Upper Beach Duplex Renovation

[AndreiAngelkovski]

Hey Fellow REIN Investors,



Here we are in the Upper Beaches of Toronto. The demand here has been high and the prices are continuing to ripple up from the South. This is a typical 2-storey semi-detached house in the Upper Beaches that sells for over $500,000 as is. Positive Cash Flow is very achievable as you can see based on this video. The owner Nawar Naji has the plan of renovating this house into a `high-end` duplex that will net him between $700-$900 of positive cash flow every month. He has budgeted approximately $100,000 for this renovation. We are filming the `before shot` here and will be filming the `after shot` in a couple months when it`s complete.











Hopefully this can spark some ideas for you!

 

[invst4profit]

Would you care to elaborate on how you came up with your cash flow numbers.



IF I understand the video the owner will have $600,000 plus invested and expects on the high end $3700 per month rental income. Something does not compute.



Assuming a annual return on his cash down payment equal to his mortgage rate and a 3 yr term, 30yr amortisation at 3.5% interest I see dept repayment plus annual return on down payment at around $2700 per month. Are 3.5% mortgages still available ?



This would mean in order to show positive cash flow of $900 per month his monthly expenses for insurance, taxes, legal, advertising, vacancies, evictions, accounting, repairs (tenant damage and ware and tear) plus any incidentals when vacant (hydro etc) only totals $100 per month.



I have never seen expenses in what appears to be the 3% range that you predict on this property. More likely 30% on a low end with a newly renovated property which should be $1100/month on average.



My assumption would be that all of the $900 positive cash flow must be the principal pay down locked into the mortgage or a extremely high down payment that he assumes 0% return on while it is tied up in the property. He would be placing zero value on the "opportunity value" of his down payment correct.

 

[NawarNaji]

Great questions Greg,

Here is a screenshot of the numbers analysis (tenants pay gas, hydro & water). I used 4% which is very conservative.

 

[invst4profit]

Those numbers sort of make sense based on your calculations except for the fact that you have excluded about $300/ month of expenses (long term). Realistically even on a newly renovated property expenses rarely run below 30% of income, your numbers are at about 20%, and as I suggested you are not paying yourself any monthly return on the $160,000 cash you have invested. This loss of income on your cash I calculate as having a negative impact of approximately $530 per month on your overall investment income (4% return).



The only upside is the speculation on appreciation which is a different issue entirely.



Based on your numbers I predict you will have a negative cash flow of approximately $200/month, maybe more, over the next 5 years if everything goes smoothly. Not the worst I have seen.

Your major concerns should be unseen capitol expenses, going over budget on reno and the potential of a eviction with all the ensuing damages that may result in (potentially tens of thousands).



Cross your fingers and hope for projected appreciation. Don't forget to deduct real estate and legal fees from your projected appreciation.

 

[NawarNaji]

It's clear we run different models and we view this property differently.



Best wishes with your investments.

 

[invst4profit]

Unfortunately these discussion rarely lead anywhere as there is never a reckoning point.



To really show who best knows the business you would need to return to this thread in in 5 years at the point of realising the sale of the property or in about 10 years, long term hold, and show the actual numbers.



Problem being that very few landlords/investors actually track/know all their real expenses, as in the example you provide with so many expenses missing, so there are never going to be accurate results. No landlord can ever know all their future expenses.



My business is operated to the penny, every postage stamp,sheet of paper, every electric bill during vacancies, every liter of gas for my car is accounted for, and as a result I actually know my real expenses for yesterday but can only guess about tomorrow.



Your business plan is far to risky from my perspective with rental income below $5000/month but as you say we have a different take on the business. No big deal as short of a catastrophe we should both be happy with our results..



Keep in mind I have the mind set of a landlord where as you are thinking only as a investor.

Landlords expect there will be problems, investors expect there will be profits.

 

[electricianhoward]

1. $600k cost, 2.99% 4 years fixed, 30 year term. you will pay $2520.43 per month.

2. closing cost $500k * 3% =$15k

3. $3700 rent plus utilities----Maybe

4.proepty tax $500k *0.8%=$4000 one year

your number is too positive.

sorry, if I offend you.