Are interest rates too high to make a profit in the Abbotsford Condo Market? Let's take a closer look and find out. We will dissect the deal on my latest 2 Bedroom, 2 Bath Abbotsford Condo listing. List price $450,000.00, 1027 square feet, $444.35 monthly strata which includes; heat, electricity, and water bills.

Next let's look at an example of what asking rents are going for in the area. In central Abbotsford I found numerous examples of 2 bedroom condo's asking $2000 - $2300 /monthly.

So let's use $2300 as our number as this is a bigger unit with a nice layout, that also has utilities included in the strata fees. This is what our rental calculation looks like. I want to make clear that these numbers are estimations. I plugged in a $450,000 purchase price with closing costs of $7000 including PTT (property transfer tax) and $1000 lawyer / closing fees. I also plugged in other costs like monthly strata $444.35 as an anual value in the HOA(Home Owner Association) parameter, insurance and vacancy rates are estimates as shown below:

In our hypothetical example we see that the monthly mortgage would be covered by the rent with a 20% down payment at 6.29% (5 year fixed rate) mortgage ammortized over 30 years. These rates are not set in stone but these numbers were given to me, by my trusted mortgage broker at Dominion Lending. 

The other glaring thing we notice, are those evil red numbers showing a -$723.02 monthly cashflow. This can be partly mitigated if we negotiate utilities to be paid for as they are included in the monthly strata fees. Maintenance and other fees are just estimates on potential repairs needed in the future. The other factor is, if rates go down, we can look at a re-mortgage to take advantage of lower rates and instantly our profitability goes up. All other numbers remaining the same, using a mortgage rate of 2.9% breaks the barrier into positive cashflow. Or, if we use a 50% down payment we can see a positive monthly cashflow of $111.71 with the following numbers below:

But! That is not the only way we can make money in Real Estate. Capital appreciation is a powerful way to profit.

Now lets talk appreciation. If we look at historical price appreciation as far back as we can pull numbers for 2 bedroom condo's in Central Abby, we get a 9.2% average rate of appreciation. For this example, I used an 8% rate of return. This is what we see on a chart:

If we hold the condo for 20 years, we see a potential Internal Rate of Return of 13.21%, with a staggering 1656.51% Cash on Cash return of our initial investment. I know that seems impossible, but if you think I am crazy, just look at January 2005, 2 Bedroom Central Abbotsford average condo sales price, and you will see that it was $84,067. I make no guaruntees on future returns, but our best place to find clues about the future, is to look at past return averages. Real Estate has usually been a great hedge against inflation. 

In conclusion, don't be deterred from owning a great potential investment due to high interest rates, as they may be temporary, while you could be missing out on a great capital appreciation opportunity. All that being said, you have to be able to afford the carrying costs through the hard times. Although high interest rates may be temporary, I wouldn't want someone to be forced into a bad situation where they might have to sell at an inoportune time.