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Sunday
Jan132019

Evicting Bad Tenants and Making it Pay Off

The single most critical factor to being a successful Real Estate Investor is the ability to properly and thoroughly screen tenants.  Unfortunately, there are times when you inherit bad tenants or when good tenants turn into bad tenants.  Either way, bad tenants cost you both TIME and MONEY ... and inevitably alot of STRESS.

On average it now takes over 4 months to evict a tenant in Ontario, and that's only if you start the process a day after the first payment was missed.  For most novice investors the average is closer to over 6 months. Factor in your time and potential damages (and every tenant I have ever evicted has damaged his/her unit) and you're talking thousands of dollars. 

I recently had to evict a tenant from an apartment building in the Greater Toronto Area.  This was a tenant that was inherited when the building was purchased.  They paid their rent on time, but the problem was that their apartment was an absolute MESS as you will see from the pictures below.  This created several problems.  The apartment became a fire and safety hazard AND attracted pests to the building.  It took a few months but I eventually got the eviction based on the tenant's failure to maintain the apartment in a good state of repair and cleanliness.

The pictures below were taken in the apartment just before the tenant was evicted.

BEFORE

After several weeks of work to the apartment and a few thousand dollars, the renovations to the apartment were completed.  The final product was a stunning NEW1  bedroom apartment.

AFTER

 

THE NUMBERS

The Good news is that there is a silver lining if you find yourself in this predicament, especially during this period of rising rents.

The apartment renovation cost approx. $8,000 for materials and labour.  No one likes to shell out that kind of money, especially when you are working with tight margins to begin with.  However, in most cases this type of investment shows an immediate and favorable ROI.

Pre-Eviction Rent: $875/month

Post-Eviction Rent: $1,150/month

Difference: $275/month OR $3,300/year

Many tend to think the payback period is the most important consideration when making this type of investment.  In this case payback would be just under 3 years. I can appreciate that thinking because cash flow is very important in this business.  However, there is an even more important metric that is often overlooked.  That metric is the VALUE that this type of renovation adds to the property.

Based on a cap rate of 5% (which is pretty typical for this type of apartment building), the annual addition of $3,300 to the bottom line adds $66,000 in value to the property.  The effective ROI is 825%!  Not bad for 3 weeks work. 

Why is this important? 

-Your building is now worth an additional $66,000

-Your net worth and balance sheet just grew by $66,000

-When it comes time to renew/refinance, you now have the ability to borrow up to 75% of the newly created value.  In essence, the investment of $8,000 now gives you access to approx. $50,000 to be used towards other investments/projects

Keep in mind that is just ONE unit in an apartment building.  Make the same upgrades across all the units over time and you can see how quickly your wealth can build through real estate investment.

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

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!