All Forum Posts by: Sean Kollee

@Nav Anand. Sure. Bought a house, built rentals on it, leased them all, refinanced with a major bank. While it wasn't that easy it did work, just not as well as you'd hear listening to a guru who claims you'll get back 100% of your investment. That's not how it works in Canada.

@Brian Murray. If you want the rental company to manage it in calgary I think you will find that the cost of the service far outweighs the value at this tiny scale. I bought an old bungalow with a suite that was already in management and inherited the manager and tenant. I thought great, I’m busy with my other work let’s see how they do. It was sort of a test case to see if they would earn the rest of my portfolio down the road.

The good - having a manager. Ok bookkeeping and web interface to track docs. One less thing to do for me.

The bad - they charge 12%. This is ridiculous given the value received.

They released the suite when it went vacant. I had someone inquire if I had a place for a short term lease and I sent that person to the manger to sign the lease. So that month the manager took the first month rent as their fee. Plus their 12% from the main floor tenants the manager is making more than I am.

- service work is atrociously expensive. Like 200$ to change a p trap. What value is the manager here? I could call a plumber from the yellow pages too.

- tenant wanted to stay a couple extra months so they ding you for 250$ to change the date in the lease.

- utilities got out of hand for water. Manager doesn’t know or care they just pay the water bill that is 400$ and a few weeks later I see that there must be a leak in the house when I actually look at the bill. Manager oblivious to this being a problem. Won’t take any action to resolve this. Asks me to look into it.

Management is calgary is great with these companies if you want your property to work for them as a revenue source. If you want to benefit from cash flow and maximizing the value of the investment I’m not sure how you can use managers. I got the feeling these managers are for investors with so much resources they park surplus money in rentals and want a hands off manager so they don’t do anything nor is yield or being gouged for service that can easily be done a factor. Add that to calgary home values being high and rents low and it is hard to make the math work.

I won’t be using managers again because that 12% is what you need to earn as the owner. It is most of the profits, maybe all of it. A bit of work is worth that. Since it appears you are starting out can you really afford to not self manage these ? Another mistake is the idiot who set up the basement suite didn’t get the upper and Lower tenants in some kind of 70-30 utilities split. Never let yourself be billed by a manager for utilities. Too much likelihood the heat is cranked up all winter and nobody including the manager cares they just wait for the rent to come in and take their cut.

I thought it was the okanogan/bc getting a lot of this production business.  not sure about alberta, will be interesting to find out more.  

The time has finally come to refinance my six suite rental building.  This is just the latest in an arduous process, to find the deal under market value on the land, rezone it to multifamily district (long and costly process), permit a six suite rental (difficult with many technical fire code and structural engineering challenges), build the units (using all my experience in home building and every possible favour and technique learned over the years to project manage), get financing to finish construction (from a private lender after the bank lenders totally dried up on this type of financing), and pre lease the units while under construction to quality tenants.  All of this took 2 years, and was extremely difficult.  At this point the units are all leased out, gross rents are 9k, value of building is about 1.875M based on reasonable comparables, current loan outstanding is 600k, building cost to complete about 1.45M.

I need to refinance, simple reason is I need to takeout equity from this property so I can build more homes elsewhere (have 8 homes planned to build in the next year). Unfortunately the bank loan market has become really tough, with the banks tightening restrictions, imposing difficult metrics to deal with and applying commercial rates and fees to my property.

I've been able to get a basic commercial loan offer, not what I wanted, but what I could get.  1m loan, 5% fixed rate, 5 year term, 1.25% fees and legal up front, and a lot of paperwork and hurdles to overcome yet to ensure I actually get the loan approved.  

Another option is to go interest only from a private source at 7%, same 1M loan on the asset, highly flexible and no additional fees as we have already got the construction loan in place on title.

Currently leaning toward the private option, it could,  based on flexibility, allow me to improve my balance sheet and down the road approaching other lenders to get more of a residential type product given the property has 3 titles, rather than pursuing a blanket type loan through the commercial office.

Downsides of the private loan include the interest only payments don't allow me to amortize the building, and the rate is higher.  I would like to own this building outright some day, but the immediate priority is I have multiple homes under construction and need the funds to pay for my share of the new builds (have investor/partner on these new builds).  

thoughts?

As others noted here, calgary is the type of place where it has a heavy handed and rigorous bureaucracy.  Use of a residential garage for such purposes is likely to get you on the wrong side of your local nimby enthusiast, the type of person with nothing better to do than study bylaws and try and get you shut down.  

you are correct though that commercial rents are insane and a business killer.  my mechanic works out of his home garage, but likely has cut some deals with the neighbours not to complain.  He tried to get a permit to build a new and appropriate garage to work out of but ran into the headaches and obstacles that led him to abandon ship.  I'd stay away from any mechanical work requiring clients come to the location, could just bring so much trouble on you.  

@Daniel Tisdale. I’m not seeing great advice here. What you need to determine is the additional value to the builder that having a merged parcel could bring. If owning both lots isn’t a meaningful change vs owning a couple lots that are not adjacent then I would say not to pursue this. You’d need a lot of local knowledge from actual practitioners not investors or realtors. All the development sites I buy are cash negative with inherited tenants. Because subdivision is limited here to 25 ft width, I’d certainly pay more to get two lots together that say added to 75 rather than one lot at 37.5 ft. It would be worth more to me to build three units on 75 ft than buy two lots located far apart at 37.5 each. The real gains are from land use changes and for this you often need wider frontage that can only be acquired by multiple parcels. That scenario makes two merged lots significantly more valuable than two single lots In premium neighbourhoods land prices can really escalate and they don’t trade at all on the rent. The existing house is valued as a negative because it needs to get demolished and has cost to tip the waste or do asbestos remedial work.

@Eric Bilderback hi I’m in the wrong Alberta actually the Canadian part. There has to be some good pm available in that city so good luck. Sean

@Bjorn Ahlblad thanks I’m looking to repeat this model because there was so much demand for this type of rental. It really hit the sweet spot of the market. Definitely was an educated gamble going and doing this one.

Was able to get a larger project to 0.62% and within that built suites for an extra 50 k that generate 950 per month.  So while the entire project couldnt do 1%, the elements that were doing a lot better at almost 2% bring up the overall average to an acceptable level as a whole.   But no buying a bungalow in calgary for 500 k and it is 60 years old fixxer upper it would be hard to squeeze any cash flow from it.  The big cities just dont trade based on cash flow.    

@Omar Khan lending actually seems to be tougher now than ever before. A bank I used in 2013 to fund construction basically said absolutely no. Lots of demand for private money but my willingness to pay points and 12% on these time consuming deals isn't there. It simply can take too long to build and any city created paperwork obstacles makes it very risky.