly cheap in Calgary. In Toronto, you'd be paying at least $1000 more for a comparable unit and there is huge room to run for Calgary rental rates.
So, this is why my favorite investing vehicle is pre-construction condos. And the Mondrian is the perfect example of this.
You're able to buy with only 10-15% down, and you're getting appreciation on the purchase price, as well as the rental rates, while it's being built, until 2026.
It comes with the 2 Year Rental Guarantee, which might be lower than rates at that time, but you're getting free property management included with that.
When you actually have to go to the market in 2028, I expect rental rates to be much, much higher than the guaranteed amounts.
Also, keep in mind that Calgary does not have rent control. If you have strong periods of rental appreciation like there has been over the last year, you can actually adjust the rent for your tenant to those market rates. Unlike in Ontario where you're typically limited to the provincial guideline which next year will only be 2.5%. That's a huge bonus for investing in Calgary!
So, if you are one of those conservative investors like me, please get in touch, because I want to walk you through the opportunity in Calgary. It's something that you're gonna regret if you miss it.
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