Montreal duplex at C$1.512m and C$10,350/month: do the numbers hold up?

[hana.slate]

I can either take the 8.2% gross yield at face value, which seems too optimistic, or load the model with so many contingencies that the deal becomes impossible to judge. Neither approach feels useful.

The Montreal 3-bed duplex is priced at C$1,512,000, with expected rent of C$10,350 a month. I have included periods without a tenant, management, recurring upkeep and money for a major repair, but the building-specific tax and insurance figures are not firm yet. I also need to establish whether that rent exists under current leases or depends on turnover.

Which assumption would you stress first? I am less interested in defending a particular net yield than in seeing whether the cash flow survives higher financing costs, a vacancy and an expensive repair in the same year.

 

[FirstBrick]

The gross calculation works, but I’d scrutinize property tax and insurance before debating an acceptable net yield. Get figures tied to this building rather than applying broad percentages. Also, is C$10,350 the current rent under existing leases, or a projected amount after turnover? That distinction could change the deal more than a slightly higher maintenance allowance.

 

[AriKeel]

I’d put more emphasis on the repair reserve than elias does. A duplex can look sound while still concentrating expensive work into one year, and tenant turnover can combine vacancy with cleaning and repairs. Model the actual annual cash flow with no rent increase, a vacancy period and a large repair occurring together. Then rerun it at several financing costs. I wouldn’t choose a target net yield until those downside cases are visible.