Would you buy this one?

[DOZAH]

Hi guys, I`m looking for feedback on a property I have conditionally bought.I have bought it as a reno and flip but it also has monthly cashflow based on my numbers.Please give your honest opinions. Conctructive criticism is wanted.This property is located in prime location in heart of Toronto in a great neighbourhood in North York.Houses on the street sold between $500,000 to $930,000.There are townhouses on the next street over selling for $600,000.This is a single family bungalow backsplit/bilevel converted into 3 apartments all with seperate enterances. (legally zoned single family)I have it under contract for $400,000.The house is in rough shape and in need of a reno. I ran my contractor over to see the place and he gave me a $60,000 estimate.I calculated my mortgage payments at 5% interest to account for an average if interest rates are higher when I renew after 5 years.Calculated rents are on the low/conservative side.Purchase Price $400,000Income
mainfloor: 3 bedroom 2 bath $1400/mth plus 50% of utilities.
lower level: 2 bedroom 1 bath apartment $900/mth + 50% of utilities.
basement: 1 bedroom 1 bath apartment $800/mth all inclusive.
garage: $100/mth

gross total rent: $3200/mth
minus 5% vacancy allowance: $3040/mth


Expenses
Mortgage @ 20% down 5% interest 30 yr amort. $1740/mth
Property taxes $335/mth
Insurance $120/mth
Property Management $250/mth
Property Maintenance/capital expense fund $300/mth

Total expenses $2745/mth

Monthly positive cashflow $295/mth
Annual cashflow $3540 per year


Downpayment $80,000
closing costs (lawyer, land transfer, etc) $8000
Renovations and 2 month mortgage paymnt $65,000

Total cash investment $153,000


The property will have been fully renovated (new windows, roof, kitchens, flooring etc etc) and worth a minimum of $525,000 -$550,000.

What would you do with this property?
Would you hold long term?
Would you sell right away?

Remember, this house is located in prime location of Toronto. Steps to bus, grocery, shopping etc. On an easy rentable location. It`s not easy finding any house that will cashflow in the GTA. Do I keep or do I flip? Should I even buy it?

I look forward to all feedback

 

[invst4profit]

Flip it.
Your rental income is too low for what will likely be a $500,000+ investment by the time you are done renovations.

 

[Fortuneinvesting]

If I`m reading it right then if you had to sell it to get your money back you would have to have $153,000 over the $400,000. You stated thats it would be worth $525K - $550K. Doesn`t make sense to flip it. I would hold and let that value increase over the years then look at selling.

 

[housingrental]

To answer your questions:
I wouldn`t buy this property
I wouldn`t hold long term
If wanting to buy though I would sell asap and flip - income is low. How well do you know market valuation of that property type from comparable? Is there sold data in the last 6 months of comparable to what you`d have after reno to make this worthwhile?

Do the townhouses that are 200k also have better design / curb appeal / features and materially better finish? Keep in mind if higher end materials it can cost 100k for four bathrooms..

What street is it on?

 

[Thomas Beyer]

QUOTE (invst4profit @ Jun 16 2009, 02:25 PM) Flip it.
Your rental income is too low for what will likely be a $500,000+ investment by the time you are done renovations.
I second that suggestion !

After realtor costs, transaction and holding costs (i.e. utilities, land transfer taxes, property taxes, insurance, mortgage, legal fees in and out), and likely upgrade cost over runs a price of minimum $550,000 needs to be achieved ! Is this realistic ?

How many months of vacant suites and low ball offers can you afford ? 3 ? 6 ? 12 ? 24 ?

 

[TonyMandrique]

QUOTE (thomasbeyer2000 @ Jun 16 2009, 07:24 PM) I second that suggestion !

After realtor costs, transaction and holding costs (i.e. utilities, land transfer taxes, property taxes, insurance, mortgage, legal fees in and out), and likely upgrade cost over runs a price of minimum $550,000 needs to be achieved ! Is this realistic ?

How many months of vacant suites and low ball offers can you afford ? 3 ? 6 ? 12 ? 24 ?

For me, I will FLIP it for a quick profit without touching anything. Good luck.

Tony M.

 

[RedlineBrett]

QUOTE (thomasbeyer2000 @ Jun 16 2009, 08:24 PM) I second that suggestion !

After realtor costs, transaction and holding costs (i.e. utilities, land transfer taxes, property taxes, insurance, mortgage, legal fees in and out), and likely upgrade cost over runs a price of minimum $550,000 needs to be achieved ! Is this realistic ?

How many months of vacant suites and low ball offers can you afford ? 3 ? 6 ? 12 ? 24 ?

Very good post here - Renoing houses costs A LOT.

You may well be able to make a bunch of money by undertaking this but make sure you know how long you can last for and have a very tight estimate on your construction costs. $60k sounds cheap to me.

 

[BrianPersaud]

QUOTE (RedlineBrett @ Jun 17 2009, 10:54 AM) Very good post here - Renoing houses costs A LOT.

You may well be able to make a bunch of money by undertaking this but make sure you know how long you can last for and have a very tight estimate on your construction costs. $60k sounds cheap to me.

buyer beware..whats behind the curtain

 

[ajaysritharan]

I agree with the earlier post that I would not buy this property.

1. The cash flow is too low
2. Based on the figures provided it doesn`t seem to be a profitable proposition to flip this property either.

I also agree with Thomas`s point that selling the property usually takes longer than anticipated therefore your holding costs (mortgage, property insurance etc) may be higher than budgeted.

Regardless of the estimates you received from ANY CONTRACTOR, assume that there will be time delays and costs overruns. Therefore, I would budget a higher amount for the renovation. Better safe than sorry.

Finally, I would get a few contractors to provide an estimate so that you get a better understanding of the costs involved and a better sense of whether or not the contractor you picked has accurately priced the job.



Ajayan Sritharan
Relationship Manager of Real Experts Inc
http://RealExpertsInc.com/
http://twitter.com/brianpersaud

"Buying under-market and cash-flowing properties in the best neighborhoods of the strongest towns."

Quirky research and insights on real estate and the economy at http://realexpertsinc.blogspot.com/

 

[BrianPersaud]

QUOTE (DOZAH @ Jun 16 2009, 03:42 PM) Hi guys, I`m looking for feedback on a property I have conditionally bought.I have bought it as a reno and flip but it also has monthly cashflow based on my numbers.Please give your honest opinions. Conctructive criticism is wanted.This property is located in prime location in heart of Toronto in a great neighbourhood in North York.Houses on the street sold between $500,000 to $930,000.There are townhouses on the next street over selling for $600,000.This is a single family bungalow backsplit/bilevel converted into 3 apartments all with seperate enterances. (legally zoned single family)I have it under contract for $400,000.The house is in rough shape and in need of a reno. I ran my contractor over to see the place and he gave me a $60,000 estimate.I calculated my mortgage payments at 5% interest to account for an average if interest rates are higher when I renew after 5 years.Calculated rents are on the low/conservative side.Purchase Price $400,000Income
mainfloor: 3 bedroom 2 bath $1400/mth plus 50% of utilities.
lower level: 2 bedroom 1 bath apartment $900/mth + 50% of utilities.
basement: 1 bedroom 1 bath apartment $800/mth all inclusive.
garage: $100/mth

gross total rent: $3200/mth
minus 5% vacancy allowance: $3040/mth


Expenses
Mortgage @ 20% down 5% interest 30 yr amort. $1740/mth
Property taxes $335/mth
Insurance $120/mth
Property Management $250/mth
Property Maintenance/capital expense fund $300/mth

Total expenses $2745/mth

Monthly positive cashflow $295/mth
Annual cashflow $3540 per year


Downpayment $80,000
closing costs (lawyer, land transfer, etc) $8000
Renovations and 2 month mortgage paymnt $65,000

Total cash investment $153,000


The property will have been fully renovated (new windows, roof, kitchens, flooring etc etc) and worth a minimum of $525,000 -$550,000.

What would you do with this property?
Would you hold long term?
Would you sell right away?

Remember, this house is located in prime location of Toronto. Steps to bus, grocery, shopping etc. On an easy rentable location. It`s not easy finding any house that will cashflow in the GTA. Do I keep or do I flip? Should I even buy it?

I look forward to all feedback


Yes it`s tough finding a property that would cashflow with $154k, i would use that to buy 2 .

If you really want to do a flip, do a JV with someone who is a pro. The pros are absolute experts and have a superbly streamlined business. Like a miner, they can extract the ROI from the deal with a low margin.

Toronto is a super efficient market, if something is as valuable as you say it is...it would be snapped up quickly.

Go through land registry and MLS listings and really understand those comps. I went through Hoggs Hollow and Forest Hill...there are a few flips sitting vacant right now and not many people are buying them (check it here