- Joined
- Oct 24, 2007
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- 21
Hi! In response to the many client calls and emails I've received on this topic, I decided to write an article to answer the many questions and concerns. I Hope this helps!
http://http://www.jamesknull.com/blog-1014997-Cornerstones_Money_is_Used_Up__What_Next_.html
The city has announced that they are no longer accepting grant applications. We all knew that the gravy train wasn`t going to last forever, so it`s time to look at what this means now for investors looking for suited houses.
Suited houses are a popular choice because they provide such high cash flow. They exist throughout the city in many different neighborhoods with many different tenant profiles providing a lot of diversity for different investing styles and approaches. Recently, buying houses with distressed suites has been a very popular strategy because some of the $24,000 grant that the city offers usually becomes owner equity by way of value in the home. With this option no longer available, it`s time to look at how a sophisticated investor should proceed with this type of property.
The value proposition for legalizing a suite, from an investor perspective, is usually not ideal. The money spent on legalizing often does not equate to more added dollar value to the house then the cost of the work. This is why the grant was fantastic, it took this burden of cost off of the owner. Now that grant money is no longer available, the strategy of buying distressed and doing improvements on the city`s dime isn`t available, so it`s time to look at a new strategy.
I want emphasize: If you get caught with one you don`t get `shut down` or penalized in any way. (unless there is an immidiate glaring life safety issue) You get a notice to comply which results in you having over 2 years to get permits and complete the work done. During this time you can still rent out the suite. So the key for future acquisition of suited houses is to buy something that has most of the legal requirements in place. If you`re ever asked to legalize the costs will be minimal. I personally do not think paying to legalize every suite you buy or currently own is an effective use of capital. As long as the suite is safe for people to inhabit, the only real `risk` you take is that someday you might have to legalize it. Thus, my point is that it`s OK to put off incurring this expense until later as long as there are no glaring life safety issues for your tenants. I know investors who have owned non-conforming suites for decades and collect stellar cashflows from great tenants. I treat the legalization the same way I would treat aging shingles, that cost is going to come up eventually, so I just need to be aware of it and plan for it.
The biggest life safety issues to watch out for are window sizes for fire exit, smoke detectors, and separate means of egress for each suite. When I preview suited houses for my investor clients this something I always look for and avoid recommending places that aren`t already meeting most of the legal requirements. On a go forward basis, the strategy that the sophisticated investor should focus on suited houses that are mostly legal to begin with. This will minimize potential future renovation costs and ensure your tenants are as safe as possible. Further, this will result in the highest amount of leniency from the inspectors if your non-conforming suite is discovered.
The end of cornerstones money does not mean that suited houses are a poor investment. What this means is that the days of getting free upgrades on the city`s dime are done for now. There is hope. I have spoken to the folks at the cornerstones office and checked out the city`s website. Their official position is `the City Administration will bring recommendations for another similar grant program to City Council in late spring 2012.` The program is widely considered a success and everyone involved would like council to approve more funding. The final decision lies with city council. As a community of sophisticated investors, I would encourage each and every one of you to email or call to your city councillor to let them know your position on the matter. For you out of town folks, contact the councillor for the area your house is in. We all want to see more cornerstones money, so let`s work together to push for it. Keep in mind that if the city approves more money, it would be available until the following budget year at the soonest, so in a best case scenario we`ve got well over a year to wait for future grant availability. In the meantime, a shift in approach to acquiring suited property will allow you to keep enjoying that high cashflow!
http://http://www.jamesknull.com/blog-1014997-Cornerstones_Money_is_Used_Up__What_Next_.html
The city has announced that they are no longer accepting grant applications. We all knew that the gravy train wasn`t going to last forever, so it`s time to look at what this means now for investors looking for suited houses.
Suited houses are a popular choice because they provide such high cash flow. They exist throughout the city in many different neighborhoods with many different tenant profiles providing a lot of diversity for different investing styles and approaches. Recently, buying houses with distressed suites has been a very popular strategy because some of the $24,000 grant that the city offers usually becomes owner equity by way of value in the home. With this option no longer available, it`s time to look at how a sophisticated investor should proceed with this type of property.
The value proposition for legalizing a suite, from an investor perspective, is usually not ideal. The money spent on legalizing often does not equate to more added dollar value to the house then the cost of the work. This is why the grant was fantastic, it took this burden of cost off of the owner. Now that grant money is no longer available, the strategy of buying distressed and doing improvements on the city`s dime isn`t available, so it`s time to look at a new strategy.
I want emphasize: If you get caught with one you don`t get `shut down` or penalized in any way. (unless there is an immidiate glaring life safety issue) You get a notice to comply which results in you having over 2 years to get permits and complete the work done. During this time you can still rent out the suite. So the key for future acquisition of suited houses is to buy something that has most of the legal requirements in place. If you`re ever asked to legalize the costs will be minimal. I personally do not think paying to legalize every suite you buy or currently own is an effective use of capital. As long as the suite is safe for people to inhabit, the only real `risk` you take is that someday you might have to legalize it. Thus, my point is that it`s OK to put off incurring this expense until later as long as there are no glaring life safety issues for your tenants. I know investors who have owned non-conforming suites for decades and collect stellar cashflows from great tenants. I treat the legalization the same way I would treat aging shingles, that cost is going to come up eventually, so I just need to be aware of it and plan for it.
The biggest life safety issues to watch out for are window sizes for fire exit, smoke detectors, and separate means of egress for each suite. When I preview suited houses for my investor clients this something I always look for and avoid recommending places that aren`t already meeting most of the legal requirements. On a go forward basis, the strategy that the sophisticated investor should focus on suited houses that are mostly legal to begin with. This will minimize potential future renovation costs and ensure your tenants are as safe as possible. Further, this will result in the highest amount of leniency from the inspectors if your non-conforming suite is discovered.
The end of cornerstones money does not mean that suited houses are a poor investment. What this means is that the days of getting free upgrades on the city`s dime are done for now. There is hope. I have spoken to the folks at the cornerstones office and checked out the city`s website. Their official position is `the City Administration will bring recommendations for another similar grant program to City Council in late spring 2012.` The program is widely considered a success and everyone involved would like council to approve more funding. The final decision lies with city council. As a community of sophisticated investors, I would encourage each and every one of you to email or call to your city councillor to let them know your position on the matter. For you out of town folks, contact the councillor for the area your house is in. We all want to see more cornerstones money, so let`s work together to push for it. Keep in mind that if the city approves more money, it would be available until the following budget year at the soonest, so in a best case scenario we`ve got well over a year to wait for future grant availability. In the meantime, a shift in approach to acquiring suited property will allow you to keep enjoying that high cashflow!