Property evaluation

[Berubeland]

So I went to see a property yesterday as a potential investment. It is in the Toronto area.

It has been very badly maintained. The area is very good.

The more interesting thing about it is that it already has 2 addresses as well as a lot beside the building. I was told that it was merged by the city and it is being sold as one parcel.

It is currently a legal 4 plex with 4 1 bedroom apartments. Rents for the area are in the 1200 range. Semi`s sell for about 500,000.

I am considering the possibility of splitting the addresses up and then severing the lot. Is this possible? Does it take a long time?

If the apartments were fixed up and rented out it might cash flow. Selling price is around 600,000 but lots of repairs are needed as well. Potential gross income would be 57,600.

What do you think?

 

[housingrental]

More research needed on:
Repair cost
After repair valuation and rental rates
Costs and feasibility of severing lot
Valuation of lot once severed - what can it be used for? would there also be a value add from adding units to four plex?

 

[Sherilynn]

Personally, I wouldn`t buy anything that "might" cashflow.

You are considering a property that requires a huge down payment, and then another huge chunk of change to fix it. After repairs, you should see an increase in value, but that only helps you if you sell or refinance. And if you refinance, that will lower your cashflow.

If you are going to sink that much money into a property (whether your money or an investor`s), then you should be reasonably sure of how and when you could get the money out of it again.

Regards,
Sherilynn

 

[Berubeland]

QUOTE (Sherilynn @ Apr 30 2010, 08:38 AM) Personally, I wouldn`t buy anything that "might" cashflow.

You are considering a property that requires a huge down payment, and then another huge chunk of change to fix it. After repairs, you should see an increase in value, but that only helps you if you sell or refinance. And if you refinance, that will lower your cashflow.

If you are going to sink that much money into a property (whether your money or an investor`s), then you should be reasonably sure of how and when you could get the money out of it again.

Regards,
Sherilynn

I am actually going to see inside tomorrow, then I`ll have more info.

I was wondering more about severing of the properties. There are mostly semi`s in the area. The lot is large enough to build a house on but I would probably just sell that off as a lot.

The house is actually two semis with separate addresses. The lots used to be separate also then for some reason the owner merged them.

If the property were purchased for $600,000 and the lots and house resevered and sold the profit would be about $500,000

So can anyone give me info on how difficult it is to sever property in the city of Toronto and how long it takes?

 

[invst4profit]

Working with municipal governments, as we all know, can be slow, tedious, frustrating and expensive. The most likely reason the two lots were combined was because the city would not permit construction on the vacant portion. It is unlikely you have discovered a hidden gold mine.
By this point in time if there was money to be made off of the lot someone would have made it already.

I would suggest based only on the info you have provided that you not waste any more time on this property. It will be a money pit and unlikely to ever produce positive cash flow.

 

[manojsingh]

If this is your first property, avoid this. Learning curve will be steep. Why go for complicated deals if better deals are available in the market.

 

[Berubeland]

QUOTE (invst4profit @ May 1 2010, 04:53 AM) Working with municipal governments, as we all know, can be slow, tedious, frustrating and expensive. The most likely reason the two lots were combined was because the city would not permit construction on the vacant portion. It is unlikely you have discovered a hidden gold mine.
By this point in time if there was money to be made off of the lot someone would have made it already.

I would suggest based only on the info you have provided that you not waste any more time on this property. It will be a money pit and unlikely to ever produce positive cash flow.

I have been in property management for a long time and over and over I see people do absolutely incomprehensible things with their properties for all types of crazy reasons.

This property has been neglected for years, I can tell this from the outside. At some point the roof was allowed to leak for such a long period of time that the soffits are hanging down from the building. Two of the apartments are apparently uninhabitable.

The property is in a great area and about 5 minutes from the subway. One bedrooms in the area rent for $1200 and up per month.

Why is it so hard to believe that such an owner would be more careful with his lot? The house itself is also two purpose built semis with two separate addresses.

Just because dealing with the city is a pain doesn`t mean that it can`t be profitable. By my count there`s $1,100,000 to be had once the property is split up. A semi down the street just sold for over $500,000.

By saying there are no deals out there absolutely guarantees that you won`t look for them and won`t find them either.

I see very interesting properties all the time. I recently saw a great building go for about $100 per foot here in Toronto. The vacancy rate was 50% because the owner DIED and was obviously unable to rent out the apartments. The receiver was selling it as a 5 cap with the current cash flow which is not great but the upside was $60,000 per year. The building did not even require renovations on the inside and the apartments looked like little condos.

So there are opportunities all the time in real estate for those who keep their eyes (and minds) OPEN.

 

[Thomas Beyer]

QUOTE (Berubeland @ May 1 2010, 07:35 AM) ...
Why is it so hard to believe that such an owner would be more careful with his lot? The house itself is also two purpose built semis with two separate addresses.

Just because dealing with the city is a pain doesn`t mean that it can`t be profitable. By my count there`s $1,100,000 to be had once the property is split up. A semi down the street just sold for over $500,000. ..

So there are opportunities all the time in real estate for those who keep their eyes (and minds) OPEN.
indeed .. why not write an offer with a long condition period which will allow you to tie up the property and THEN do the necessary due diligence to see if the city would allow you to sub-divide these 2 lots !

I did this sub-division in Canmore about 6-7 years ago with 3 lots cum house .. and it was wildly profitable .. and dealing with the city was not a pain .. just follow their rules / suggestions .. and it may go to city council ..

One issue with subdividing lots is the house ! It may sit right on the property line .. and then you will likely have to tear it down to get approval for two lots. Also be aware that with a sub-division an existing dwelling has to conform to current code .. no grandfathering .. and that may be very expensive on an old house ! Assess the property from a 2 lot point of view .. with NO HOUSE .. does it make sense then ?

 

[housingrental]

Hi Greg
I think your a bit off on this one
Merging of lots isn`t that uncommon when someone owns multiple adjacent properties
QUOTE (invst4profit @ May 1 2010, 07:53 AM) Working with municipal governments, as we all know, can be slow, tedious, frustrating and expensive. The most likely reason the two lots were combined was because the city would not permit construction on the vacant portion. It is unlikely you have discovered a hidden gold mine.
By this point in time if there was money to be made off of the lot someone would have made it already.

I would suggest based only on the info you have provided that you not waste any more time on this property. It will be a money pit and unlikely to ever produce positive cash flow.

 

[Berubeland]

Thanks for all who commented.

Even though I have seen a lot of people who neglect their property, this one even boggled my mind. Great flip property. It`s truly amazing how they built to last. The structure still seems good. They wouldn`t let us in one unit and there was an area of concern.

It`s too funny how the guy would present a property in this condition when he could spend $10,000 and get it in much more decent condition.

He did the roof on the front porch area and then he stopped. Then they screwed through the shingles to fasten them down near the edges.

Still it`s a good buy for someone, the inside of the apartments mostly need everything. None of the investors I deal with have the stomach for this kind of flip I think.

Interesting though.

 

[larysa002]

The price might be a bit high. Last year there was a grow-op 4-plex at Dupont/St. Clair listed for $350k. No viewing allowed due to health hazard. But it had 8 offers.