financing question

[EdRenkema]

I own a condo in Kimberley BC which has seen a dramatic appreciation in less than 3 yrs. I purchased in April 2005 for 105 K invested about 8K in reno and paint/design which includes a new roof on the entire 30 unit bldg. It recently appraised for 230K which I consider conservative since I have one of the more desireable units - top floor corner and an upgraded design and paint and others are listing for higher than that in this bldg. My problem is I am on a variable rate with firstline and as rates have been edging up I am at break even point now. The current mtg balance is 99K, the rent is $875/mo, mtg pmts are $607/mo, condo fees $130/mo and prop. tx at 1650/yr. I tried to refinance with my bank - TD with a 40 yr amort and a line of credit, they would pay all the costs except the interest penalty to get out of firstline, this they would bundle with the mtg, end of the day they wouldn`t touch it as it is an adult community - no children, no pets, basically a retirement residence. Firstline will not give me a line of credit for any more than a 25 yr amort which would effectively increase my payments to approx 640/mo. THey will give me up to a 35 yr amort, only if I increase the mortgage by 10K and I would incur legal costs - about $500 and reregistering mtg at $100. This would decrease my payments by about $20 to approx. $585/mo. I would also have the extra 10k less my costs, which I could put toward my current residence reno thereby decreasing my `non tax deductible` costs. The current tenants are on a lease from Nov. 06 to Nov. 08 after which I plan to increase the rent to 900/mo.
I will be getting some payment relief but still be sitting on a large equity that is not at my disposal.
Any comments or advice on this dilemna would be appreciated.

Don Campbell may recall exchanging emails several yrs ago and expressing some doubt as to the airport expansion in Cranbrook actually going ahead, well it did and as my RE agent pointed out at the time the building was undervalued due to a leaky roof, well we fixed that and everything else surged and we are enjoying tremendous appreciation in the area. This agent also recomended several renovations which I did and that also helped tremendously in the appeal of my unit. His name is James Swansburg and his company is called Specialist Real Estate. He has a good eye for value and is not afraid to speak his mind.

 

[DonCampbell]

Hi,

re: Cranbrook. My good friend is one of the city managers there and we are incredibly well informed on what is going on in the area.

Regarding the airport You may wish to investigate what really happened with the airport as far as actual length of runway and the limitations it has put onto flights in and out (load factors, aircraft size etc.)

Just an FYI...

 

[EdRenkema]

QUOTE (DonCampbell @ Nov 9 2007, 01:52 PM) Hi,

re: Cranbrook. My good friend is one of the city managers there and we are incredibly well informed on what is going on in the area.

Regarding the airport You may wish to investigate what really happened with the airport as far as actual length of runway and the limitations it has put onto flights in and out (load factors, aircraft size etc.)

Just an FYI...

Hi Don,

Thanks for your feedback.
My next door neighour in the condo bldg is a friend and also looks after any concerns I might have with my unit (none so far), being a retired cop and licensed property manager I consider him qualified. He also currently works for a private firm and is head of security at the airport and keeps me informed on what is going on there, I do realize they didn`t get the runway length intially proposed - now only 8000 ft I believe which does limit the size/load of aircraft using the runway. Nonetheless the RE appreciation in Cranbrook/Kimberley has been tremendous and as James Swansburg will tell anyone, nothing actually cashflows and you know my situation. There are other economic and demographic factors affecting the region. What many people don`t know is Kimberley is one of the few towns in BC that actually has a ski hill in town and a free shuttle running up and down the road from the center of town. Cranbrook and Kimberley both have new retirement building projects ongoing. I lived there for a year and did all my research then. I am fortunate to have gotten in when I did, now would be a different story....

Anyone else giving me advice on how to adjust my financing would be appreciated,
Thank you in advance!

Ed

 

[RobMacdonald]

Hi there,

I think first and foremost, your options are going to be limited due to the age restriction of the building. TD used to offer financing on age restricted, as did Scotiabank, but both have recently cut back the option. You may want to contact local credit unions or trust companies in the Kimberly area and see if there is any interest in the building.

I`m thinking your best option is going to take what you can get with Firstline. I would be very cautious to get the 35 year amortization in writing with Firstline, as we have been told that they do not offer extended amortization on rental properties. It may be possible to find an institution or two that may be interested, but your options may be very similar.

One question that was unclear, are you looking to take equity out, or just looking to stretch the existing amortization?

Rob Macdonald

 

[EdRenkema]

Hi Rob,

I`m not looking to take out equity since that would effectively increase my payments. One of the stipulations with Firstline with 35 yr amort is to take out 10K in equity, at this point I definitely have a use for that equity, essetially to pay down the HELOC on my home which I am using for renovating, this has effectively increased my HELOC by increasing the value of the home. TD has set up the HELOC at no charge for me and they didn`t hesitate to increase it as the home was undervalued when I purchased 6 mos ago and now the major renovations are completed. Firstline is well aware of the condo being a rental and that is what they are offering, my question is what do I have to be cautious about since they are offering the option and I agree it looks to be my best option. I have spoken to my mortgage broker in BC (I`m in Ontario) and he also seems to think it best to work with Firstline. I don`t want to jump into it until I have considered all my options.
Thanks for your input.

Ed R

 

[invst4profit]

Maybe you should consider a exit stratagy as it is not a cash flow property and you have
considerable equity built up that may have peeked for the short term. Maybe a good time to sell
before condo fees rise or you get hit with a special condo assesment.


greg

 

[EdRenkema]

I don`t want to exit the property since:
1.-I have an agreement not to sell as long as the current tenants are in, my word is golden and they are excellent tenants
2.- capital gains tax
3.- I plan to move back to the area eventually
As Dolf de Roos asserts why would anyone ever want to sell a good property?? Simply refi and take out some equity - tax free $$
This one is a keeper!

 

[markl]

I think one of the biggest things you have to look at with this is not if the property cashflows or not if you get a LOC. What are you going to be doing with the LOC if you are going to invest in something that gives you better cash on cash return than the payment than you have positive cashflow. I had the same situation in the Junction area in Toronto. I was able to pull the LOC and make 15% on my money cash on cash return while paying 6% interest.

Just something to keep in mind.

Regards,

Mark Loeffler
www.homeownersoon.com

 

[EdRenkema]

Hi Mark,
That is exactly what I`m considering at this point. Right now I have enough to work with from my HELOC, that will change as I get into more properties. Out of curiosity, how were you getting 15% c/c from those funds??
Thanks for your feedback,

regards,
Ed R

 

[invst4profit]

Sorry Ed my evaluation of your situation was incorrect. I new from your opening that showed no cash flow on the property that you were not an investor but rather a speculator and I felt now was your best time to cash out. I see now that you view this as a future primary residance.
I saw this property as maxed out in growth potential and costing you about $20000/year in lost investment and maintiance on negative cash flow. Not a good property for me but I`m not Dolf.

 

[EdRenkema]

If this were the USA I would sell this one in a yr, that is when the current tenants` lease is up and buy something on the ski hill. In the US one can defer the cap. gains tax but not here. I will likely end up stretching out the am. getting a little payment relief and paying down the equity for several yrs. Believe me it is not maxed out, the area has some distinct economic fundamentals that have yet to play out. I did live there for a year and I learned a lot by meeting a lot of people and asking lots of questions. The living conditions in the town and surrounding area are stellar, I only left for personal reasons.
There is actually life outside of Vancouver, Edmonton, Calgary, and Toronto - good quality life!
Thanks for your comments.

 

[invst4profit]

How do the condo reserves look. Now that values have doubled will there be a increase in fees do you think?

 

[EdRenkema]

The condo reserves are minimal 10 to 15K, we are working on building that up but it is bucking the trend in the building. My feeling is the low condo fees make it attractive to potential buyers but there needs to be enough for ongoing maintenance and upgrades. Right now we need paint in and out for all the common areas. It still looks like a hospital inside. Fortunately our board vice president is a licensed property manager from Whistler and a friend of mine. He is aware of this and also an advocate of increasing the condo fees but not too high. Current fees are $130 monthly and anything on the ski hill is 250 and up. We still have a lot of room to increase these and we almost certainly will. I was quite involved in the process while living there. I could go on and on about the good news stories on developements that all bode good for this community, and these are not anecdotal, they are happening as we speak.

 

[invst4profit]

Does B.C. have guidelines for the amount of reserves the group needs to have. A friend of mine was in a unit where there reserves were too low and were forced to increase it with a $8000 assesment to each unit. Another had storm damage to the roof on there Florida condo and were assesed $10000 for repaires. That is the uncertanty of condo investment, you don`t make the decissions. You do have a lot of equity tied up in this property and increased fees and special assesments can quickly put you into negative cash flow plus reduce the appeal of the property to others. Those would be my concerns, my policy being positive cash flow.
I would be itching to get at that equity to reinvest in multiple properties but that`s just me.
Good luck.

 

[EdRenkema]

Hey Greg,
I AM itching to get at that equity but cashflow is king and to access it through a secure LOC will impair my cashflow. Somebody is working on it for me now. If I can offset my cashflow loss via another investment I will pursue that option and I am researching that.
YOur post querstioning the value of joining REIN answered a lot of questions for me as well so I guess I know where to find more answers now : )

Ed R