Real Estate 101

Politics

2006-10-14T05:36:00.000-07:00

The Town of Orangeville like most other local municipalities will be voting in new leadership at the beginning of November.
I have never personally made it a point to get too involved in politics, however I feel it is time that I start to learn a little bit about it since we have 6 properties located in Orangeville (and pay a rediculous amount of taxes to the Town of Orangeville)
Our support for the mayoral race lies with Jim MacGregor, a long time resident of Orangeville and the current Deputy Mayor. I believe that Jim has the same vision for the future of Orangeville as we do, and so we have put our support behind him.
The future for the town looks very exciting with the new Humber College campus currently being built, new industry coming in (thanks in part to the new bybass & flexibility by Town Council on zoning), and continued growth residentially.
I believe that the future for Orangeville will see an even greater demand for rental housing (due to the college) and a decreased supply, which in turn will increase the values of our rental properties.
It will also create the potential for further development of residential units, from basement apartments right up to large apartment buildings.

Building that we let go in Fergus

2006-10-12T04:40:00.000-07:00

I honestly really loved this building,

the front pic shown here doesn't give it justice, since some moron decided to paint the beautiful Stone green!

It is a retail / office building on the main floor & basement and upstairs is residential. A very old beautiful building right beside the Grand River running through Fergus. So we went in with an offer of $485,000, the original purchase price was $599,900 dropped down to $519,900, but we could tell on our first walk through the building needed quite a bit of work, so we went in with what we thought was a very fair offer givin the condition of the building. This is an estate sale, the owner who also used to run the flower shop passed away, and the executor of the estate is in British Columbia.

So next step of course was the building inspection which took 2 days due to the large size & scope of the building. Our building inspector; Andy Christie from Safe Homes Canada, who we use for all deals, was most concerned with the roof and the leaks coming into the basement at the front of the building. These were all things that we could not see from our initial walk through and were not included in the $30k I had estimated for repairs. (Other items included evidence of a fire on the second floor, areas with poor wiring, missing floor / ceiling above the flower shop, some windows in need of replacing, in addition to restoring the exterior of the building)

SO next step was to get estimates on these two items. Luckily we have an excellent & reliable Mason who was able to go the same day I called him (and it was raining) so he was able to see perfectly the problem in the basement and estimated $5,500 to repair. OKAY so to me that is not too bad and we would probably incorporate that into our budget.

Finding a roofer was not so easy. We only had 15 days to waive the conditions and time was ticking by....I called 2 roofing companies, one in Fergus and one in Orangeville both promissing to get me the information in time....tick tock tick tock............no response............FINALLY I call a company in Guelph, reputed to be one of the best commercial roofers in the area and they were able to respond very quickly and get me a verbal estimate..................of $50,000.................turns out the flat roof was completely shot and in need of complete replacing. This was only two days before we had to waive the conditions...........so to us now the decision was, do we renegotiate the price down further based on what we have found out...............or let the building go................

We decided to let the building go, our guts told us this one just wasn't meant to be, there was just more trouble there that we were willing to deal with.

It was hard to let it go, but in the end I felt the decision was the right one. The very next day we found out that the other building we looked at (offered up by the municipality for sale by private bidding process) this building was on the main street, and was HUGE it used to be the town hall.......anyways it sold through the bidding process for $355,000.........someone got a steal on that one, and I'm glad we didn't pay $485k for a smaller building which needed at least $100,000 in repairs!!!!!

Technorati Tags:

building inspections

Blue Mountain Chalet: FOR SALE

2006-10-09T07:53:00.000-07:00

After completely renovating our first 6 bedroom ski chalet (after the flood last December) we got a private offer on the chalet of $335,000. Though the purchaser didn't proceed, we decided to try and list the Chalet on MLS. After all, if we can turn around and make a profit of almost $90k in just a year, why not? So far we haven't had any bites, so we'll have to wait and see, ski season is fast approaching!
Though we don't have to sell, we figure now is a good time since the chalet is in such pristine condition, with all of the floors, walls, bathrooms, beds, mattresses, etc brand new it won't ever be in this good of condition again.
FULL MLS LISTING

MORE PICTURES HERE

Shelburne Investment Opportunities

2006-10-05T05:15:00.000-07:00

The small town of Shelburne, Ontario is located just north of Orangeville. Orangeville's housing market & commercial market have experienced a huge upswing in market values over the past 3 years. Shelburne has experienced slight growth, but not to the same extent. Some say Shelburne will be the next to "explode".
So here are some interesting facts about Shelburne:
Shelburne is most well known for it's "Fiddle Festival"
The population in Shelburne is 4200.
There is some industry in Shelburne, but for the most part it would be considered a "bedroom" community, with commuters travelling to Orangeville, Barrie, Brampton & even Toronto.

So that being said I went and looked at 3 buildings for sale on the main street, all with a retail store on the main floor and apartments upstairs. I was extremely surprised at the lack of upgrades done to these buildings, there was still old plumbing, wiring, evidence of leaky roofs. There was one building that caught my attention due to its low price and good rents. So it is under consideration for now, though I don't know how convinced I am about investing in such a small town.....

Suspected Drug Dealers as Tenants

2006-10-05T05:04:00.000-07:00

In one of our multi unit residential buildings a very nice young couple with a child moved out after living in the building after only a few months siting that another tenant in the building is dealing drugs.
So what can we as the landlord do?
We promtly reported the suspicion to the police........they responded "well we are really busy right now and there is quite a problem in this town so we'll get to it when we can".........
Our next step to install our own "webcam" on the outside of the building, mainly as a deterrant but also to have something to at least provide the police with if they could use it.
The problem is that this tenant pays every month on time, so how else could we possibly get them out?
We really want to have good respectable tenants and a good reputation for our building..........

Duplexes, Update and Calculations

2006-01-30T04:59:00.000-08:00

We went and saw this property on Saturday:
Full MLS listing

Listed at $211,900, this 3 bedroom (we would covert back to 4 bedroom), has a basement apartment. The 4 bedroom house was in excellent condition and would easily rent at $1200 per month. The basement apartment was a disappointment as it really was just one open room with a nice new bathroom, so the "bachelor" apartment would be a harder rent: maybe would bring in $550 per month. Very good building at first look, but after doing the calculations the cash flow is negative, even when we reduced the price down to $190k. The calcs at $180k only provide a cash flow of $80 / month, leaving the property just breaking even, plus paying down principal on the mortgage.......a very close & risky position to be in. We liked the building, but not the numbers.

Interest Rates

2006-01-29T06:36:00.000-08:00

Variable, Open & Convertible Interest rates as on Canoe.ca:
http://money.canoe.ca/rates/mortgage.html

Lowest rate at 4.2% (wow) up to 8%

Interest rates when investing on residential or commercial property are usually based on the risk of the individual deal and the credit rating of the investors. Commercial properties are generally always higher than residential deals (i.e. a fourplex). Interest expense is 100% deductible against rental income and therefore a very useful cost of doing business.

Technorati tags: Interest rates, Mortgage rates

Duplexes

2006-01-27T06:11:00.000-08:00

We are going to see some prospect investment properties tomorrow, all homes that have been converted into duplexes by adding a basement apartment.
One of the mortgage companies that we use offers a product that offers a 5% downpayment on such properties.
The initial calcs show that in our market with approx. a $10k downpayment on a $200k duplex we should be able to earn $200 cash flow per month with an ROI over 25%.
Another benefit in our market is that the town has funding available for improvements on homes with basement apartments because they want to see more reasonably priced rental unit for the incoming students of Humber College, which is opening a campus in 2007 here.
Technorati Tag: Duplex,
We locate all of our properties on www.mls.ca

Appraisals

2006-01-25T13:05:00.000-08:00

We learned very early through experience the importance of doing an appraisal on each and every deal. We now make every offer conditional upon getting a satisfactory appraisal. This is because if the appraisal is done too close to closing (i.e. by the mortgage company or bank) and the value does NOT come in at the full purchase price.............guess what? The bank will NOT provide financing on the full purchase price, ONLY the appraised value.
We got burnt on a deal when the appraisal came in late (3 days before closing) and we had to come up with $11k more money to close the deal..........that was a valuable lesson learnt, and now obtaining an independant appraisal is key to each deal.

Conservatives Capital Gains Tax Plan

2006-01-23T17:11:00.000-08:00

Okay I'll admit I'm not very proud of the politics in Canada right now, and I rarely express an opinion regarding the various parties. However this issue directly affects our business and could open up opportunity to buy & sell property and not pay the current taxes on capital gains.
If you read the Rich Dad Poor Dad books, he talks alot about selling buildings with no tax if you roll the gains into another investment........this is US tax law, and not Canadian..........yet.
IF the Conservatives are voted into power tonight if they don't make good on any promises but this one I'd be happy.
http://www.conservative.ca/EN/2459/39248

Screening Residential Tenants

2006-01-22T06:51:00.000-08:00

This is a very important step in our business process. We do not just let the first tenant that wants the apartment have it. They must complete a credit application and pass our income rules. We have in fact turned down many tenant applications for various reasons including bad credit history.
Our goal is to get in good tenants that will stay long term with little risk of default in rental payments. Even if it takes an extra month to find a good tenant to us it is worth it to avoid future hassle & expense of getting rid of a bad tenant.
We are a member of Tenant Verification Service Inc., a Canadian company that processes credit aps and offers other services.
Technorati Tags: Credit applications, Tenant Screening, Credit History

Utilities: to include or not to include

2006-01-21T11:47:00.000-08:00

It is so much easier to rent an apartment to a prospective tenant if heat & hydro is included in the rent. The risk is then in the landlords hand if the costs of utilities go up. Enbridge Gas costs just went up in Ontario by some rediculous rate. Most of our apartments include utilities, and this is becoming a very expensive cost of doing business!
When we look at rental properties for sale, they are always so much more appealing if they have separately metered hydro. The cash flow has higher potential, though you can't charge as much base rent.
Here is an article from the Toronto Star announcing the Gas hike.

Second Mortgages

2006-01-15T05:27:00.000-08:00

We use second mortgage financing for most of our property deals. Second Mortgages are useful in investment deals when a primary finance company is not willing to go into the deal more than 65 or 75% of the purchase value, and when we as the purchaser don't want to put in too much of our own money. As long as the monthly cash flow of the property is still Positive after paying both mortgages, then using second mortgages for financing makes sense.
Second mortgages are not cheap, they come with higher lender fees and higher interest rates. Generally interest rates are about 10-15% depending on the deal and the lender.

On the other side of the invesment we are now looking at doing some second mortgage lending ourselves. Not just with regular investment money, but also with the funds in our RRSPs...
"Self-Directed RRSP's" is a method to decide where to invest the money in your RRSP yourself, and in our case we would direct the funds into second & third mortgages at higher interest rates than are realized in mutual funds, etc.

More information:
Second Mortgages on Mortgage 101.com
MBrokers

Technorati tags: RRSP, Second Mortgage, Mortgage

Blue Mountain Chalet update & pics Water Damage!!

2006-01-13T16:01:00.000-08:00

Wow we went to Blue Mountain yesterday to check out a new chalet, and view the damage of our 6 bedroom chalet. Our chalet is stripped right done to the studs and floor. Here are some pics:

Bathtub, toilet, even kitchen sink ripped out for replacement.

Initial reports told us the chalet would be ready by end of January, but after seeing the state, I'm very doubtful.

New Chalet going to see tomorrow

2006-01-11T16:48:00.000-08:00

http://www.mls.ca/PropertyDetails.aspx?vd=&SearchURL=%3fMode%3d5%26id%3d20054756&Mode=5&PropertyID=4216939

This is a 7 bedroom executive chalet in Blue Mountain, closer to the ski hills than our other 2 chalets. Rental potential is slightly higher, but so are expenses. Initial estimates put the asking price a little too high, so we'll have to see it in person first.

Our damaged chalet is still under construction, we are going to view the progress tomorrow while we are up there. I think we might be out of commission longer than our initial estimates of one month. We are unfortunately losing a ton of rental income, and whether or not the insurance will cover any of it is not yet known.

Calculations for Cash flow & ROI

2006-01-08T08:04:00.000-08:00

Gross rent
Less: property taxes, utilities, insurance, maintenance
= net income
Net income X 10 = purchase price
(also known as the 10% capitilization rule)
(roughly this depends on many variables such as local market, condition of property, improvements needed)

Purchase price less down payment = amount financed
Monthly mortgage pmt = _____
depends on interest rate, type of property etc. I use the calculator on MLS.ca and generally average 7% interest rate with 15% downpayment.

Monthly net income less monthly mortgage payment = Monthly Cash flow
Cash flow should in almost all cases be positive, or the property is not worth buying IMO

ROI can then be calculated by taking annual Cash flow + principal paid on mortgage / downpayment. Most of our buildings run between 20-30% ROI.

Helpful calculators:

Mortgage Amortization (shows interest & pricipal pmts)
Mortgage Calculator

Technorati Tags: Mortgage calculators, Mortgage, Return on Investment

Searching for new properties

2006-01-07T05:01:00.000-08:00

We have investors in place to invest in more rental properties. Now all we need is a good property to buy. We've already put offers in on two buildings in Orangeville, both four-plexes. But both offers fell through.
The first fourplex was in terrible condition, it smelled so bad I couldn't even enter one of the units (urine?), and generally needed a real facelift. It was listed at $379,999, we offered $335k which I was even thinking was generous considering the condition of the building, but the owner was only willing to come down $5k...........needless to say the building never sold (has been on the market about 10 months).
The second fourplex was owned by a man who has been in the rental business way longer than we have, and he owns several properties in town. He asked if I knew what buildings were doing in town (duh? that's what we do) so I said, yes I'm familiar with market price and the 10% capitalization. So we offered just under 10% of his buildings net income: $350k. He responded he meant more like 10% of GROSS income. Okay, right, so I'm so sure this guy would PAY that for a building NOT he knows the business, he knows the game, and was only wasting our time and trying to screw us over.

So we are still looking for cash flow positive properties in Orangeville or surrounding area. Our real estate agent has starting pro-actively advertising for properties for us.

Tags: Ontario Real Estate, Real Estate, Property Investment

Landlord Tenant Issues

2006-01-04T07:39:00.000-08:00

Definately one of the hardest subjects to address when owning a rental unit. Residential tenants have many rights, whereas Landlords have less. Of course the legislation ruling Landlord Tenant relations is Provincial in Canada, so each province is different. In Ontario we are required to abide by the Landlord Tenant Act.
To get a Bad tenant out of a rental unit is very very difficult. UNLESS they do not pay rent. If they are consistantly late, or do not pay the Rental Tribunal is very much on the landlords side.
However, if the tenant is just difficult, messy, loud, or even a drug addicted criminal, it is VERY hard to get them out of the unit.
Right from the beginning of owning rental buildings we implimented strict policies regarding payment and stict to it 100%. If rent is late, the tenant gets an N4 form, giving them 14 days to pay or get out. Most of the time this is effective.
We consider these issues a cost of doing business, and do our best to keep these costs low by spending the time getting good tenants in the first place. We do credit checks on all applications and have rejected many tenants other landlords probably would accept.

Links:
Ontario Rental Housing Tribunal
Ontario Landlord Tenant Act
Form: Notice to Terminate Tenancy for Nonpayment of Rent
Form: Notice to Terminate Tenancy Early (other reasons)

Blue Mountain Chalet

2006-01-02T17:07:00.000-08:00

In September we bought our first Chalet in Blue Mountain, Ontario. Located right at the base of Blue Mountain Ski Resort and within minutes of Georgian Bay, this area offers year round recreational activities.
I couldn't believe the growth in the area, but since Intra-west took over a few years ago you can practically smell the money in the air as fabulous condo's & golf courses spring up everywhere.

The Chalet we bought was in a slightly older area (15 yrs) known as Tylrolean Village.
Our chalet has 6 bedrooms, and sleeps up to 18 people! It has a sauna, ping-pong table, and huge wrap-around deck with a great view of the mountain!
As we were really getting ramped up for the busy winter rental season, DISASTER struck! Our cleaning service went in to do one final "sweep" of the chalet only to find it 3 feet deep in WATER! Turns out a pipe BROKE under the kitchen sink on the third floor, and water ran all through the building to the floors below. Ceilings, walls, light fixtures, mattresses, the TVs, the furnace, even the PING PONG table, completely RUINED!!!
This was our first experience with making an Insurance Claim. Thankfully, ING Insurance and Secure Insurance has turned out to be top notch in their dealings with us. They completely took over and within 2 months of the disaster we should be back up to rock & roll, complete with many "new" items in the chalet.

We think that the area has such potential for rentals as well as future resell value that we have firmed up a deal for a second chalet exactly the same style to close in March, and we'll continue to look for investments in the area.

Tags: Travel, Holidays

75 Broadway "The Foley House"

2006-01-01T09:52:00.000-08:00

Purchased in Sept 05, this building was our largest acquisition to date.

It is a 100% commercial / retail Victorian building on the busiest street in town. The building comes with an amazing history, and lots of potential (i.e. unfinished attack, possible sunporch on second floor etc).

We currently have 3 units vacant for lease in the building, for information call 519-942-3580 and ask for Karen.

Pic 14 Second St

2005-12-31T07:07:00.000-08:00

Our Inspiration

2005-12-31T06:59:00.000-08:00

Comes from wanting to be successful and financially free in life.
Base of inspiration came from the Rich Dad Poor Dad series of books:
http://www.richdad.com/

We also love properties & houses and find the market very interesting and never boring.

Sometimes the property management & tenant management can be a pain in the ass, but we have a full time property manager that is responsible for all of the day to day, and we set strict policies in place right from the start about who we rent to, and what we do if they don't pay.

Other resources we use daily:
http://www.mls.ca
http://www.sallyfranco.com/
http://english.icx.ca/ICXIndex.aspx

First Post HPM

2005-12-31T06:48:00.000-08:00

Hurson Property Management was founded in Orangeville Ontario. My husband and I started in the property management business when his dad asked us to manage a couple of apartments for him over 10 years ago. Since then we worked at our own specialties: he in marketing, myself in accounting, and regrouped in July 2003 to start HPM.

Here is a timeline of our acquisitions:

July 2003 Triplex 14 Second St
March 2004 Fourplex 11 Little York St
November 2004 Fiveplex 9 Little York St
June 2005 Commercial Office space 243 Broadway
Sept 2005 Commercial & Retail space 75 Broadway "The Foley House"
Sept 2005 6 Bedroom Chalet Blue Mountain
March 2006 6 Bedroom Chalet Blue Mountain

Our website:
www.hursonproperty.com