Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
I saw a 4-plex that was priced very well for the market it was in. I asked for the pro-forma, plugged in the numbers and it failed miserably. The problem is that the rents are about 80% of what I think that market rent should be. One tenant has been there >30 years, another >20 years, another >10 years and one relatively new guy. The two newer tenants do things like yard work and basic maintenance. They are all paying about the same rent, so I am assuming that the landlord didn't want to bump up the old lady's rent and didn't want disparity between renters so they kept it low.
So... with the property barely breaking even it isn't a good investment, it has POTENTIAL! Potential is serious value, in my opinion, in multi-family. It isn't like commercial where NOI*Cap=price so if you increase NOI you are literally increasing the price, but it sure makes the price seem less attractive reducing the investor pool and allowing me to get it for lower, then bump it up and make it flow.
However, under the communist rule of the LTB I can't adjust the rents to market.
One strategy at hand was to move into one apartment for a period of time, which would allow me to rent it out at market rate when I leave.
What about the other three units? Even if I evict for a major renovation, our comrades at the LTB will allow the renter to return to the newly renovated unit at the same rent!
LTB is basically telling me that there's no point in investing here, and discouraging me from improving the rental stock.
IN Ontario you can evict to move in to a unit, this is commonly done and once the reno is completed you can do the same for the next unit.You can again evict to do so. The tenant does not have a right to move back in when you evict for personal use.
This is a technicality but can easily work if you do not move from one to the other too quickly.
What you need to do is make an offer to the seller based on the rents. The property value is based only on the NOI, you are wrong is assuming it is not. The property has zero value as a personal home and is therefor commercial. IT is all about cap rates. He will need to lower his price by a considerable amount to allow cash flow.
IN Ontario you can evict to move in to a unit, this is commonly done and once the reno is completed you can do the same for the next unit.You can again evict to do so. The tenant does not have a right to move back in when you evict for personal use.
This is a technicality but can easily work if you do not move from one to the other too quickly.
What you need to do is make an offer to the seller based on the rents. The property value is based only on the NOI, you are wrong is assuming it is not. The property has zero value as a personal home and is therefor commercial. IT is all about cap rates. He will need to lower his price by a considerable amount to allow cash flow.
Honestly, Greg, I think the LTB would reject the N12 if I'm just moving from one unit to another. My intentions would be very obvious. N12's do get denied if our overlords don't feel that the move-in is a legitimate need.
I also don't think I could get away with it on the home front because the plan is to move into one unit and then commission the build of a new duplex for us to move into 8-ish months later. If I bounce from unit to unit with stays of reasonable length, and the LTB allows it, I'd probably be looking at 2 years to finish, and by then I'd have planned to have moved into a duplex, then moved into a SFR for ourselves.
I feel my hands are tied... Are there any better options than 4 N12's? I feel pretty certain that tenants are bulletproof without N12's.
Most of the time, tenants won't move back in to a rental after it's renovated, because it's too much hassle to move everything to a new apartment, and then back again.
Also, s.53 (2) of the RTA requires that a tenant give you notice in writing that they wish to have the right of first refusal to re-occupy the unit after renovations. I would bet many would not give you notice in writing before moving out, but have never tried this.
I agree with Luc, once going through the hassle of just moving, most tenants won't want to move back.
I've bought properties just conditional upon them being vacant (current LL providing me with N11's). Their agent (if on mls) usually comes back saying it can't be done - I then say: well if you can't get me vacant possession then I'll only pay x amount.
This works so much easier with FSBO's I've found as you can talk directly to them and help walk them through it. (My experience is most agents don't want the extra work/complication/hassle) Often they'll say they don't know how to get the tenant out of the unit, I usually just tell them to ask if the tenant would be willing to move out (you'd be surprised, but this occasionally can work - worked once for me so far - where I said they could leave whatever crap/garbage they wanted and I'd take care of it - don't worry about cleaning unit etc). I've had it twice where I've got the seller to get N11s from tenants simply because the tenants were in arrears (by less than two months, and less than a month) and told the seller to just forgive the amount owing if the tenant signs N11. Both times it worked as the LL knew that once they sold it, the odds of collecting the arrears was unlikely and the tenants felt like they were getting back to 0 by starting over at a new property.
I've also forgiven 1/2 months rent to get a tenant out ASAP. From my perspective it was way faster than going through the usual channels and I knew I wasn't going to be getting blood from that stone anyways. (They were never going to pay me)
I've also asked seller to offer cash incentives/offer to pay moving costs to entice the tenant - and if they're unwilling, you can let them know you'll go through the usual channels and they'll end up having to move out eventually anyways if you decide to move in -at least this way their moving costs are covered and you're trying to find a win-win.
I've also heard of other landlords that have offered to move a tenant into one of their other buildings, or help them find their next home.
One added bonus (for me at least) is often the seller will then wish to extend the closing date (to get to vacant possession) allowing me more time to line up my trades people and solidify my reno plans and budget.
Just food for thought - Each situation is different and it really depends on the tenant. It sounds like the one's you're likely dealing with are very long term so are much less likely to be interested - but you literally never know until you ask.
In summary:
If Buying: I'd try to make it the sellers problem (make offer conditional upon N11's, if they refuse reduce offer price)
If my tenants, or I'm trying to help seller figure out how to do so:
1.I'd ask if any of the tenants are willing to move 2. Offer small incentive (cover moving costs and/or they can leave crap/garbage behind and not worry about cleaning; If in arrears consider forgiving arrears dependent on them signing N11. 3. I would remind them that you intend to proceed regardless of whether you get an N11 but you're just trying to speed up the process and create win-win, if you have to go through formal channels they'll receive no real benefit. 4. I'd offer them another unit in a property or help them find their next home if their still on the fence or if you think they'd be a good tenant. (If a good tenant you could even help someone in your network out by finding them a good tenant)
P.S. is this the soho property? If so I could put you in contact with the seller directly. (He had strong relationships with his tenants, so likely could find a win-win)
hey guys. I'm new to BP. I've found it very resourceful so far. If a multi family was built after 1998. The landlord is able to increase the rent to market value. Hope this helps