All Forum Posts by: Matthew McLean

Hey man, take a look at the other thread on this, more discussion there.

https://www.biggerpockets.com/forums/90/topics/309378-british-columbia-announces-regulation-to-end-shadow-flipping

Good Easter Evening BP,

I have been working on a Canadian Relevant Spreadsheet calculator based on J Scott's (Here) which can crunch all my numbers for me. Trying to get estimated %'s and rates and averages for everything so I get a ballpark, then it also allows me to go through and plug in the numbers I know to slowly fine tune it. Once completed, I will post it up on BP to share. But for now, I was hoping for some feedback on specific relevant numbers for Canada.

Obviously it varies by province and sometimes things aren't a percentage of the Purchase price or anything, they are just static fixed numbers.

This newer website looks interesting, a spin off of ratehub.ca

http://www.closingcosts.ca/

It lets you calculate rough (very rough) closing costs (Rough cost of lawyer and appraisal) and provides listings for Lawyers and appraisers in your area. Didn't find any in my tiny town in AB but I suspect that is because it is a newer website. Appears to be focused mainly on Ontario. Anyway, not a bad start.

My questions are about Fair Conservative Assumptions. I will include what I have and welcome people's feedback.

PLEASE NOTE: These are general numbers for Single Family Residences in a Buy, Hold, Rent situation which also shows possibilities for selling. These numbers have been obtained from a number of Canadian sources and are a guide only as they will obviously vary. If there is a range of prices, I would rather pick the highest number so it is a real conservative number at the end.

Purchasing Costs
When you know much you are going to bid/buy the house for. Then I say this is anything else that could be included on top of that:

- Home Inspection = $500
- CMHC Mortgage Insurance (if less than 20% down) = 1%-2.75%
- Adjustment Fees = $500
(This would be any utility or property taxes paid by previous owner past closing date. Also could be Interest adjustment)
- Legal fees = $1000
(Transfer of Title Documents, etc)
- Property Transfer Tax = 1% on first $200k, 2% on the rest
- Title Insurance = $300
(Can prevent you from having to get a survey done)
- Property Survey = $2000
(Mortgage provider may need this. Always check to see if Title insurance will do?)
- Property Insurance = $900
- Utility Fees = $50 per utility
(Transferring ownership, etc. can sometimes incur this charge)
- Property Appraisal = $500
- Estoppel Certificate = $100 optional check for condos/strata only
- GST = 5%
(Often included in price, only if it is BRAND New ie never lived in before)
- New Home Warranty = $2000
(Some provinces this is mandatory for a new build ie AB

Also obviously the biggest chunk of this is your Down Payment. So then you come up with a Total Cash Outlay Value which is:
Purch Costs + Down Payment + Rehab

Rehab, Improvements & Development

This is super variable and ambiguous and comes with experience I am sure. But for us newbs, does anybody have any tips for these costs? Some I have seen thrown around on BP:

- Basic Renovations (Cosmetic, small fixes) = $5-$10 / sq ft
- Moderate Renovations (Minor Structural, Rooms, etc) = $15-$20 / sq ft
- Major Renovations (Gutting, Extensions,Major Structural) = $25-$30

Seems good to have a rough idea. Obviously veterans know right away and its impossible to be so general. But an idea of how much helps so much. Any suggestions?

If there is a Percentage of After Repair Value that people use as an absolute maximum for Estimated Repair Costs, that would be helpful too?

Rental Revenue

People wax lyrical about all different % rules in the US which I understand are very different to Canada. I am looking for a range here and mostly like a minimum. eg in some areas of US, the old "Mthly Rental should be 2% of the Purchase Price" rings true. I was thinking more along the lines of a minimum of say 0.7% for it to be cashflowing OK?

Vacancy Rates are hard to predict in SFR. 1 month vacant out of 12 is 8.33% so I copied J Scott and used this for the first year. Allowing for more is awesome but I figure if you are worried about anything more than 3 months vacancy it might not be a good deal/area/economy/time to buy?

Rental Revenue I guess then is Annual Rental income - Loss due to vacancy.

Rental Expenses
(Taken mostly from J Scott's spreadsheet) (Expressed as Annual Cost)

- Property Tax = 2%
(This varies like crazy 0.5%-2.5% all over Canada but 2% is a conservative estimate)
- Insurance = 0.1% - 3% of Home Value. Usually around $1000
(Average across Canada is around $900 so Estimating $1000 is fair?)
- Maintenance and Repairs = About 1 month's rent
(I guess you could do this as about 1% of Purchase Price?)
- Utilities = Tenant Pays so essentially 0%
- Advertising = $150
(Advertising for Tenants Online, Making Posters, Associated Time Costs)
- Administration = $400
(I budgeted excessively here. This includes Accountant for Tax return, Office Supplies etc. Could be much more if you pay for software or have an assistant or whatnot?)
- Property Mgmt = up to 10% of Mthly Rent (0% if you do your own)

Cashflow

Net Operating Income (NOI) = Rental Revenue - Expenses
Mortgage Payment = What your payments add to in a year
Mortgage Interest = Mortgage interest you pay in Year 1
Cap Rate = NOI / Purchase Price (Should be Min 5%?)
Cashflow = NOI - Mortgage Payment - Mortgage Interest
Cash Outlay = Down Payment + Purchase Costs + Rehab
Cash on Cash Return on Investment (CCR) = Cashflow / Cash Outlay

This really only tells you Year 1 Data. People like to use the Cash on Cash Return too but it is the same. J Scott's Table (And mine) project over the life of your mortgage so you can see what your cashflow gets up to.

If it is predicted to cashflow negatively in the first say 2 years, do you guys pull pin? Or is there a minimum Cash on Cash people say for the first year? Or say by Year 5?

Reselling Property (I guess Flipping comes in here too?)

Investment = Cash Outlay + Mortgage Payments + Mortgage Interest + Expenses Over Time.
Sales Value (After Repair Value) = Fair Market Value of the house at the time when you want to sell it. Only after repairs are done. Use comparable market analysis (CMA or "comps") to look at how similar (sq ft, beds, baths, features, age, location) properties are listed and have sold for. OR Get an appraisal?
Closing Costs = Detailed Below
Minimum Income Desired = J Scott promotes outlining the minimum you want to take away when selling the property. Ideally this would be done when making your bid for the place, but here it is good to know too

Once you have these numbers, you can figure out what your minimum sell price could be then your list price, then what your profit could be:

Profit = Sales Value - Closing Costs - Investment

Please Note*: This does not account for any tax implications (except Capital Gains) which are obviously important. If anybody has info on big hits with tax or ways to help with that in Canada, please let us know?

Closing Costs

- Realtor Fees = 1% - 7%
(Any advice here is welcomed? I have seen 3.5% on the first $150k and 1.75% on the extra. I read you also pay Sales Tax on the commission?Must be a million ways to skin a cat)
- Appraisal = $500
(Usually Buyer will pay for Appraisal but if you want one obviously theres a cost?)
- Closed Mortgage Interest Fees = 3-12 months worth of interest? (Only if you have a "Closed" Mortgage and you sell before your term is up. Can sometimes transfer this over to a different mortgage)
- Mortgage Discharge Fees = Flat Fee if you sell before mortgage amortization

Source

- Legal Fees = $500 - $1000
(Another one where you pay Sales Tax on the Total?)
- Utilities/Property Tax = Have to pay up until Deal Closes (ie Half months worth, etc)
- Capital Gain = Current FMV - Purchase FMV
(You have to add 50% of this number to your income for tax purposes UNLESS it was primary residence which most Rental SFR's are Not)

So This is a pretty extensive list, but I am hoping with some feedback from you folks, we can have some decent numbers which help newbs like me get a feel for what is going on when we look at a property?

I will be in touch once I have the Spreadsheet completed and will add any data you folks can come up with to it.

Thanks for your time. I hope everybody got some quality family time over the Long weekend.

Happy Easter!

Matt

Hi @Roy N.

Your advice is as always greatly appreciated. The picture you paint is becoming a very familiar one to my ears after discussing it with multiple realtors and friends.

I think in the end after looking at it all and considering your very valid points as well it appears as though this one is a bit of a poor first project really. We definitely don't have the funds to finance this ourselves either. The analysis component is a huge learning exercise for me and you taking the time to comment gives me huge help in knowing things I need to work on there.

I am going to start a little smaller, there are so many amazingly helpful stories on BP and I don't feel I should make such a huge mistake that has already been made elsewhere and recorded on these boards!

Will possibly keep looking at Kitimat for the timebeing but will be a little more cautious.

Thanks a lot again Roy for your input here, it is much appreciated!

For those who like canada BC foreclosure investments and are interested!

This is the MLS

http://www.realtor.ca/PropertyDetails.aspx?&PropertyId=14022321&PidKey=974175776&Mode=3

I have a bunch of info from the Realtor and a few local connections I have made if somebody wants to save on some of the homework? Let me know!

Thanks again Roy.

Matt

Hi Folks,

Came across a deal in a boom town and wanted to see if it was actually a deal. Keep in mind this is in British Columbia (BC) Canada so some things differ but any advice is still welcomed. The aim is to buy, rent for 1-3yrs and sell when time is right. Thanks so much in advance for taking the time to read and even more so if you post.

THE TOWN

This town is a booming natural resource town, a lot of industry moving in, massively high demand for housing (They even brought a cruise ship into this place to house some of the workers as housing is so scarce).

THE PROPERTY

This place is a bit of a nightmare like stuff you see on the shows except nobody has been paid to make this place look so disheveled. It is a foreclosure with serious water damage. It was listed for $150k then after inspected/appraised was dropped to $130k due to the leakage and mould in the basement. It's a 3BR 2Bth home with basement. 1800 sq ft right in town close to a school.

REHAB

This place needs work. Likely that the whole house needs to be dug around and the whole basement waterproofed. Problem is said to be an external underground plumbing problem on the exterior, suspected Storm Water Drain. Inspection is rumoured to have mention of serious water damage (duh!) and there is apparently chat about a footing/foundation issue which could be a dealbreaker. A house down the road got basement waterproofing done PLUS Perimeter drains PLUS sealed it with tar (Lifetime warranty) for $20,000. The mould has gotten into all walls down the bottom so Stripping, Cleaning and starting fresh down there is a must. This would include electrical and furniture and probably plumbing. Upstairs is dated and even has some mould so may require stripping and cleaning etc. Place is foreclosure and is old and gross so will need furniture, and big remodel. Built in 1960's so may have asbestos issues. Driveway is cracked and needs repair. Roof is New (within a few years, thank god something positive!) and half the windows are new. Boiler is ruined and needs replacing, New Heating likely required. Estimated budget is between $85,000-$110,000 depending on foundation damage unless someone has feedback on this?

AIM/PLANS for REDESIGN

With the intention of renting, we are looking into options to have separate Basement entry (Could be a little small) and designing this home to suit local worker rental for the short term and ideally family for the long term. Looking to do medium quality everything with a modernized look appealing mostly to 20-40yr old workers and couples/families. We want move-in-ready design. Curb Appeal needs sprucing. Opportunities exist with so much demolition to redesign with most efficiency. As mentioned total budget for Rehab is around $85,000-$110,000 unless someone has alternate suggestions?

THE MARKET/ARV/COMPs

There aren't many homes for sale in the area at all as demand is so high. People in the town have within 3 years gone homeless because of the boom as homes so expensive. But new workers coming in are filling voids with bigger pockets (no pun intended). Nearly all single family homes are going for at least $250k. A 4 BR 2 Bth home on the same street in good shape is currently listed at $350,000. Estimates for this home are between $300,000-$380,000 depending on quality of rehab. Rental Income for single family homes of this type in the area is $1500-$2500. If we were able to separate the basement then we may be able to get $1000-$2000 per floor? Some rooms in this town are going for $1000pm!

THE FORECLOSURE ASPECT

Some decent articles explaining the Canadian Foreclosure process here:
http://whatthesooke.com/2010/11/21/foreclosure-in-bc-what-you-need-to-know-part-i/
http://whatthesooke.com/2011/01/16/foreclosure-in-bc-part-2-at-court/
http://whatthesooke.com/2011/02/11/foreclosure-in-bc-part-3-closing-and-possession/

This foreclosure is a "Power of Sale" where a lender is ordering sale through Court. A Bid has been accepted on the property at undisclosed amount (No court date set yet so bid not public yet). I have been warned there is a lot of interest in this and there will be a bit of a bidding war apparently. I am interested enough to go in but not too interested to haggle too crazily. I would look at probably not paying more than $180,000 for this at all but might go in for less at court.

BREAKDOWN

Purchase Price = $150,000

Bid War Blowout = +$30,000

Loan/Mortgage Interest = ???

Rehab = $120,000

Closing Costs = $5,000

Murphy's Law = $20,000

ARV = $325,000

Profit? = 0

This is an ultra conservative guess at worst case scenario. For my first flip it might be a bad idea.

ADVICE / SUGGESTIONS ?

What I am looking for are a few things and if anybody has any insight I would really appreciate it!

- Is my estimate about right for Rehab costs?

- Is this deal any good?

- Advice for basement water damage?

- Are foreclosures dumb as a first timer? This place just has pretty decent returns and huge demand so thought would be a good learning exercise.

We live out of town and thus have to budget for higher rehab costs but they will no doubt come down.

Any advice and suggestions welcome! Feel free to tear me down too if this sounds preposterous. Cruel to be kind I say! I am partway through reading many of the suggested books but wanted to get right into real world experience.

Thanks for your time!

Matt

Hi Adrien! Welcome to the forums. a very knowledgable BP member posted some info on this in another forum. Good luck in your adventures!

http://www.biggerpockets.com/forums/90-canadian-real-estate/topics/111355-canadians---2014-update

Originally posted by @Roy N.:

Jennifer:

I've rambled on about investing in the U.S.A. in a few different posts here ... I'm visiting with family this weekend, so do not have a lot of time to go find them all, but will try to pull the information together into a blog post in the next 2-3 weeks.

One additional consideration which has arisen in the past 3-4 months is the shift in the relationship between the CAD and USD - I sold USD at 1/1.2245 last week and the currency jockeys are indicating we could see 1/1.18 before the end of May. If you do not already have funds in USD, you will be paying a 12+% premium on any property purchase you make with funds converted today. The flip side of this is you would be earning a 12% bonus on any retained earnings repatriated to Canada {well, not quite 12% as the monies would be converted before you paid any Canadian taxes due}.

1. In short form my advice would be:
2. Identify your objectives before you begin;
3. Research and identify the US markets in which you plan to invest and the segment of those markets (i.e. SFH, small MFH, apartment complexes, commercial);
4. Find a local partner / agent in the U.S.A. location(s) you select who can assist you with identifying the better parts of the City and those you should absolutely avoid. {Note: BP is a very good resource.};
5. At home, find yourself and accountant and attorney familiar with both real estate and cross-border taxation / corporate organisation. As a Canadian investing in the U.S.A. you will most probably want to have a Canadian Controlled Private Corporation (CCPC) and an entity incorporated in the U.S.A. which is a 100% owned subsidiary (child) of the Canadian corp. This will allow you to retain earnings w/i the U.S.A. and control when they are repatriated to Canada. {Consult with your accounting / legal team to determine the structure which best meets your immediate and future needs};
6. If you are planning to finance (or the properties can be financed), find yourself a lender. There are Canadian banks (TD, RBC) whose U.S.A. subsidiaries will provide mortgages to Canadians based upon your credit history and eligibility in Canada. There are also small local/regional U.S.A. banks in many areas (especially up north in the rust belt) which will lend to Canadian or Canadian owned incorporated entities.

If you have specific questions, please post them ... there are other Canadians who invest in the U.S.A. here on BP, who can help you.

Roy! You are an incredibly helpful clever box full of awesome. Thanks so much for your insight. This is the kind of thing I can't praise Bigger Pockets enough for. Straight to the point, relevant and useful info.

Thank you for taking the time to reply, I am sure these boards can sometimes be filled with more take than give and you are one of the generous ones who is willing to share what you know. I look forward to taking these steps and reporting back on my progress so others in Canada especially can learn from our collective knowledge (And mistakes!).

My Brother in Law lives in Quebec so we are situated quite well to get the ball rolling on what you suggested.

If anybody can suggest a good Real Estate Solicitor or tax specialist or accountant in Quebec or even near Pembroke, Ontario, I would love to hear about it?

Otherwise thanks for the help again Roy. If there is anything I can help with or offer, please let me know?

Matt

So After reading all this and doing some serious googling. I have managed to begin to wrap my head around this but was hoping for some clarification if you folks in the know could spare the time?

I have written a post on my investment goals here

http://www.biggerpockets.com/forums/90/topics/121008-getting-set-up-in-canadainvesting-with-a-small-group-of-people

@Roy N. Amazingly useful info. Thankyou

@Ken Davidson Your thorough explanation is much appreciated and your site has a tonne of very interesting info

@Gary McGowan The way you put things makes it really easy to understand so thanks for that!

Thanks also to everybody else for the info.

Hi Team,

I have a conundrum. I am trying to figure out how to get started in terms of "What entity will buy this property I am interested in?". I will briefly go over my scope and goals and will propose some options. If you have any feedback please feel free to go ahead.

Intro
My partner, her brother and his fiance are all in a fairly good position employment and debt wise. We want to pool our resources/finances and invest together in real estate. We all get along really well and have all stated we want to do this for the right reasons and do it properly without affecting our family relationship.

What We Have
My Partner's parents own a 35 acre lot in Quebec and they are trying to figure out how to get that in our names so we can try start working on that as one of our first investments.

What We Want on Top
We are looking to invest in a Rental Property (Some rehab would be OK) with short term returns. We are looking at properties in booming towns within the oil/gas/pipeline industry. We are also looking at the possibility of having one or two other properties elsewhere in similar situations. Cashflow is one of our biggest motivations until we sell obviously within 2-4years. After starting this first project we would be looking at doing maybe up to 2-3 at a time but nothing super crazy. We aren't going to quit our day jobs lets just say.

What We Need to figure out
We are trying to figure out how to set ourselves up for
A. being able to acquire the land gifted to us from my parent in laws with minimal tax/cost to them or us
B Being best set up for tax and cashflow on our rental income and the eventual sale of the property.

We want some protection but we also are not into going all out and creating a three tiered company setup if we don't need to. We are in Canada so there are no LLC's. Incorporation is an option but is expensive to setup and maintain if we aren't getting much cashflow.

Shooting from the Hip - Possible Solutions?
After doing some research it appears that there are a few options:

QUEBEC PROPERTY
- We could incorporate a company with the 4 of us. Have the Quebec Land transferred into the company name, subdivide the lot and pay for a road to be put in, then sell the lots individually.
- We could create a Family Trust to help transfer the Lot across into our ownership. Not sure of how we or the InLaws could reduce or avoid paying a big old Capital Gains tax payment due to the difference in FMV from initial purchase to transfer. It was inherited by my inLaws over 30 yrs ago so the difference is going to be high.

OIL GAS PIPELINE PROPERTY
- We could incorporate a company with the 4 of us. Building/Rehab expenses could be deducted against the rental income.
- Income earned could be distributed evenly or even reinvested to get another property.

I guess the main questions I was hoping for help on are:

1. Should we Start a Corporation, a Family Trust, both or neither? Advice on multi-person set-ups and their strengths/weaknesses? Advice on Corporations and ways to mitigate risks with liability?
2. Any suggestions for the Quebec subdivision in transferring the property to our name with minimal capital gains?

Sorry for the big long spongey email. I have done a LOT of reading on all these topics but sometimes it just takes one of the clever experienced peeps to bring it all together. I look forward to any and all advice people may have from personal experience or even hearsay. US advice welcome also?

Thanks for the opportunity to spitball here folks, wishing you all a happy Tuesday.

Matt McLean

Thanks a lot for sharing the love Team. I am crazily researching some info on Canadian Specific considerations for investing as a group of 4 people (my partners brother and his fiance). I will make a post in an appropriate forum once I make some progress.

Thank you all for the useful info! I have a lot to learn before I jump in but it is all rolling along nicely with some great insight from you folks so thankyou. We need more Canadian peoples on here! The US Market and info is great but there is so much different in Canada which a bigger audience would greatly benefit from the sharing of info.

I will try spread the word up here with a local Realtor. Always nice to hear some fresh input.

Wishing you the best of luck in your ventures! Speak soon

Matt