When buying an investment/rental property, sometimes the question is: Should I buy the property to generate cash flow on a monthly basis or do I sacrifice cash flow (break even) and hope for capital appreciation over the long term?
In today's downtown Toronto condo market, it is difficult to generate positive cash flow without a significant downpayment. Buying an investment/rental property is a buying a business. If you were presented with an opportunity to buy a business which requires 30-40% capital investment that breaks even, would you buy it? Being profitable on a monthly basis and having time on your side for capital appreciation is a win-win investment strategy. The stronger the cash flow of the property, the easier it is to sell the property in future when you decide to do so.
Here is an idea: Having 2 rental properties that generate $400 each on a monthly basis will net $800. If you were to put the $800 on your personal mortgage (which is not tax deductible), your mortgage amortization will significantly be reduced paying it off faster thus providing access to your home equity for further investments.
In conclusion, it is important to surround yourself with a team of professionals who are investment savy (mortgage broker, real estate agent, accountant and insurance broker) who understand your long term goals and can help you be on the right track.
For detailed cash flow, cash on cash return, return on investment, cap rate and capital appreciation analysis for your rental properties portfolio, please contact me.