case analysis help needed---downtown Toronto

[jaccker]

Hi everyone,I`ve outlined below a property I`m very interested in. The property is located in the very downtown, Toronto, with good access to transit, schools, Universities, parks. And it is a private sale. It is a three story semi + a finished basement. 4 washrooms and 4 kitchen. And it has been always fully rented out.---------I just updated the information. so please take a look at again---------------
Total Purchase Price $595,000 incl. Closing


Total Revenue $4,700

First Floor (two bed room apartment, Kitchen+bath): $1300

Second floor(one bed room apartment, Kitchen+bath): $1100

Third Floor(one bed room apartment, Kitchen+bath): $1100

Basement(three bed room apartment, Kitchen+bath): : $1000

Parking: $200(two cars garage)


Purchase Costs
Downpayment 20% $115,000
Land Transfer/closing $15,000
Total Closing $130,000


Expenses $4,250

Finance - Mortgage $2,300

Property Tax $350

Utility $800

Vacancy cost (5%) $200

Insurance $200

Repair/maintain $300

legal/account/others $100


Net Cash Flow: $450


How is this deal? Am I missing anything? Many thanks!

 

[Thomas Beyer]

QUOTE (jaccker @ May 13 2009, 08:02 AM) How is this deal? Am I missing anything? Many thanks!
Some questions:
Age ?
termites ?
management fees ?
Legal to rent 4 units ?

Sounds like VERY high risk to me .. 600K for 1/2 a house ?

 

[jaccker]

It is a 100+ year old building. I will live in and manage the house myself. It is not the legal four-plex, but it has been a rental properties for years. The situation are the same for the whole area.


QUOTE (thomasbeyer2000 @ May 13 2009, 10:34 AM) Some questions:
Age ?
termites ?
management fees ?
Legal to rent 4 units ?

Sounds like VERY high risk to me .. 600K for 1/2 a house ?

 

[manojsingh]

Hi Jack,
Its not cash flowing. I agree with Thomas very high risk and speculative property. If possible avoid this. Thanks

 

[jaccker]

yes, I know it is high risk from pure investment point of view(due to the high price of Downtown, Toronto). But it is the area I want to live and invest. And it is even harder to find a better deal than this one because most of other property in that area will end up with negative cash flow. Any other input?

 

[Thomas Beyer]

QUOTE (jaccker @ May 13 2009, 09:26 AM) yes, I know it is high risk from pure investment point of view(due to the high price of Downtown, Toronto). But it is the area I want to live and invest. And it is even harder to find a better deal than this one because most of other property in that area will end up with negative cash flow. Any other input?
So its a life style decision .. not to be confused with an investment !

Consider if you want to live with 3 tenants in the same house ...

Consider what happens if city shuts down illegal rental units ...

Consider that there are only 2 parking stalls for 4 dwellings ..

Consider upkeep on a 100+ year old house .. I assume you did a home inspection to show you wheer Asbestos is, where the plumbing needs work, structural issues, termites ... etc. ...

Is this in the Beaches area ?

 

[invst4profit]

Very poor deal.
Maybe OK price for Toronto but way too high based on rental income as an investment.
Your estimates on expences have left out many numbers such as legal, accounting, advertising, evictions etc.
In addition, considering the age of the building, your monthly repairs and maintinance will be far above $200/ month.

This will be a major negative cash flow property that will only get worse when hit with higher interest rates.

If you want to buy a house none of this matters but if you want to "invest" I would definatly pass on this one unless you could get it for under $450,000 all in.

 

[jaccker]

It is in the Annex/Little italy area, which is close to the University of Toronto/subway/street car.

In the U of T area, there are tens of thousands of rental properties. They have been there for years. If the city shuts down all of them, where will those students live? Where will the young professionals live? Not everyone could afford Toronto downtown`s condo rent.

thomasbeyer2000, would you please tell me how much you would consider for this property? The average property(semi-detached) sold price on the same street for the past two years is around 620k, with the lowest at 540k and highest at 799k

QUOTE (thomasbeyer2000 @ May 13 2009, 11:36 AM) So its a life style decision .. not to be confused with an investment !

Consider if you want to live with 3 tenants in the same house ...

Consider what happens if city shuts down illegal rental units ...

Consider that there are only 2 parking stalls for 4 dwellings ..

Consider upkeep on a 100+ year old house .. I assume you did a home inspection to show you wheer Asbestos is, where the plumbing needs work, structural issues, termites ... etc. ...

Is this in the Beaches area ?

 

[JoefromTO]

If your going to live there, then the risk is somewhat mitigated.

Whats your annual income and is it a guaranteed income.

By the way, we own parking lots in downtown toronto...spots rent for $150-200/ month and this is only from 6am to 6pm. Spots that are guaranteed 24/7 are worth alot more. Plus, depending on where the location is, if the availability for parking is limited, there is no need for long term leases...month to month.

 

[jaccker]

Thanks, JoefromTO.

I do not know it could be rented at 150-200/month. I thought it could be rented out for 50 bucks/spot for sure.

Our family annual income is more than 200k/year, so we could afford this property. However, it is my first income property, and I may accumulate some more in the next a few years if the first one works out. I really would like to start with the right one.


QUOTE (JoefromTO @ May 13 2009, 12:10 PM) If your going to live there, then the risk is somewhat mitigated.

Whats your annual income and is it a guaranteed income.

By the way, we own parking lots in downtown toronto...spots rent for $150-200/ month and this is only from 6am to 6pm. Spots that are guaranteed 24/7 are worth alot more. Plus, depending on where the location is, if the availability for parking is limited, there is no need for long term leases...month to month.

 

[jaccker]

Thanks a lot, guys. I just updated the case based on your guys feedback. Please let me know how you guys think about the number now.

Regards

 

[Thomas Beyer]

QUOTE (jaccker @ May 13 2009, 10:06 AM) It is in the Annex/Little italy area, which is close to the University of Toronto/subway/street car.

In the U of T area, there are tens of thousands of rental properties. They have been there for years. If the city shuts down all of them, where will those students live? Where will the young professionals live? Not everyone could afford Toronto downtown`s condo rent.

thomasbeyer2000, would you please tell me how much you would consider for this property? The average property(semi-detached) sold price on the same street for the past two years is around 620k, with the lowest at 540k and highest at 799k
I see .. I am not a realtor nor UofT area expert .. all I know that 600K for 1/2 a 100 year old house is HIGH .. and rent to price ratio is weak .. so NOT an ideal investment candidate ... but since it is a lifestyle choice + cash-flow subsidy by renters different emotional rules / decisions apply !

 

[invst4profit]

With a total cost of $610,000 and calculating a return on your down payment equal to your mortgage interest rate, using 45% (average) as total monthly expenses your cash flow would definitely be negative. This is of course in addition to the loss of rent from the unit you occupy.

Not a big deal if it is where you want to live but not a good start to income investment.

If you wish to continue in this business you have to ask yourself "how many negative cash flow properties can I afford to own?"

 

[JoefromTO]

Have you researched the area to see if the rents you have posted are accurate. The cost to rent in Toronto is fairly high. Depending on the condition of the property and your competition, those rents might be low.
There is alot more to owning rental properties than just the purchase and cost of running numbers. How much experience do you have in advertising apartments? How much experience do you have with screening tenants? How much experience do you have with managing apartments or are you going to sublet that part out?

If you know what your doing, then your only concern is the numbers. If you don`t know what your doing, or simply lack experience, then the numbers are less AND more important. Let me explain that last part...

When I say that the numbers are less important, I mean that having a rental property and not being able to fill vacancies because your product is of a lower quality than your competition, you will have to either lower your rents, fix the place up, or settle for lesser quality tenants. Managing the existing tenants or new tenants can become a shore if you had to "settle" for lesser quality tenants. This is where management becomes more important, seeing as your numbers appear to work.

To the 2nd part, where the numbers are more important...this too relates to the lack of experience with filling and managing the property. If your having trouble filling the vacancies, then the numbers will be off...therefore the actual numbers after you own it could change for the worse.

So again, I could be wrong, but I think the rent amount might be a little low. I`m King/West...bachelors can rent for over $1200.00. We`ve owned our properties for 40 years so the numbers work great for us...but if we had to purchase the same properties today...they would not...

You will pay more for a Toronto based location. But if your going to live there, you have a different motivation and changes the risk tolerance a bit. Besides, your income is really high! The risk for you is mitigated by that as well...lucky you

 

[jaccker]

Thanks, thomasbeyer2000, I know it may not an ideal investment candidate. The price is just too high!!
QUOTE (thomasbeyer2000 @ May 13 2009, 04:01 PM) I see .. I am not a realtor nor UofT area expert .. all I know that 600K for 1/2 a 100 year old house is HIGH .. and rent to price ratio is weak .. so NOT an ideal investment candidate ... but since it is a lifestyle choice + cash-flow subsidy by renters different emotional rules / decisions apply !

 

[BrianPersaud]

QUOTE (jaccker @ May 13 2009, 03:32 PM) Thanks a lot, guys. I just updated the case based on your guys feedback. Please let me know how you guys think about the number now.

Regards

It`s a cool area. Now magazine voted spadina and bloor the best intersection in the city. If its East of Bathurst on bloor...they have some amazing swarma there, oh yeah..sushi. It`s a happening `hood, always something to do.

Just based on your info it`s hard to tell if you are getting a good deal. If you are buying the property for yourself in my opinion you should buy it with a discounted price according the current market value...and hey you can live mortgage free being a trendy slum landlord (slum because you have high density of people living in a relative lower density neighborhood...trendy because you have Hero burger a block away....which is a lot better than Burger King i`ll tell ya)

if possible send me the address i can do a quick scorecard with you. There is so much diversity block to block and EVEN STREET TO STREET. For example, if it`s in little Italy..Palmerston North of college has $ 1 million plus homes...south of college a little less not as nice houses...then go one block west to Euclid...semi`s there are going for $500k+..east from there gets lower and higher.

I did a goldmine scorecard there last summer, man Brad Lamb and the second generation kids of Tridel made a killing there buying 100 year old homes and sub-dividing them into semi`s. Lamb bought on Euclid between college and dundas and Tridel bought on Manning Ave between Harbord and College...that was years ago, now the area has been speculated out for regular folks.

Email me at [email protected] if you don`t want the address posted for the world.

 

[jaccker]

The total cost is 595k (580k of purchase price+15k closing cost). And you are right, the total morgage cost is around 2700/month(2300 morgage+400 interest rate cost from my downpayment) and the net income is 4700*55%=2475.(based on 45% cost rule) It is negative cash flow.
QUOTE (invst4profit @ May 13 2009, 04:23 PM) With a total cost of $610,000 and calculating a return on your down payment equal to your mortgage interest rate, using 45% (average) as total monthly expenses your cash flow would definitely be negative. This is of course in addition to the loss of rent from the unit you occupy.

Not a big deal if it is where you want to live but not a good start to income investment.

If you wish to continue in this business you have to ask yourself "how many negative cash flow properties can I afford to own?"

 

[JoefromTO]

QUOTE (BrianPersaud @ May 13 2009, 03:51 PM) It`s a cool area. Now magazine voted spadina and bloor the best intersection in the city. If its East of Bathurst on bloor...they have some amazing swarma there, oh yeah..sushi. It`s a happening `hood, always something to do.

Just based on your info it`s hard to tell if you are getting a good deal. If you are buying the property for yourself in my opinion you should buy it with a discounted price according the current market value...and hey you can live mortgage free being a trendy slum landlord (slum because you have high density of people living in a relative lower density neighborhood...trendy because you have Hero burger a block away....which is a lot better than Burger King i`ll tell ya)

if possible send me the address i can do a quick scorecard with you. There is so much diversity block to block and EVEN STREET TO STREET. For example, if it`s in little Italy..Palmerston North of college has $ 1 million plus homes...south of college a little less not as nice houses...then go one block west to Euclid...semi`s there are going for $500k+..east from there gets lower and higher.

I did a goldmine scorecard there last summer, man Brad Lamb and the second generation kids of Tridel made a killing there buying 100 year old homes and sub-dividing them into semi`s. Lamb bought on Euclid between college and dundas and Tridel bought on Manning Ave between Harbord and College...that was years ago, now the area has been speculated out for regular folks.

Email me at [email protected] if you don`t want the address posted for the world.


Iv`e repaired Brad Lamb`s Bentley last year...tough nut! Good thing he was happy

 

[jaccker]

Thanks JoefromTO! I am very new to this business. And I need to learn all of those skills from my first income property. Your advice makes perfect sense to me. As to the rent, I know my quote maybe a little bit low but I just try to be conservative. Also I believe a relatively lower rent may reduce the turn-over rate and reduce the vacancy rate.
QUOTE (JoefromTO @ May 13 2009, 04:28 PM) Have you researched the area to see if the rents you have posted are accurate. The cost to rent in Toronto is fairly high. Depending on the condition of the property and your competition, those rents might be low.

There is alot more to owning rental properties than just the purchase and cost of running numbers. How much experience do you have in advertising apartments? How much experience do you have with screening tenants? How much experience do you have with managing apartments or are you going to sublet that part out?

If you know what your doing, then your only concern is the numbers. If you don`t know what your doing, or simply lack experience, then the numbers are less AND more important. Let me explain that last part...

When I say that the numbers are less important, I mean that having a rental property and not being able to fill vacancies because your product is of a lower quality than your competition, you will have to either lower your rents, fix the place up, or settle for lesser quality tenants. Managing the existing tenants or new tenants can become a shore if you had to "settle" for lesser quality tenants. This is where management becomes more important, seeing as your numbers appear to work.

To the 2nd part, where the numbers are more important...this too relates to the lack of experience with filling and managing the property. If your having trouble filling the vacancies, then the numbers will be off...therefore the actual numbers after you own it could change for the worse.

So again, I could be wrong, but I think the rent amount might be a little low. I`m King/West...bachelors can rent for over $1200.00. We`ve owned our properties for 40 years so the numbers work great for us...but if we had to purchase the same properties today...they would not...

You will pay more for a Toronto based location. But if your going to live there, you have a different motivation and changes the risk tolerance a bit. Besides, your income is really high! The risk for you is mitigated by that as well...lucky you

 

[terri]

hi,

I own triplexs and a 4 plex around Beaconsfield Village, and live in one of the apts so I may better understand where you are coming from than someone who is looking at this purely as an investment op or someone that is not familiar with downtown toronto.

and Thomas, I don`t know how properties are zoned out west but here in TO a semi`s not half a house, that`s like saying a row house or townhouse is 1/8th of a house simply because it`s attached to 7 others. It`s all about perspective, it`s really hard to get a detached house in downtown toronto, a semi`s pretty good, you`re only attached to one other. Can`t imagine what you think of condo`s...

you do need to look into the zoning and legality of the suites, check with Mpac and buildings department to see if it can at least be grandfathered. make sure there are no outstanding permits.

the rent for the main floor looks a little low so there may be a way to increase cash flow there, the basement rent is good, but even the one bedrooms may have room for improvement given the fact that it`s in the annex/little italy area. but that would depend on the condition of the apt and the condition of the property. My one beds go for $1200-$1500 and my 2 beds $1600-$1700, but there are all newly renovated, with washer/dryer, dishwasher and rent usually includes parking.

Because you are planning on moving into it, you need to look at from a different perspective than someone that is just looking for an investment. Does it fit your personal needs? Will you be happy living there? How long do you plan on living there? etc.

Which apt do you plan on living in? How much can you afford monthy? sounds like you would be able to live in one of the one bedrooms and pay 1/2 of waht market rent should be, sounds like a good deal to me, but that`s looking at it from an owner occupied perspective. If you were to buy a one bed condo it would cost you a lot more to live in.

the 2 things that you realy need to consider is legality of suites and condition of property.

Feel free to check out my website, www.queenwestrentals.com and you can email me @ [email protected] if you want to chat.

cheers,

Terri