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Monday
May292017

Commercial Property Closing Costs

I thought this might be of interest to any budding commercial investors.

I'm just closing on a multi-unit residential property located in Ontario and was putting together the closing costs to determine the adjusted cost base.   Let me tell you ... it ain't cheap!

Some details on the purchase:

- Located in Cambridge, ON (Only Ontario Land Transfer Tax applies)

- CMHC insured property (Significant premium but very low interest rate ... low 2's)

- 12 Units

- Purchase Price of $1,325,000

 

If you're thinking of getting into a commercial property here are actual closing costs that were incurred for this transaction which closed today (May 29th).

Land Transfer Tax (only ONT.)  $22,975.00 
My Lawyer' Fees  $6,833.09 
CMHC Premium  $56,686.50 
CMHC Application Fee  $1,800.00 
Bank Admin Fee  $2,898.00 
Insurance Review  $423.75 
Environmental Review  $150.00 
Cheque Certification  $25.00 
Bank' Lawyer' Fee (Yes you pay!!)  $5,162.79 
Phase 1 ESA  $2,938.00 
     
Total  

 $99,892.13 

So on a $1.325M purchase the closing costs are approx. $100,000 or 7.5% of the purchase price.  Keep in mind that the CMHC premium is added to your mortgage so it is not a cash outlay upfront but you still end up paying for it in the long run.

The crazy thing is that if you structure the deal properly, multi-unit residential properties are still one of the greatest long term investments.

Author: Paul Kondakos, BA, MBA, LL.B - Professional Real Estate Investor 

Wednesday
Jul272016

New Foreign Homebuyers Tax in B.C. a bad idea

New taxes are usually a bad idea in my books. I understand the motivations for wanting to impose a new tax. The residents and the media keep pushing the narrative that the Vancouver (and Toronto) housing market(s) are out of control and unaffordable because foreign money (evil) keeps coming in and pushing up real estate prices.

At this point it depends which theory you subscribe to ... (1) The housing market is in a bubble or (2) Vancouver and Toronto are becoming cosmopolitan cities joining the ranks of London, New York, Toyko, Paris, etc... I personally subscribe to theory #2.

Vancouver and Toronto are attracting foreign capital as they are constantly garnering international attention as being the best places on the planet to live. It's not a bad thing.

Now Vancouver has basically told the world that they're not ready to be in the major leagues and prefers to stay in the minors.  "Thanks but we don't want your money".

Cutting the influx of foreign capital could have consequences on the entire Canadian housing landscape if other major cities (ie. Toronto) start to follow suit.  It's no secret that the housing industry is playing a major role in keeping the Canadian economy afloat by creating thousands of jobs in construction.  With depressed oil prices and the Alberta wildfires already hurting the economy, why risk introducing another catalyst that could further hurt an already fragile economy.

Now my slant on the government. If the B.C. government is serious about making housing more affordable  they should earmark any taxes collected from the new foreign ownership tax and use it to offset the property tax / land transfer tax paid by locals when purchasing property. You kill two birds with one stone.  Scare off foreign capital and stimulate local ownership.  But we all know that is just a pipe dream. Government will extract tax from anyone and everyone under the guise of "utilitarianism". So my take .... BAD IDEA.

Thursday
May052016

Make an Extra $90,000 per year with Multi-Unit Properties

This month's Canadian Real Estate Wealth Magazine features one of my articles which demonstrates how the average Canadian can generate an extra $90,000+ per year in wealth through multi-unit acquisitions.

"Financial freedom is something we all aspire to achieve. The problem is that most people are at a loss as to how to actually break out of their 9-to-5 daily grind and achieve that goal.

Throughout history, real estate has been the single greatest vehicle for wealth creation and financial freedom. The good news is that this still holds true today ..."

Read Full Article

Wednesday
Apr132016

Tips for Renting Your Place Out

A friend of mine recently asked for some tips on renting out her father's house.

I provided her some tips which I thought would be useful for anyone else looking to rent out their place.

_____________

Hey Angela,

Here are my suggestions for renting out your dad's place:

Kijiji is my preferred platform for renting, but it doesn't hurt to use viewit.ca in conjunction with it.

I would suggest making the ad a "Top Ad".  Its $50 for 7 days but well worth it.  I would also bump up the ad ($5) once or twice a day for maximum exposure.

Take lots of pics during the day, preferably a sunny one.  Try to get as much of the room in the pic as possible.  When you only get part of the room it makes the space seem smaller and less desirable.

Before taking pics tidy up and get rid of any clutter.

The ad itself should be catchy and have highlights as bullet points.  Talk about both the property itself and the area (eg. East York, Greektown) Below I included a sample of one I am running right now in Kitchener:

OPEN HOUSE THURS., APRIL 14th from 6:30PM to 7:00PM - Please email to RSVP

Asking $925 (ALL INCLUSIVE – utilities and parking included)

• Unit is BRIGHT & very spacious
• Unit is freshly painted and renovated (very clean!)
• Clean and quiet building
• Close to all amenities: Fairview mall, restaurants, parks, biking and jogging trails
• Easy access to Highway 401
• Secured entrance
• Laundry facilities on site
• Mature adults only please
• First and last month required
• Available May 1st
• 39 Balfour Crescent
.
Please email to RSVP for Open House 

Instead of showing the house through multiple appointments, run an open house every 4 days until you get it rented out.  This minimizes the number of times you have to show it and by having everyone come together it shows interest/competition for the property.

If you find a tenant you like:

-Run a credit check (look for a score of 680 or more)

-Check photo ID to confirm identity (keep a copy)

-Get Letter of employment or paystub

-Signed Lease

-Call previous landlords for reference

-Bank draft to cover first/last

If you have any question let me know.
Good luck!
Wednesday
Jan202016

Case Study: 133% ROI in 12 months

itI've seen a ton of real estate courses out there telling you they can teach you how to make millions (for a fee of course).  Well the proof is in the pudding.  This is how you make money in real estate without exposing yourself to significant risk.  Here are the hard facts, details and numbers.

12 Units in Oshawa, ON - Purchased Dec. 15, 2014

After 1 year of improving the tenant profile, maximizing rents, minimizing expenses and modest renovations the results are in ...

Return on Investment: 133%

Purchase Price: $1,070,000
Current Market Value: $1,350,000+
Total Investment: $210,000
Cash Flow: $2,200 per month
Mortgage Paydown: $1,750 per month

The Opportunity:  This 12 unit apartment building was ideally situated in prime North Oshawa which was THE fastest growing city in Ontario in 2015. 

Initial Obstacle

This property required some work during the conditional period as a Phase II environmental discovered an underground oil tank.  It took a few months but the tank was eventually removed, the soil remediated and the deal closed.  It would have been easy to walk away from the deal with the discovery of the oil tank but I believed in the potential of the area and the building.

Financing

Having the right financing in place from the outset is critical.  The 2 things I look for, and was able to secure, are  (1) cheap cost of funds and (2) leverage. CMHC insurance was purchased which facilitated an interest rate of 2.48% and a LTV of 85%.  The CMHC appraisal came in light (like they normally do) so we convinced the seller to hold a second mortgage on another property in the portfolio at a rate of 4.5%.  Maximum leverage and minimal cost of funds = Healthy cash flow.

Tenant Profile

The profile was decent BUT there were several problematic tenants that needed to fall in line or leave.  Within 12 months all the problematic tenants were either (1) evicted (2) conformed or (3) voluntarily moved out.  The property is now fully tenanted with quiet and respectful tenants that pay their rent on time.  A good tenant profile facilitates greater retention of existing tenants and allows higher rents for incoming tenants.

Maximizing Rents

The previous landlord was not staying current with rents in the area.  As a result, rents were well below market and offered significant upside.  He was also not big on re-investing in his apartments to attract better tenants and achieve higher rents.  With some modest renovations and upgrades on turnover, rents were increased significantly.  In total cash flow improved by $700/month which all went to the bottom line.  There is still significant upside in the rents if and when the original tenants decide to move out.

Minimizing Expenses

A classic mistake many landlords commit is to include hydro in the rent to make the apartments more attractive to prospective tenants.  This was the case here.  Even though each apartment was individually metered, the landlord included the hydro for several tenants.  As units turned over, new tenants were required to pay hydro in addition to their rent.  This simple move eliminated $300/month in hydro expenses.

In total $700/month was added to the rent roll and $300/month in expenses were eliminated.  $1,000/month in additional cash flow is equivalent to $200,000 in forced appreciation based on a 6% market cap.

The Results - 12 Months Later

- ROI was 133% (which doesn't include cash flow or mortgage paydown)

- Cash flow improved to $2,200/month, up from $1,200/month originally

- Mortgage Paydown builds $1,750/month in equity

- Forced appreciation thus far has been $200,000+ (with more upside remaining)

- Natural appreciation continues to be very favorable given the developments in North Oshawa

  See More Case Studies / Success Stories