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INVESTMENT PROPERTIES

INVESTMENT PROPERTIES

Joseph saw a great opportunity for a real estate investment in a coveted part of town. His Realtor just got the listing, but the client would not take offers until the Realtor helped him de-clutter, clean up, and properly market the property. Aside from a required 20% down payment, Joseph would need a significant budget to modernize, and optimize the appeal of this charming Victorian.

Before other bidders got wind of the deal, Joseph made a bold offer to buy the property. The Listing Agent preferred to wait until the home was ready to be shown to all prospective buyers, and that meant no “Back Room Deals”.
Frustrated, Joseph decided to take this time to analyze the present and future value of this gem. His Realtor’s advice: “figure out what you are prepared to pay and to spend on renovations… and, when the seller is ready to take offers, pounce on the property before others bid up the price”.

The subject property is a Semi-Detached Single family 100+ year old downtown dwelling in a very desirable upscale pocket of the city. Realtor knows that the property will fetch well over 1.1 Million dollars, even in its current rough state. By the time Joseph buys and renovates, he may be into it for $1.4 Million. The Realtor pulled up comparables for the area, and that seemed in line with the market. To make sure he wasn’t way off, Joseph called 3 of his friends in the renovation business. He also called 2 real estate appraisers to get their opinion on value.

Speak to 4 appraisers about the value of any property and you will get 5 opinions. Investment properties must be appraised as current and future value (post-renovation). You should complete any renovation quickly, as any delay keeps your property off the re-sale market and makes your future valuations less certain.

Estimating value is as much art as it is math. Investors must see the potential in a property and what its future cash flow may yield. Rentals are attractive to some. Single family “Flip” projects have a different buyer. Make sure you know what buyer is best to target. That will change from project, to location, to allowed uses, zoning, and market rents.
Joseph is considering converting the property into rental units. Although currently owner-occupied, the rooms on the second and third floor had been rented before. Joseph can consider finishing the basement, re-opening a separate back entrance for a tenant, and installing an additional bathroom on main floor. The fire department must approve the retrofit. Joseph must allow time for permits, and comply with zoning and city regulations. If this home was in a forested area or park, other city departments may need to be consulted. There was also the advantage of long private drive, and a double detached garage which adds greater value to a home where parking is at a premium.

Confusion set in, when Joseph considered the street’s demographics. Wealthier families have moved back into this neighborhood. The proximity to the park, local schools and new community centre suited younger families with kids. A larger modern kitchen and additional bathrooms could attract a different kind of buyer with dreams of staying long-term in this neighborhood.

First things first, Joseph would have to get his finances, trades and plans in order, then beat out the other buyers.
For the curious mind, I will share the details of this transaction, from Preparation, to Listing, to Multiple Offer negotiation. Please comment on this post below and I will get back to you as soon as possible.

Yan

Office: P. 416.441.2888; F. 416.441.9926; 2145 Avenue Road, Toronto, Ontario M5M 4B2
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