Well, I’ve had an entertaining weekend trying to buy an investment income property in Oakville.
The plan was to buy an upscale residential property into which we would move (I’ve had it with downtown Toronto living!) transitioning our beautiful townhouse downtown to an income property (I just paid Capital Gains Taxes on the increase in value from the time I rented it out to the time I moved back in – if you are not aware of this email me or comment here and I’ll explain in detail).
Alternatively, I was looking at a triplex in a prime neighbourhood in Ottawa, that is already churning out impressive cash flow based on three tenants, all happy and paying rents and wanting to stay on. This is such a high demand area of the Nation’s Capital, that we would never have to see it sit vacant waiting for someone to rent it, and the three units gives additional security of cash flow.
If you have one anchor tenant and they decide to relocate or move on, you have to be successful in finding a new tenant without windows of time that they are required to either give notice to a landlord or simply get their property sold.
Either way that downtime impacts your bottom line income.
My preference would be to move to Oakville (man it’s a nice city!) and enjoy the resulting quality of life benefits and rent out our downtown Toronto townhouse which is one-of-a-kind and delivers top rental income.
Ottawa is a four hour drive away and Oakville is forty minutes and I’m a big believer in keeping a close eye on my assets, so Ottawa brings travel demands that I would prefer to avoid. All of this equates into you calculations when considering commercial investment properties.
So this older townhouse comes up close to the lake in Oakville and we decide to take a look.
They have character for sure. We actually liked it enough to consider buying it and holding it as the income property while staying in our townhouse, but my commitment to optimize return on investment keeps screaming at me to grab that cash flow.
I just did my research on mls and found properties of lesser value asking upwards of $8,500 per month in rent. The uniqueness of our townhouse alone tells me that $10,000 is about right for our fully upgraded townhouse located IN a 3.5 acre park in Toronto’s Financial District.
So we decided that floating an offer would be agreeable and drafted up the offer. I’ve been at this far too long a time to waste time preparing unreasonable offers.
The agent had given me two comps, and I had another agent do a “historic sold” search on these townhouses and she came back with the same two comps.
That’s a good sign as they don’t turn over frequently. meaning owners enjoy living there. And why not, you are a stone’s throw from the lake yet in walking distance to restaurants and stores, and did I mention that they are OUT OF THE CITY!
These townhouse are thirty years old and they show it. We will only own top quality real estate so we had to factor in money to at least bring this property up to comparable standard of the comps that the Seller’s Realtor gave us.
Both comps were vastly superior to the subject property.
If I could give any advise to any Realtor out there listing properties, it would be to be absolutely sure that you comps are factual and your conclusions based on that information is honest.
Here’s the actual description of one of them:
1. “home has been renovated from top to bottom with unparalleled upgrades”
2. “chef’s kitchen handcrafted with the finest materials”
3. “professional series stainless steel appliances”
4. “euro-inspired details such as front door with iron inserts, transom and side lights”
5. “travertine foyer leading to a majestic staircase with Italian iron spindals, custom handrails”
6. “hardwood floors throughout”
7. “Kohler, AcquaBrass, Maax bathroom fixtures”
8. “Gas fireplace” with impressive mantle
9. “large passthrough with island in kitchen with wine fridge
Now, the subject property had some renovations . . . . pretty much limited to the master ensuite. My assessment and plan was to almost gut and restore the home using the balance of money left over from our having terminated the purchase of our detached home in Oakville that was supposed to be ready in September of this year and now was delayed “outside of the ‘Outside Occupancy Date'” resulting in my have given Notice to the developer of our intention to walk away from the deal.
Funny, as a result of giving a hard angle ultimatum to the developer, he seems to be willing to agree to our requirements (laminate countertops in bathrooms is an absolute deal breaker as were all of our other points – as long as he commits to honouring all of our demands, I will entertain talking further but I simply don’t have more time to waste with him.
As a Buyer’s Agent, and as a Buyer, I always strive to keep all dialogue focused on “provable market value” which is a calculation based on a number of factors, starting with comps (historic sold mls records of “comparable” properties).
Now “comparable” properties immediately takes on a connotation of them being equal, when in reality properties never are the same. Identical houses or condo units with the same features on the same street can deliver nuances that others fail to but you can always count on the “hard numbers” furnished by facts gathered from history.
When units are not exactly the same (one has hardwood flooring the comp has carpet, for example) a professional realtor will “factor” that disparity into their price analysis when preparing the offer.
This unit needed the carpet flooring on two levels and the magnificent winding staircase (I did like the aesthetics but they don’t carry nearly the weight as other factors like flooring, kitchens and bathrooms) removed and replaced with hardwood, a cost of between $15,000 – $20,000.
It needed a new kitchen and kitchen appliances (another $20.000).
So, in developing my initial offer position, based on comps supplied to me by the Seller’s agent I would have to knock off a minimum of $40,000 to simply come close to the “true market value” that the Seller’s agent has set.
I don’t like offending people and as I said at the onset of the Case Study I never allow “emotion” to enter the game as that’s a deal breaker for me.
That’s really the only logical explanation for having a professional Realtor involved in your efforts to sell your home as it is the home that actually sells itself!
Have you ever seen someone buy a house they didn’t like because the salesperson used some slick selling maneuver?
We submitted what we felt to be a very sound offer applying only the hard costs for which we could supply verification.
I usually start my negotiations off with a low-ball figure and an exceptionally long closing, so the seller has two specific things to disagree with, my price and occupancy.
The strategy is to get negotiations under way, not buy on those terms but frequently owners misinterpret what is good news (they’ve got someone wanting to buy their property) as bad news (they don’t agree with the price that has been set).
Either way, as long a the Seller and their agent has priced the property to include a cushion (everyone wants to get a deal and you should always try to have them walk away feeling that they got one) for negotiation purposes.
Obviously in this case, the Seller was trying to dovetail off of the fully restored and upgraded previous sales as it was priced right on the lower comp’s price point (but bother were substantially upgraded over the subject property).
I started this Case Study off by saying that I’ve been at this for a very long while, too long I think sometimes. I’ve seen all sorts of come-backs to offers, especially when I’m known for such a Buyer’s advocate! I fight for my clients each and every time! Making a deal is not as important to me as protecting the best interests of my clients and I never, ever compromise my ethics or integrity!
That’s what positioned me as one of Toronto’s top producing agents for decades, and in an industry where 87% – 90% of people fail, you can see why my clients stick with me to attend to all their real estate needs.
I was caught off a little (I’ve seen this before but realizing the house has remained on mls with open houses for over two months and still no offers I was caught off by the rather dysfunctional interaction that followed).
Apparently, according to the agent, the Seller was “OFFENDED” by our offer despite our offer to furnish all actual receipts for the work that was needed and giving them anything that remained after the work. The house needed a new roof (admitted to me by agent), a new kitchen, appliances and floors, walls redone, and basement work. When the Seller had remodelled the kitchen (?) they took out the front hall closet!
But still, after a year of looking for an investment with the worst thing in the world (cash sitting on deposit) we were ready to make the required investment providing the Seller was realistic.
The agent told us that he did not want to even sign the offer back then decided to “send us a message by signing it back at asking”.
Now, it doesn’t take four decades of doing this to realizing that as a Seller, you should avoid insulting a prospective buyer because they just might not be emotionally connected to your home regardless of how spectacular you think your home is (it probably isn’t).
I never allow buying or selling of real estate to get me emotionally involved and if I can give you one piece of free advise, it would be to make this your cardinal rule when buying or selling real estate.
Emotion is a deal killer!
I was going to submit an offer much, much lower and had I been representing a client I would have, but I just wanted to make this experience as uneventful as possible and get my search for an investment property out of the way!
After all I was so motivated to get my investment out of the way that I bought the house I just got out of off of the internet sight unseen!
Shame on me I know! Fortunately my intimate knowledge of the Tarion Warranty and Condo Act led me to getting out of that deal although, all things considered if that developer would agree to all of my demands I would still probably end up investing there!
But for the record, don’t ever buy without doing your own thorough due diligence! I’ve learned my lesson and wouldn’t want to see you get caught there.
What throws me most about this experience is that the agent would call us and tell us that “they were sending us a message“.
Things like this come up more frequently that you might expect, so Realtors out there, allow me to suggest that you should never perpetuate your client’s “emotional nightmare” and certainly never introduce it to the Buyers!
The seller, through his agent then suggested that if we wanted to resubmit our offer that he would wait until the irrevocable time set out in our offer to receive it.
I politely suggested that he simply send us a new sign-back stipulating a “take it or leave it price” so we could not possibly offend him further.
With emotions apparently running out of control, he chose to tell us again through his agent, that he would not co-operate with reason and reaffirmed that “he would still entertain our offer“.
You see, the nice thing of never allowing emotion to cloud your thinking is that at this point, you simply thank them for their efforts and wish them every success in selling, take your money and find a new sand box in which to play.