All Forum Posts by: Tom Stromar

It's interesting you bring up the REALTOR® / Investor question. Recently, I bumped into a fellow I did not know and was unaware of either of my roles. He was pontificating about exactly that, how he had been using an agent but dumped them after finding out he was an investor, figuring the agent would just keep the best deals for himself. 

The funny thing is, what is 'the best deal'? The fix and flipper isn't interested in an established 4-plex generating a couple thousand free cash flow and many buy and hold investors are so removed they hire management companies much less know what end of a hammer to use.

My wife and I typically sell between 2 and 4 dozen homes in a year as REALTOR®s but certainly don't have the capital or resources to jump on every deal we see. Not even close. Recently there was a dated home listed up on Canterbury for 599K. The lot, house positioning view and layout was sublime. I have no doubt that correctly reno'd to the tune of about 200K one could resell it for nearly 1M. It made me sad that I did not have an extra 800K (or access to) to take advantage of that opportunity.

Long story short, even *if* we were looking for the same thing, there are more deals than you and I have capital. I hope all that makes sense. I am glad you brought it up however as it's obviously not an isolated preconception. It's definitely something I'll remain cognizant of in the future.

The first property is a bit of interesting setup - have you been to see it? It's actual a duplex that has been set up as a bit of a rooming house with separate accomodations, but not technically suites in the lower halves, as the standard stove has been replaced with a hot plate, etc.. I have the financials for this property if you're interested. I haven't delved deeply into them but it appears that they the stated expenses cover the insurance, city utilities, etc... There are some updates (newer windows, oil tanks, etc...) It's not in the greatest location but as is typical of that neighbourhood has some nice ocean views. Also there are some long term tenants that would like to stay.

The strata fees for the condo are $139. This strata has not completed their depreciation report yet but seems in pretty solid shape. No laundry in this unit and the previous tenants were paying over $800. That might be a titch high for market rent but I've had 'vigorous' response to my rental ads last month near the university so it would not necessarily surprise me if it was filled again at the previous rate. It's currently vacant. Very easy to view.

Are you familiar with the depreciation reports?

The big factor with the condos is want to have a very good idea of the probability of any larger upcoming assessments. On the flip side, there is sometimes some very good opportunity to lean hard on sellers in buildings that have known problems as no one will want to buy there. 

One exercise that might be helpful it to think about how you envision your future as a real estate investor. I.e. cast yourself forward 5, 10 years. What do you want that to look like ideally? That will allow help you pick the *right* deals today so you're not sitting on a bunch of unwanted assets. Part of this is also having a starting strategy for how you'll secure money for future deals as the big 7 get sticky past the 4th door. Are you working with a mortgage broker or bank?

As for the cashflow, generally the cap rate on properties will all gravitate to certain amount. Slight more than guaranteed money but not as good as riskier investments such as stocks. Occasionally you can 'invest' in an investment to increase this. 'Fresh' and 'New' rentals are preferred in this town. Sometimes the market can bear a higher rent. Other times, features might justify an increase (in-suite laundry)

Well, the nice things about real estate as an investment is this. You can name thousands of failed companies or even complete industries over the last 100 years but that house I flipped on Stewart Ave? Still there after 80 years. In fact, you'd be hard pressed to find a business that had been in busy as another house that I own in Europe which is centuries old. It very rarely goes to '0'.

Regarding the 50% rule, this is a rule of thumb, and as with most rules of thumb it serves as a yardstick with which one can make decisions more quickly as well as a safety net when someone doesn't have enough information or how to use it.

Here's an example on the deal I'm working on currently.

I have a big spreadsheet I use to analyze investment potential into which I plug various variables including interest rate forecasts, etc... It's into this that I plug 'actual' repair costs, etc...

The property I just purchased (for the purpose of hold & cashflow) had completed since 2010 the roof, windows, siding, electrical, plumbing, including hot water tank, new service from BC Hydro as well in the last 4 months a new bathroom, floors, fence and completely repainted.

I know that the envelope (roof, etc..) will now last 25 years, the hot water tank 7-12. The heavy lifting is done. I won't be surprised with a $10K roof bill in 10 years.

Anyway, this allows me to put in the ACTUAL values and look at the WHOLE investment to see what the REAL return is. In this case it was 17% Cash on cash. More work? Absolutely. More useful? Infinitely. 

I think that's why you'll find a lot r.e. investors are so into the numbers.

As for Multi-family, in years past, very few owners were interested in selling here. Then we had a flurry of activity a few years ago and shortly there after nearly 1/2 dozen new apartment buildings pop up and there is at least a couple more under permit right now at the city. 

Keep in mind that the vacancy rate is MUCH lower on newer units (1% vs 5% for older stock) so you'll need to factor that decision in when purchasing an existing MURB.

How big a MURB were you thinking of ?

Hi Jean,

Welcome to BP!

I too do investing in BC and know all to well what you're talking about. Recently though we have taken a different approach here on the island and are finding quite an opportunity exists with some new zoning changes that have occurred here in Nanaimo. I recently closed a deal and am realizing 17% Cash on cash at 20% down. While not quite at the luxurious returns one can get in some US markets I think you'll agree that's pretty exciting for the island and you don't have to deal with IRS. I can certainly show you what we're doing if you're interested

Where are your BC rentals located currently? 

Hmm, well, it wasn't my goal to make it look hard - rather, it's important to make sure that the numbers work. I've been involved in nearly 100 million in property transactions in this town and have sold hundreds of houses. Unfortunately, over that time I have seen many folks get into investing and not do their homework and put themselves in the worst position - the need to sell. It saddens my deeply actually.

That being said I'm quite excited about the new opportunities available to us now. I think the ability to generate over $500 monthly cash flow on a $50,000 investment in our local market is spectacular. I see that you've done some research and you'll probably agree.

I'll reiterate again, that the strata market needs to be navigated carefully right now. I single assessment has the potential to wipe years of profit and which is contrary to why we're investing.

You mention your industry is ridiculously competitive - do you mind if I ask what industry is that? I'm curious.

Welcome to Bigger Pockets Tyler!!

It's also nice to bump into a fellow local here in Nanaimo. I'm a Real Estate Investor here in town and would to help out.

To start, just a couple notes to help regarding details here:

First, the average monthly strata fees are considerably more than you've budgeted. Newer buildings are typically lowest and even those can easily reach $150. Most established buildings range from 200-400. Further, the province recently passed legislation mandated that all stratas complete depreciation reports. This has really has had quite an effect both on market values, and somewhat on fees. I'm familiar with the building you're referencing (based on the numbers) and you also need to keep an eye out on possible special assessments.

Second, nearly all of the property management in town is charging 10% so that's a reliable number for factoring the cost of hands off investing.

The condo market has been absolutely hammered in the last few years, but even with that, it can be tough to find a cash flowing property in the multi-family space. (not impossible though)

Recently, however, some local zoning changes allow for someone to develop a nice cash flowing property. I'm in midst of doing this right now with a property and am looking at a 17% cash on cash return at 20% down and 3% money and assuming standard vacancy and maintenance. The cash flow is about $700 after PITI. I'm planning to write a blog post about it shortly showing how to 'create' an investment in a market that is otherwise hard to find cash flow in.

Not sure where to go from here - did you want to maybe meet for a coffee?

Yes, I wish it was as easy as all the shows on TV make it seem to find these deals but they do exist. We just closed a deal today that worked out as follows:

- Two level town house in a gated community with spectacular ocean views, 20 years old, all original and in fairly 'used' condition (bleached carpet in spots, etc..)

- Estimate for total renovation including new kitchen, two bathrooms, fireplace, new flooring throughout, wall removal to open up the kitchen through living space, a couple of other wall moves to improve floorplan, including permits and general contacting fees and strata consultation. $50,000, but with the expectation that it could be $80,000 to be conservative. This is through a company we have used before that is both on time and within budget. Total rehab time 4 weeks after close (Oct 1) with preparatory work occurring before to allow for permits, approval, etc..

- Purchase price $330,000 (originally listed at $400 spring of 2012)

- ARV breaks down as follows: There have been no sales of the same configured units below $400,000. Most of the dated units sell in the low 400s and the updated units sell for over 500.

Keep in mind that this is without the investor lifting a finger. The GC is very good at meeting budgets but even the conservative allowance allows for profit, which is the way to go about things.

At 50K, the purchase price is nearly allows for 30% gross profit margin, touted greatly here at BP!

I haven't looked, but I imagine I can probably private message you through BP if anything comes up?

Let me know if you have any preferences of any kind, e.g. area, construction type, etc...

Hi Taylor,

There have certainly been some great opportunities in the US lately but we are starting to see more workable deals here on the island. In Nanaimo, where I specialize, the residential market dropped 8% in 2012 and the condo market more so. We are finally seeing cash flowing properties, first time in years. We have sold a number of properties that were turn key income properties this year (my wife and I are licensed REALTORS).

To answer your question specifically, generally the mid island cap rate for small multi-families have been 5.5 on posted sales. I have the Collier's mid-island market for large multi families that I can send if you like, let me know.

This year has been quite buoyant however so it appears the steady price reduction has probably been abated for the time being.

We expect that there will be a short time rush as buyers lock in their guaranteed rates now that CMHC has limited mortgage funds driving rates up. It's hard to say exactly how this money supply restriction will affect the market. History shows a 50/50 split between falling and raising prices following a short series of rate increases which is interesting as one would assume that higher mortgage rates would always drive prices down due to affordability. Apparently not.

;) Thanks James.

As for Arizona, the only area we have been really looking at has been Phoenix. One of my friends has moved down there but for the rest of us it is more just an investment opportunity.

I have noticed that certain pockets in the U.S. have been strong, mostly due to economic factor, for instance in Texas where all the new drilling is taking place so that is good to see. It might be time to start chasing shale gas drilling companies...

David, I love you signature, that's great. Joined a couple groups but sure are a lot of them - I'll have to spend some time sifting through that list. Paging through the list is the easiest way I imagine? (Just want to make sure I'm not missing something)

Thanks - I was fortunate to have done some work up in the Queen Charlottes and it was truly amazing. If you love the outdoors, this is the place. It was almost biblical what with the lack of people and absolute breadth of wildlife. You should arrange a visit (summer is better obviously)

Hello All - I am currently residing in Nanaimo, B.C. (about 80 miles north of Victoria) on Vancouver Island. I have been passionate about Real Estate since I can remember.

I discovered this site some time ago and have finally signed up to expand my knowledge of the U.S. market. Along the way, I would be more than happy to help anyone with any questions about the Canadian Market (e.g. how does a 30 year amortization fit in with global warming and the 2-storey igloo? :) )

Anyway, there are a few of us up here that have been dabbling in some U.S. investment, mostly in Arizona.

My wife and I are also licensed Realtors (are we accepted in these parts?) since 2004.

Also, I am currently involved in a project that is developing some online tools for the r.e. market but that won't be rolled out for the better part of a year.

I look forward to reading through the site and meeting the membership. Is there a Canadian contingent?

Cheers!