If you’re looking for a cashflow positive property in Ottawa there are a few key features to look for especially as a new or inexperienced real estate investor. Keep reading for everything you need to know about finding a cashflow positive property for your next investment property.
P.S. We have a fool-proof hack for analyzing properties that will help you make informed decisions when it comes to real estate investment.
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When Does it Make Sense to Favour Cash Flow over Appreciation in Real Estate Investing?
The first step in considering what type of property you’d like to invest in, is understanding why some investors look for cash flow opportunities over appreciation, and why others don’t.
Most people who favour cash flow positive properties do so because:
- It provides predictable and immediate returns
- The income can help build a reserve fund
- It builds financial stability and landlord experience
- It can make financing future properties easier
Overall, cash flow positive properties can be a really great entry point for new real estate investors looking to get their footing and gain experience without the stress of relying on appreciation.
While cash flow positive properties are generally seen as “safer” there are some scenarios where an investor might favour appreciation over cash flow including:
- investors looking in high-growth markets where cash flow isn’t always possible but long-term appreciation potential is extremely high (markets like Vancouver or Toronto see a lot of appreciation-based investing).
- those looking to renovate or follow the BRRRR strategy (see our Ottawa Real Estate Investment Guide for more on common investment strategies). In these scenarios, the property isn’t initially cash flow positive but has the potential to be with upgrades/renovations.
- investors who use a property as a tax strategy, as the rental losses can offset other income. This is common with high-income, experienced investors.
In general, there’s no right or wrong strategy when it comes to real estate investing. It’s all about looking at your specific situation including income, short-term and long-term goals and lifestyle to make a plan that fits your needs.
If you’re looking to invest in Ottawa and you want personalized real estate investment advice, book a strategy call with our team of Investors Edge Certified Realtors.
Most Common Cash Flow Property Pitfalls
Having a cash flow positive property has a lot of benefits but it’s also important to consider the pitfalls of a property of this nature.
No. 1: You Miscalculate Key Expenses.
We see this a lot with new and inexperienced investors. There are expenses that can be easily forgotten when calculating cash flow of a property and when they’re not accounted for they can flip your cash flow positive property into a cash flow negative one really quickly.
Expenses you need to consider:
- Repairs & maintenance (e.g., appliance repair, small plumbing repair)
- Capital expenditures (e.g., roof, furnace, windows)
Property management fees (6–10% of rent if you outsource) - Vacancy allowance (depends on location and property type, can be 2% or more)
- Insurance increases or property tax hikes
- Utilities (especially in multi-units or where tenants don’t pay all utilities)
No. 2: You Overlook Capital Expenditures (CapEx)
Just because on paper the monthly numbers work doesn’t mean you’re in the clear. You want to have a reserve generated for Capital Expenditures (big, infrequent but necessary costs) that will need to be done like HVAC, Roof, Plumbing, Electrical, Foundation, etc.
No. 3: Tenants Can Make or Break Your Cash Flow
Bad tenants who don’t pay their rent on time or, in some extreme cases, at all, can quickly ruin a cash flow positive property. Not only does missed rent create immediate loss but evictions and damages can eat into your income as well.
The best way to avoid this is to properly screen tenants by working with a realtor who has experience in tenant screening and leasing. Want to work with our team to get your property leased?
Reach out to us or check out our case study on how we fully leased six units at or above market value for one of our clients.
Key Things to Look for In a Cash Flow Positive Property
If you’ve decided that cash flow is the most important factor for you, here are a few things you should look for to make sure you select a property that meets your needs:
No. 1: Solid Location
You need an area with low vacancy rates/high tenant demand because you’re relying on that rental income. Look for areas that have access to transit, schools, and amenities that renters will look for to try to lock in long-term tenants. While the neighbourhood doesn’t necessarily have to be trendy or the most exclusive, it should be safe and desirable to your ideal tenant.
No. 2: Low Immediate Capital Expenditure Risk
As discussed in the previous section on common cash flow pitfalls, not accounting for Capital Expenditures can be detrimental to your cash flow. When you’re looking for your property, avoid properties that show signs of major repairs.
Look for updated HVAC systems, roofs, etc. While you can’t avoid these costs forever (most of these repairs have a shelf-life) you can put them off by finding newly updated/maintained properties.
No. 3: Good Tenant Profile Potential
You’ll want the demographic of renters to meet your needs in terms of employment status and income. You’ll also notice that neighbourhoods will attract different types of renters from professionals, to families to students. Understanding what you’re looking for in a tenant is key to making a good decision.
Check out our blog on Key Ottawa Neighbourhoods for Real Estate Investment.
How to Calculate Cash Flow on a Rental Property
This is where people who are new to investment get a little scared. You start hearing things like Cap Rate, Cash-on-Cash return, Gross income, etc. and it starts to feel like this is far too advanced.
First, don’t be scared by all of these terms. When broken down, cash flow analysis for real estate investment isn’t as difficult as it may seem.
(If you’re really not great with numbers, we get it and have a tool for you. Keep reading!)
Here is a step by step basic formula for calculating cash flow for a rental property:
Step 1: Calculate Gross Monthly Rental Income – that’s everything from rent to parking, laundry, storage (if applicable).
Step 2: Subtract Your Monthly Operating Expenses – this is everything you will regularly pay excluding the mortgage.
Subtract Your Monthly Mortgage Payment – use a mortgage calculator based on your loan amount (purchase price – downpayment), interest rate, and amortization.
Calculate Monthly Cash Flow: Gross Income – Expenses – Mortgage Payment
Tools to Analyze Cash Flow Properties Like a Pro
If numbers aren’t your thing, we have just the tool for you!
The Royal LePage Investors Edge Property Search Tool will show you properties in your desired area and show you potential investment performance all with just a few clicks.
Just search your area, budget & property type then explore your options!
Each listing will show potential investment performance including a Cash Flow Calculator with monthly & yearly options. You can adjust variables like vacancy rates, operating expenses like management fees, property tax, repair reserve, insurance and condo fees to get the most accurate view of the property.
Why Work With A Realtor For Cash Flow Investing in Ottawa
Working with a realtor experienced in investment properties can help take out a lot of the guess work that can come with being new to real estate investing.
Adam Mills and Joe Kanoza are our team’s Investor’s Edge Certified Realtors who are ready to help you realize your investment dreams. When you book a strategy call with us we’ll go over your goals, budget, lifestyle and more to really pin down what you need out of a property.
After our initial call we’ll be with you every step of the way when it comes to finding your property. We know Ottawa’s real estate investment market and can help you find a property in a neighbourhood that will help you meet your goals.
For each property that you’re interested in we will run a Pro-Forma Report for you which will show you performance for the first 10-years including cash flow, return on investment, refinancing options and more. This takes all of the guesswork out of property hunting!
Note: when you rely on the seller’s report you’re likely getting inflated/optimistic numbers for the property. Having us by your side and the ability to completely customize your report means you get the most accurate numbers to help you make a decision.
Book Your FREE Investment Strategy Call with Our Team
When You’re Ready to Invest in Ottawa Real Estate, We’re Here.
When you book your strategy call with us there’s absolutely no pressure to move forward with investing in a property. We’ll walk you through your options based on the information you provide us and hopefully leave you feeling confident in your next move.
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