How To Come Up With a Price For London Ontario Income Properties

  As a Real Estate Investor, How To Come Up With a Price For London Ontario Income Properties

You would be amazed at the number of investors who do not know how to determine the correct value of real estate. As an investor, it is crucial that you are able to determine the value for yourself and not leave it up to someone else.

The three primary yet different ways of determining value with real estate are the CMA, the Income Approach method and the Replacement Cost method.
determining cash flow
The CMA method (What most Realtors use)

The CMA (Comparable Market Analysis) method is based on what similar or comparable properties have sold for in the past, typically within the last three months.

The CMA is the most common valuation method for residential single-family homes. However, it’s typically the least favourable valuation method for investment real estate.

   The Income Approach

The Income Approach method of valuation puts a value on the income generated from the property. This is the valuation method investors use most when evaluating an income property.

  The Replacement Cost

This method of valuation is simply what it would cost to buy the land today and build a new building with the same square footage with similar features.

replacement cost

Let’s use an example to illustrate the differences between the valuation methods and assume for a moment that we are talking about a three-bedroom home with a two-bedroom basement suite.

The main level of the home is 1,000 sq ft and so is the basement for a total of 2,000 (finished) sq ft. The home is occupied by the seller on the main floor and the seller collects $1,000 per month from the basement and the tenant pays for their portion of utilities in addition to their rent.

The seller is asking $400,000 since a Realtor told the seller that the CMA (Comparable Market Analysis) showed that similar properties in this neighbourhood have recently sold in this price range. This is the CMA value which is again what the market is currently willing to pay.

We can determine what the income is worth from an Income Approach method of valuation. Since the seller occupies the main house and we know the market rents in the area, we can quickly estimate that the home would rent for $1,500 month plus utilities.

Including the apartment income of $1,000, we would have a total of $2,500 in total gross income. We then deduct all of the expenses, excluding financing.

Let’s assume that we have calculated the property taxes, insurance, vacancies, advertising, management, repairs and maintenance and a monthly miscellaneous allowance totalling $900 in monthly expenses. That leaves $1,600 ($2,500 – $900) remaining each month which is the amount left over to pay a mortgage.

By running a simple mortgage calculation based on $1,600 per month for a mortgage payment using a 25-year amortization and a 4% interest rate, the amount of mortgage that a $1,600 payment can support is $304,000. Adding a 20% down payment of $76,000 on to the mortgage amount would give a maximum Income Value of $380,000. ($304,000 + $76,000).

   Pretty simple isn’t it, yet 90-95% of people who I see in my office have used the CMA approach, or as an example, when I show properties, I review what the previous owner had purchased the property for and guess what?

 No wonder they were losing money and are discouraged!

Income properties now for sale in London Ontario

  

Commercial Residential Property For Sale London Ontario

Photo Link
$2850 per month rental income, commercial residential property for sale in London Ontario, up and coming SOHO District

•  1800 square feet, a 2 bedroom apartment and a retail store, established 50 years  for sale $400,000 . Great Rental Income
MLS 157308

 

Looking for some rental income? This building is being rented by a long time (50 years) established variety store, (California Convenience ) for $2100 per month plus utilities and there is a 2 bedroom apartment attached, currently rented for $750 month plus utilities and the tenant wishes to stay

Lots of parking and in an up and coming neighbourhood of London called SOHO, great zoning .

Price includes land & building only. Variety store business, goodwill $69,000 plus inventory.

Please call listing Realtor for appointment, 24 hours minimum notice, do not go direct.

Property information

For A Real Estate Investor-A Landlord-Tenant Privacy Quiz

For Rent London Ontario Houses

   A landlord-tenant privacy quiz

For a real estate investor, residential landlords and real estate brokerages, you will be impacted by the latest changes to the Personal Information Protection and Electronic Documents Act (PIPEDA) beginning Nov. 1. PIPEDA is Canada’s federal private sector privacy law that sets out the ground rules for how businesses, including landlords, must handle personal information in the course of their commercial activity.

Under PIPEDA, landlords must:

  • Obtain a tenant’s consent to collect, use or disclose a person’s personal information.
  • Identify the reasons for collecting the personal information before collection and only ask for the limited information needed for what a reasonable person would consider appropriate to the circumstances.
  • Provide an individual with access to the personal information the holder has about the individual and allow them to challenge its accuracy.
  • Only use a tenant’s personal information for the purposes for which it was collected.

The time limit for PIPEDA court applications changed from 45 days to one year.

As of Nov. 1, PIPEDA will include a mandatory requirement for organizations to give written notice to affected individuals and to the commissioner about privacy breaches and to maintain records for 24 months about each breach.

All businesses (and landlords of every size) must ensure that personal information is protected by appropriate safeguards including physical measures (locked filing cabinets, restricting access to offices, alarm systems), technological tools (passwords, encryption, firewalls) and organizational controls (security clearances, limiting access to a “need-to-know” basis, staff training, agreements).

You say you knew all this already? What about the case where a landlord and tenant had a verbal tenancy agreement (permitted under the RTA) to allow the tenant to grow up to four cannabis plants but the landlord discovered 60 plants? Here’s the answer.

 Here’s a 20 Question Landlord-Tenant Privacy test:

Ask Questions For A Realtor

  1. Do you need a tenant’s SIN number for most things?
  2. Do you need permission to capture a tenant’s face on a surveillance camera?
  3. Do you need written permission to do a credit check?
  4. What minimum information is needed to do a credit check?
  5. Is it against the law to demand a tenant’s SIN number?
  6. Can you deny a tenancy applicant because they didn’t give you their SIN number?
  7. Can you use the SIN as a general tenant identifier, for example in your accounting system?
  8. Can a landlord ask for a driver’s licence, tax information, pay stubs?
  9. Can you look into a tenant’s background by looking at social media postings or calling another landlord?
  10. Can you put a tenant’s name on a “bad tenant” list?
  11. Can you verbally disclose bad tenant behaviour to other landlords, for example a phone reference?
  12. Can you take pictures of a tenant’s apartment and contents if you suspect a tenancy agreement breach?
  13. Can you set up surveillance cameras in your building that capture tenant faces?
  14. Can a tenant ask what information you hold about them?
  15. Can other tenants collect information on a tenant?
  16. How long can you retain a tenant’s information?
  17. Is there a prescribed process for personal information destruction?
  18. Can you disclose personal information to pursue a debt?
  19. Can police agencies demand tenant information from you?
  20. Can police agencies demand the landlord allow them entry to a tenant’s unit?

Short (and incomplete) answers go here

How will you score? As a Landlord and Investor, you may want to know these, or at least your Realtor and Lawyer should? Ask them, you may be surprised.

Would Warren Buffet Invest In London Ontario Real Estate?

  Would Warren Buffet invest in London Ontario real estate? I do not know but if he did, he would use the sound principals that he employs every time he invests.

Using his mentor’s ( Benjamin Graham) advice of : “Price is what you pay; value is what you get”, he would do well.

In this classic 2014 letter to shareholders he compares real estate to a mouthy neighbor shouting his estimate of your farm’s value over the fence at you, while you are busy producing food from the land and the sunshine. The mouthy neighbour has all the advice in the world but never produces.

Or my take of this, the complainypant who says real estate is overpriced, underpriced, interest too high, too low, waaaaah, waaaaah, or neighbours, co-workers or a family member giving advice on real estate.

The wise real estate investor looks at the long term picture, can project revenue over the long haul and does not even think about appreciation or speculating.

 A mentor of mine asked me many years ago“If I want shade 20 years from now, when is the best time to plant a tree?”

Income properties now for sale in London Ontario

How Not To Buy A London Ontario Income Property

Most London Ontario real estate investors miss the boat because by the time they have confirmed all the facts or ‘run their numbers’ (usually erroneously) or gathered solid information, the market is gone or the property is sold.

London Ontario Real Estate Investing Wrong Numbers

I see this daily, the fence sitters, the ‘time is not right’ folks or in 75% of the cases, their analysis of the property and income is faulty, that their illusion of cash flow, appreciation and risk tolerance is to blame!

A good real estate professional relies on what he hears, a great real estate professional assimilates all the available facts, sifts out the chaff, and makes the go/no go decision on his/her ability to adhere to what I call the brutal truth.

Great investors never buy what the market is doing, they don’t care. It can be up, it can be down, the motivation of the investor, be it the buyer or seller, takes two to tango!

You buy on expectation and sell on results! Period.

As J.P. Getty said “Investors bank on climate, while speculators bet on the weather.” In other words, the real estate market works more like a barometer than a thermometer.

Getting good and accurate information and then being able to act decisively on the incomplete information is what really separates the wannabees and the wealthy.

set your goals with real estate

Income properties now for sale in London Ontario

 

Slow Wealth With London Ontario Income Properties

We get tons of calls every year for people wanting a fixer-upper, especially after they have just watched some TV show where a couple bought  something, fixed it up and made gobs of money! Really?

Fixer upper

What about a couple who are handy or even want to be handy and who do not have to keep up with the Jones’s for appearance sake? Instead of buying that $400,000 or $500,000 home with the finished basement, nice schools, close to work, 2 car garage and then busting your butt to ensure all your monthly bills are paid?

And then, hoping that your home will increase in value in 5-10 years.

What about the couple who buy a smaller home outside for cash or put 5-10% down, have a 1-2 year plan to fix the place up and sell it and repeat this 4-5 times in 10 years?

Look at the math. Instead of a $1000 plus going to interest every month, you buy something where that interest goes perhaps $600-$800 goes to fixing your place up. after 1-2 years you sell it, you may earn $20,000  to $40,000 plus but lets say you only net $15,000? That’s low but stay with me here.

You do that 5 times or more? If you compared the couple who has had only one house after 10 years, mortgage poor or to keep up with their friends, go deeper in debt and get a bigger home, or the couple who uses their sweat equity and common sense after 10 years?

I have 14 couples now who followed this plan and let me give you 3 scenarios:

  • Couple number 1 lives in a $360,000 home, no mortgage and are under 35 years old and have no debt

  • ​Couple number 2 live in a condo now, no mortgage and are living off the rental income of their last 7 homes they bought, and instead of selling, they rent out
  • Couple number 3 are into house 3, it’s worth about $375,000, they owe just under $100,000 on it and their first home they bought, they scraped, borrowed and begged to come up with a $5, 281 down payment!

 

Are the above 3 different than most? Yes. you see, they are willing to pay the price in time, effort and I’ll use this dirt word prestige, to build their financial stability. Now, at the end of the day, 10 years from now, who is living the good life?

Is it easy? Safe? Nope! Is it wise and financially prudent? You bet!

So I ask, do you have what it takes or are you going to go through the rest of your life in debt and looking well off or no debt and feeling well? If you have what it takes or want to learn more, why not give me a quick call at 519-435-1600 now?

 Some Income Properties For Sale

London Ontario Income Properties , 4 Types of Money

   Money, The 4 kinds when investing in London Ontario Income Properties

Most investors in real estate and in fact, most business owners think of money in an abstract way and do not truly understand the brutal truth or refuse to acknowledge what money really is.

Briefly, money can be broken down into 4 parts, being

  • Profit
  • Income
  • Flow
  • Equity

You can have all the profit you want but without flow (cash flow) you cannot pay your suppliers (that is income out), your service providers, employees or your investors or lenders. Without flow, you erode your equity because you must borrow to keep afloat, if you are late in paying your monthly commitments, it erodes your profit and equity because of late fees, interest charges (income again) and or finding another supplier or support person or employee.

Real Estate Investing in London

I have seen many real estate investors with properties that have increased in value (equity) but they themselves are digging into their pockets to stay afloat and they think they are doing well!

I have seen many real estate investors who have great tenant incomes but forget about flow, profit and equity.

In turn, I have seen landlords with decent income (money in, money out) but have poor cash flow because of little profit!

Some guru’s say profit is perspective but I say unless you take all the 4 rules of money, apply them to the property you are thinking of buying or selling, you are not getting the true value of what money is.

I know, I know, I hear this all the time, my property increased 12% last year, or, “I never have vacancies”, or “My mortgage payments are low” and on and on.

This ezine is not the place to go into detail about the 4 rules of money, so I hope I have changed your perspective about money, I know my clients have and their financial health has improved considerably and in turn their future money worries have subsided and in some cases, vanished!

When you are ready to strategically invest in real estate, who are you going to call?

Income properties now for sale in London Ontario

Real Estate Investing London Ontario Common Mistakes

Avoid 12 Common Mistakes Made by Novice Investors in Real Estate (and Experienced as Well!)

Real estate investment has provided many investors with positive cash flow, tax benefits and the satisfaction of making an impact in others’ lives.   However like any investment, real estate has intricate nuances and market trends that when ignored can cause an investor tremendous heartache.

invest in real estate

Unbelievably, many first-time investors are willing to part with their hard-earned cash without taking the time to study their investment.

They rely on traditional trends and gut feelings.

Before you risk your investment, take the time to learn all you can about your market.  By aligning yourself with the right professional, you can avoid these 12 common mistakes and you’ll ensure an excellent return on your investment.

1.   Failure   to  Determine   Your  Time  Need–  Cash flow, capital appreciation,  tax benefits, loss of management, equity pay-down and pride of ownership are just some of the things that need to be addressed before you make that investment.  A service-minded real estate professional can be a tremendous asset by taking the time to evaluate your needs and making sure you’ve got all your bases covered.

2.   Not Checking out the Seller or Seller’s Realtor’s  Numbers– Claims of extremely high rates of return run rampant in real estate investment.   Don’t  get caught up in the excitement  – check everything: rents, payment history, taxes, expenses, deposits, future modifications…everything!  Make sure you have the right agent.  It’s like having a good insurance policy against overlooking all the seemingly insignificant but very important details.

3.   Forgetting You’re Buying a Business– Owning investment property carries great potential for creating wealth and…some potentially difficult decisions.    Evictions, re-investment into the property and time management all need careful consideration. Remember this is not a “hands-off’ business.

4.   Avoid Negative Cash  Flow– Property that eats cash every month can drain your  working   capital. This creates stress, frustration and can become quite painful.  Predicting constant appreciation is extremely difficult if not impossible for the unseasoned investor.  A strain on your cash flow may cause you to sell the investment before the benefits of ownership are ever realized.

5.   Failure to do a Thorough Inspection– Look under every rock! Hire a professional inspector. Ask the tenants about pest problems, structural damage or recurring problems. Don’t overlook anything! A value-driven real estate professional will help you find the right inspector and can help you avoid costly mistakes.  When investing your hard-earned money, be sure and use sound business judgment!

6.   Failing  to Have  Adequate Insurance– Investment property brings liability.   Tenants, cars, parking lots, and property liability- the list is quite extensive.  Adequate insurance coverage is an absolute must!

7.   Inspect, Approve, and  Confirm All Documents– The list of documents  that need to be proofed can be overwhelming  to the first time investor.    Building permits, zoning  laws,  rental and lease applications, health licenses, laundry leases, underlying  loan documents, by-laws, title policies, inspection reports, purchase contracts, insurance…don’t attempt to do it alone.  The right professional can remove most of the stress and bring the transaction to a conclusion smoothly.

Inspect Everything

8.   Get a Bill of Sale For All Property Involved– Many types of personal property (appliances, furniture, fixtures, etc.) can be involved in an investment sale. Be very detailed…know who owns what!

9.   Charge Fair  Rents–  Vacancies,  turnovers and lease terminators  are your biggest    expense. Charge fair rents, treat your tenants with respect and respond as quickly as possible to their needs.   It’s  a lot less costly in the long run to take care of the little problems before they become big problems.  Vacant property is your Achilles heel.

10.   Select  Qualified, Good  Tenants From the  Start– Take  the  time  to check  references.    Previous landlords,  employers,  financial  references,  credit,  judgments  are  all  vitally  important.    If  there  are  any questions, investigate fully.  A little work up-front can save tremendous problems later on down the line.

11.   Make Sure  You get Tenancy  Letters– Get letters from tenants confirming the status of tenancy. Make sure their version of the rental or lease agreement corresponds with the seller’s interpretation. (If you are adopting tenants from a purchase)

12.   Don’t Spend  Positive Cash  Flow– Most successful investors have free and clear properties. Be sure to re-invest your cash flow back into the property payment and speed up the amortization schedule.   This decreases your debt load and increases your equity…which builds your net worth.

Investment property can be one of the most rewarding aspects of your financial portfolio.  Be certain to have all your “ducks in a row” before you invest.

get your ducks in a row

Do your homework and for goodness sake, work with a professional Realtor who knows income properties!

Income properties now for sale in London Ontario

 

 

 

Rent Prices Soaring in London Ontario

What are causing rent and lease prices to rise in London Ontario? Shortage of rental units, property taxes, property prices or just because a landlord wants to finally make some money?

rents rising

I have been getting  our new investor clients tenant leases that make them more than happy and all to glad to invest in London.

Our existing investor clients know that rent and lease prices have increased in London Ontario substantially over the last 6 months and this London Free Press article backs it up!

Ontario New Rental Lease Law is Flawed

Ontario’s flawed standard lease is now law

Ontario Lease Agreement

It should never have happened this way. It’s true that written tenancy agreements for Ontario’s residential landlords have been confusing and inconsistent. Many leases are jam-packed with illegal clauses, confusing provisions and in some cases, there is no written lease at all.

Some small landlord investors are of the mistaken belief that it was easier to terminate tenancies if there is no written lease. A lot of landlords also confuse the term lease with the concept of lease term. So yes, confusion abounds, but now it gets worse, not better.

Now, for all new residential tenancy agreements that are signed (with a few exceptions), landlords must use Ontario’s new Standard Form Lease. This lease attempts to remove some confusion from the current chaotic state of affairs. No homemade leases are allowed! Its use is mandatory for condos, apartment buildings, single-family homes, rooming houses and basement apartments. This lease also replaces the agreements Ontario Realtors traditionally have provided.

The provincial lease has two parts. The first has some basic provisions along with a place for signatures at the bottom. The second part is an appendix, but really, it’s just an explanation on some of the finer points, including some details about what provisions may or may not be legal.  In Ontario, you cannot contract out of the Residential Tenancies Act (the RTA), so landlords and tenants signing the new lease can be assured that what they are signing is enforceable through the Landlord and Tenant Board.

While well-intentioned, the lease is extremely bare-boned. The standard form lease tries to be all things to all people and ends up being suitable for no one. Because it tries to be generic enough to fit all tenancy situations, it ends up fitting no tenancy situations.

Fortunately, the government is permitting additions to the lease in the form of an appendix that the landlord may draft. But keep in mind, the provisions in the appendix cannot contradict what’s in the lease and cannot violate the terms of the RTA.

The standard government lease, being inaccurate, incomplete and confusing, will likely cause more litigation and confusion. I can almost guarantee you that if you use it on its own, you will have misunderstandings with your tenant, or find that you are without a remedy when you need one. If you are interested, here’s a link to a blog I did analyzing the required lease.

The government could have resolved the issue of illegal clauses and ignorance of basic tenancy rights by creating a mandatory appendix, required to be attached to every new lease, with the same penalties to landlords if they failed to provide it as there is for failing to deliver this new lease to a tenant. However, the Ministry of Housing chose to use a hammer to swat a fly. By doing so they further confused an already confusing regulatory system.

Prudent landlords will need far more than the Standard Form Lease to protect their interests. Our firm and others are providing clients with appendices to be used in conjunction with the Standard Form Lease. As a landlord, don’t even think about using the standard lease on its own.

If you are interested in finding out more, take 15 minutes to view my free YouTube video on the new standard lease, and how you can protect yourself.

By Harry Fine