All Forum Posts by: Ashley Cann

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Sudbury.

Purchase price: $205,000
Cash invested: $15,000

Bought a 3 bedroom single family home to owner occupy. Built a two bedroom apartment in the basement and rented it out. Moved out of the upper unit and have been renting both units out for 2 years now. We used a mortgage plus improvements loan that provided us with $40,000 towards the renovation, and used a line of credit for the remaining $30,000, for a total of $70,000. We used the rent while living there to pay down the line of credit. We are about to get a HELOC through a local credit union that will allow us to access up to 80% of the equity. The current appraised value is $300,000 and we owe $200,000 left on the mortgage, so we should be able to get a HELOC for $40,000 to use as a down payment on our next property.

What made you interested in investing in this type of deal?

My fiance (now husband) and I wanted to house hack. We were looking for something that we could live in, and build or do a fairly significant renovation on to increase the equity. I'm not exactly sure where our interest came from - probably from watching too much HGTV and the show Income Property.

How did you find this deal and how did you negotiate it?

We found the deal through our real estate agent. We didn't really negotiate at all. There had been a deal that had just fallen through for the buyers and we put in the same offer and got it accepted.

How did you finance this deal?

We used the Home Buyer's Plan from my fiance's RRSP for the 5% down payment on the home. We got a mortgage plus improvements mortgage that added $40,000 to the mortgage to provide us money for the renovation. We used a line of credit and 0% interest balance transfer deals for the remaining $30,000 and paid them off with the rent until we moved out.

How did you add value to the deal?

We added value to the property by creating a two bedroom apartment.

What was the outcome?

We purchased at $205,000 and it is currently appraised for $300,000.

Lessons learned? Challenges?

1) "Minor water seepage" in the spring can mean a quarter of the basement floods in the rainy fall and new weeping tile and water proofing is required.
2) Jack hammering concrete to put in plumbing is a really hard job - look for places with rough ins already or plan shorter plumbing runs.
3) Remember to centre the lights on the ceiling around bulk heads not the centre of the room, because having a light right beside a bulk head looks really weird and blocks some light.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

We used TJ Herault as a realtor, from the Kuula Group. For a mortgage broker we used Joel Glaude from The Mortgage Centre - he got us a good rate and was quick to answer questions and knowledgeable.

I'm wondering if any real estate investors in Sudbury, ON know of any meet ups. I'd like you network with some other real estate investors locally and discuss strategies and the local market with people who are investing here, or investing elsewhere but live in Sudbury.

I am looking to purchase a multi unit building. Looking at building with between 5-12 units. I am feeling nervous about how I plan to find it and would like some feedback.

The plan is a combination of lines of credit.

We have a duplex with some equity, I think we can get a HELOC with $40,000 from a local credit union. I'm in the process of getting this and don't know the I interest rate yet.

My husband and I have access to unsecured lines of credit, one is $40,000, another $13,500 and the third is $10,000 for a total of $63,500 of unsecured credit at rates between 8 and 9%.

So if I find a deal we have access to $103,500 in credit to use for down payment, closing costs, and some reserves.

What are people's thoughts on using unsecured lines of credit with such high rates? I initially the cash flow would probably be just paying the loans so I'm not sure if this is the best option, but I would like to get another property by the end of the year and so far I don't know anyone who would want to partner with us, although I am looking.

If the repairs are extensive enough you can give 120 days notice to vacate to do renovations that would require a vacant unit.  But you have to give the tenant the opportunity to move back in at their current rent once the renovations are done.  So if they aren't a long standing tenant it might be better to wait the year or so to do the reno's at the next turnover. 

The Landlord Tenant Board eviction for personal use, demolition, repairs and conversion document has some info you might want to look over.

The program that my mortgage broker was thinking about is the Genworth Borrowed Down Payment Program.  Here is a link: http://genworth.ca/en/products/borrowed-down-payment-program.aspx.  I spoke to both my mortgage broker as well as someone at Genworth about the program.  The mortgage insurance premiums I believe are higher than a regular high ratio mortgage, so those fees and the interest costs for the borrowed down payment would have to be taken into consideration when doing an analysis on a property.  

 @Andy Welmers I have spoken to a mortgage broker who encouraged me to increase my unsecured line of credit as then I could borrow my down payment from that. We are looking to owner occupy a SFR that we can convert to a duplex. We have done this once before with our current home. We are looking to put 5% down and our mortgage broker mentioned that we could borrow the down payment from our line of credit. So it is possible to borrow your down payment funds. He also mentioned a HELOC could be used for the down payment as well. Now I'm not saying we are going to borrow from our unsecured line of credit for our down payment, but it was nice to find out the option is there, so my husband and I got a joint line of credit that we can utilize if a great deal comes along before we have saved up the down payment ourselves. This is for owner occupied though so maybe you are right about not borrowing the down payment when it is a pure investment property with conventional financing.

So that's kind of a mix of conventional and creative financing.  But we haven't actually implemented that.

I just put $XXXX all inclusive (heat, hydro, & water).  It is the most common in my market to have utilities included and harder to rent if you don't have it included.  I use rentometer.com and my own searches on kijiji to see what the going rate is.  Basically the higher side of the rentometer average would be utilities included, and the lower end would be without utilities.  I only have one rental, and that's the one in our basement so I don't have that much experience with pricing rentals.  We didn't indicate what percentage of the rent was going towards utilities and what was going toward rent.  I haven't seen that indication on any of the listings in my area either.

We also have a SHF converted into a duplex.  For the basement apartment's comfort as they can't control their own heat, we got a wireless ecobee thermostat that has wireless sensors.  We put 3 sensors in the basement and the thermostat upstairs acts as a sensor as well.  So 75% of the thermostat is taken from the basement unit temperature, and 25% from the upstairs unit.  This is the first year doing this so we will see how great this option works, but seeing as we rent it all inclusive, I would rather spend a bit on the upfront cost for the sensors and use our gas furnace, then spend the upfront cost for electric heaters to supplement and pay for the electricity usage as well.  So far the furnace has kicked on to warm up the basement even though upstairs we don't really need it yet.  We have just closed the vents to the upstairs for now.  

I've been learning all I can about analyzing apartment buildings.  I even bought Michael Blank's syndicated deal analyzer (SDA) which I find very helpful.  But a lot of the information in there doesn't always seem to translate to Canadian prices.  For example, the SDA gives a rule of thumb for insurance on an apartment building to be 0.007*sales price.  I have gotten a few marketing packages to practice analyzing deals with and the insurance costs are always higher than this rule of thumb, sometimes almost double.  Now I'm not sure if this is just because the owners haven't shopped around for insurance in a while, or if its because insurance is just higher in Ontario.  

Is there anyone who invests in apartment buildings in Ontario, or provides insurance on apartment buildings in Ontario who can help me out with a general rule of thumb for estimating insurance?  Right now I'm assuming it will be the same as the owner, but sometimes it seems really high and I'd like to know if that could be an area for a quick decrease in expenses. 

I would also like to have a copy of your JV contract.