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How profitable can investing in Kitchener Waterloo Real Estate be?

I just got this email from a client, who bought his first real estate investment property in 2008. He now owns 4 rental properties in Kitchener Waterloo, including student rentals, single family homes, and a future development site (currently rented).

Hi Ben, I hope this message finds you and Sarah well and enjoying married life.

I’m sold on the value of Real Estate investing. We are generating positive cash flow from every property plus I just received my mortgage statements from last year. My tenants paid my mortgages down by over $25,000 in one year. Not including the cash flow or appreciation.

We are proceeding to build an addition onto 1234 Cedarbrae and by Sept.1st we will have two extra rooms available to rent. I owe you the credit for that property. You saw the value when I didn’t. Now I will gain over $100k in post-construction value plus the extra cash flow will pay for the construction in less than 5 years.

I am tinkering with my properties, trying to maximize the value. The property at 1234 Weber St. was purchased as a duplex for $222,000. I am considering trying to convert this into a triplex, with three 2 bedroom units. Would you be able to give me a rough ballpark as to what the value might be post-construction? This will help me in my decision process.

Thanks in advance, Larry

For information on how Larry and his wife have built their portfolio, contact me today. I’d love to serve you the way we’ve served Larry’s family over the years (yes, we help more than one generation of his family

You know where I am – Benjamin@BenjaminBach.com or call me at 519 772 4376

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Commercial and Investment Real Estate Market Heating Up

What a gorgeous day in Kitchener Waterloo – it’s sunny, warm(ish), and dry! 

Earlier this week we looked at the strength in the investment, student (Student Rental Market Update – Waterloo, Ontario) and commercial real estate (Commercial Real Estate Market Update – Kitchener Waterloo & Cambridge) markets in Kitchener Waterloo, Ontario. 

It’s not just KW – the commercial real estate (CRE) market is gearing up all over.  Let’s take a look at a few stories from the Canadian CRE world.

On Thursday, the New Brunswick Business Journal had a story about Kilam Properties Inc (listed on the TSX as KMP) looking to acquire up to $150 million in new properties this year. Kilam is a major owner of apartment buildings in Atlantic Canada, and is looking to potentially expand into areas including Kitchener Waterloo, Ontario

Fraser said the plan for Killam is to spend up to $150 million on acquisitions in each of the next five years.

The Halifax-based company is already one of the country’s largest residential landlords, with 118 apartment buildings in Atlantic Canada’s six major urban centres.

The company also runs 55 so-called manufactured home communities across Canada, with the majority of those trailer parks located in Ontario.

Overall, Killam owns and operates 18,150 units in 173 properties, representing total real estate assets of roughly $720 million.

But in 2009, the company’s pursuit of new properties came to a halt, largely because of the sagging economy.

On Wednesday, Fraser again said the company is examining the Toronto, Ottawa and Kitchener-Waterloo markets for buildings to pull under the Killam banner.

“We continue to see opportunities for Killam to grow in Ontario by focusing on high-quality properties, including newer buildings and more established properties in prime locations,” he said.

Thursday’s National Post has a story about $500 million worth of Real Estate Investment Trust (REIT) IPOs coming to market this year, including one by a landlord with significant holdings of apartment buildings in Kitchener Waterloo, Transglobe:

It’s been four years since the real estate investment trust sector last saw an initial public offering on the Toronto Stock Exchange but that is about to change, with IPOs worth about $500-million expected in coming weeks.

The Financial Post has learned TransGlobe Property Management will be the latest private company to go public, with an IPO estimated to be worth between $200-million to $250-million, in a deal led by CIBC World Markets. The TransGlobe deal will likely wait in the wings as the market consumes a $150-million IPO from Northwest Healthcare Properties that has already filed with regulators.

There are a couple of interesting tidbits about Transglobe throughout the article, including: “It’s not clear whether all of its buildings would be included because some of its properties may have too much leverage to be palatable for a REIT.” 

This has caused some people to say:

“We will sit down and listen to the story and see what happens, but these really are not of the quality I am looking for,” said Sandy McIntyre, chief investment officer of Sentry Select, about the current deals on the table. BPO Properties is another story. “I’d rather see a big industrial portfolio or office portfolio come forward. The BPO conversation could be used as an opportunity by Brookfield to sell down its position.”

Looking at why we’re seeing these offerings come to market now, and why the public will likely show alot of interest in them:

As it stands now the S&P/TSX 60 has no real-estate companies, something Mr. McIntyre figures could change.

“As we go into the next decade, real estate with yield is going to be a beneficiary.”

For now, the sector will have to be happy with some mid-priced initial public offerings.

The NorthWest deal, which includes 45 health care-related buildings, has been priced to yield 7.25% to 8.25%.

LeisureWorld is being priced in the 8%-to-9% range. Investment banking sources say both deals are attracting plenty of interest.

It’s not hard to understand why there would be demand for REIT product, when you consider the dearth of IPOs. Crombie REIT was the last TSX offering, in early 2006.

…

“I think real-estate investment trusts proved their worth in this dry spell. They kept their vacancy rates [low] and most of them continued their distribution,” said John O’Bryan, vice-chairman of CB Richard Ellis.

Also in the news:Tim Horton’s is renovating and expanding many of its stores, as well as adding new-format locations:

The iconic Ontario-based company known for its coffee, doughnuts and light meals says it expects 900 new stores of various formats by 2013.

They would include 600 stores in Canada where Tim Hortons already has more than 3,000 locations under its banner.

Up to 60 locations in Canada will be converted to include the Cold Stone Creamery concept in partnership with an American ice cream chain.

The restaurant operator says it plans to spend $180 million to $200 million this year to support its growth initiatives.

That’s a pretty big investment in commercial real estate infrastructure!

If you have questions or comments on the commercial real estate market, leave a comment below, or email me at Benjamin@BenjaminBach.com, or call me now at 519-772-4376

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A profile of Eastbridge in Kitchener Waterloo, Ontario

One of my favorite neighbourhoods in Kitchener Waterloo is Eastbridge. Located in the North East part of the city, there are parks, trails, beautiful homes (ranging from condos, semis and towns to luxury homes worth more than $1 million), shopping (Conestoga mall is close by), close to restaurants like Wildcraft, Ben Thahn, The Keg and more. It’s also close to the expressway, which means 401 access to Toronto is convenient to access. 

Friends (and clients) of ours live there, and I asked Darryl and Robin why they chose to buy a home in Eastbridge, as opposed to any of the other areas in KW.  Listen to what they had to say; they also discuss why they like investing in real estate vs other asset classes.

BONUS: Watch the video to find out what the best Thai restaurant in Kitchener Waterloo is:

Why we love living in Kitchener Waterloo’s Eastbridge area

The schools in the area are well respected and include:

Lester B Pearson Public School 520 Chesapeake Dr

St Luke Catholic Elementary School 550 Chesapeake Dr

Lexington Public School 431 Forestlawn Rd

KidsAbility School 500 Hallmark Dr

WRDSB Partners in Ed Adult Cont Ed

You can check out the Eastbridge Neighbourhood Association page here: http://www.eastbridge.info/

For more information on the area, or for a list of available homes and investment properties in the area, send me an email to “Benjamin AT BenjaminBach.com” or call me today at 519.772.4376

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Why we invest in Kitchener Waterloo Real Estate

Yesterday I had the chance to sit down with two of our clients, Dr Robin Walsh and Darryl Kraemer to discuss why they invest in Real Estate, as opposed to any of the other investment vehicles available, like stocks, mutual funds, commodities, gold etc. 

Press play to hear what they had to say:

Darryl and Robin have a great portfolio of single family residential (including condo units) & student rental properties in Kitchener Waterloo, Ontario -all tenanted & performing well. 

If you’re interested in starting to invest and building a diversified property portfolio like theirs over time, send me an email. I’d love to help you

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Own Investment condos? Look at the Home Renovation Tax Credit

Most people associate the Canadian government’s Home Renovation Tax Credit (or HRTC) with detached family homes and larger properties; rarely do they think about the investments they own, or if they do, the investment condos. 

What is the HRTC? 

In the government’s own words:

Under proposed changes, the HRTC is a non-refundable tax credit based on eligible expenditures incurred for work performed, or goods acquired, after January 27, 2009, and before February 1, 2010, under an agreement entered into after January 27, 2009. The HRTC can be claimed when filing your 2009 tax return.

The HRTC can be claimed for renovations and alterations of an enduring nature and that are integral to the eligible dwelling (such as your home or cottage) or the land that forms part of the eligible dwelling.

How is the HRTC calculated?

The 15% non-refundable tax credit can be claimed on eligible expenditures of more than $1,000 but not more than $10,000. The maximum tax credit that can be claimed to reduce your federal income tax is $1,350. However, if the total of your non-refundable tax credits is more than your federal income tax, you have no federal income tax to pay, and you will not receive a refund for the HRTC.

If you haven’t looked at how your ownership on Condominiums will benefit you come tax time, you should ask your accountant.  More info from the The Toronto Star here:

Condo owners can claim a portion of improvements made to their building between Jan. 27, 2009 and Feb. 1, 2010, as long as they were at least partially responsible for paying for the upgrades.

Here’s how it works:

Assuming each condo owner pays a monthly fee to a condo corporation, repairs or renovations completed and paid for with that money should count toward the HRTC. The condo corporation is simply paying for these goods and services on behalf of all of the unit owners.

Condo corporations are unable to claim the credit because it is available only to individuals, so it’s up to each person to claim his or her portion.

Therefore, on their 2009 taxes, condo owners can claim the credit for renovations to their own unit – similar to what would be done in a detached home, for example – as well as their share of any renovations to common areas paid for by the condo corporation.

This could include anything from new windows installed in your building to a redesigned lobby area or improved landscaping.

Add these shared costs with renovations you may have done to your individual unit (bathroom or kitchen upgrades, new fixtures, painting) and you could significantly increase your credit.

Canada Revenue Agency guidelines for condo owners indicate that improvements made to common areas will qualify if:

– You own your unit. Renters are out of luck, even if they pay similar monthly fees.

– "The expenses would be eligible expenses if the common areas were treated as an eligible dwelling" – if new furniture wouldn’t count in a detached home, it won’t count in a condo either.

– Your condo corporation has notified you of your share of the expenses.

As a reminder, the tax credit applies to renovation costs over $1,000 and under $10,000, so if you spent a few hundred dollars on your own unit and the condo corporation spent a few hundred more on your behalf, that may be the difference between getting a return or not.

Contact your condo corporation today and ask them for a report on your proportional share of work done to the complex. If you own several investment condos, your savings can be substantial. 

For more info on investing in a condo in Kitchener Waterloo, Ontario, contact me at 519.772.4376 or send me an email today

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What Student Rental apartment buildings can you buy in Waterloo?

…and what return will you get on your money by investing in these student properties?

This is something I’ve been asked a lot recently, especially with the news that CMHC is now back in the student rental financing game.

In this video, we look at a 180 bedroom property that an investor is considering near both Universities in Waterloo. It is brand new, in a great location, and fully leased at favorable rates.

If you’re interested in buying, selling or developing a student rental property in Kitchener Waterloo, I’d love to talk to you.  Call me at 519-772-4376 or email me for a complimentary no-obligation investment consultation

PS – Make sure you’re following our updates here http://twitter.com/BenjaminBach

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Waterloo Vacancy Among Canada’s Lowest

Waterloo’s vacancy rate is among the lowest among Canada’s real estate rental markets, according to a recent Canada Mortgage and Housing Corporation (CMHC) report (which we covered here: Vacancy rate in Waterloo falls to 1%), “thanks to a crush of high-tech workers and university students looking for short-term housing.” (via The Record)

The one-per-cent vacancy rate in Waterloo also means that city has the highest average rents in the region, according to the fall 2009 rental market report complied by Canada Mortgage and Housing. The data looks at the Kitchener census area, including all of Waterloo Region except Wilmot and Wellesley townships.

For example, (average) two-bedroom units go for $937 a month in Waterloo, compared with $835 in Kitchener, $850 in Cambridge and $709 in Woolwich and North Dumfries townships.

Nationally, the highest average rent for a two-bedroom apartment was $1,169 in Calgary, where the vacancy rate was 5.3 per cent. Toronto was second at $1,099, with a 3.1 per cent vacancy rate. The lowest nationally was $518 in Saguenay, Que., with a vacancy rate of 1.5 per cent.

“It’s more than the availability; it’s the cost of it,” said Trudy Beaulne, executive director of Kitchener-Waterloo Social Planning council.

High-tech workers and student housing are king in the city of Waterloo, creating a challenge for low-income families looking for options to live there. They may have to move to Kitchener to find an affordable apartment, she said.

“It’s different housing stock, too. If you’ve got a pretty high income, you have more choice . . . it’s not like if you’re on Ontario Works (social assistance).”

…

“[High Tech Workers] typically move to the area, rent for a year or two before they buy… you have a market where if they were in another area, they just buy a house.”

Kitchener is more of a balanced rental market, but there’s an “upscale pocket” growing downtown around the new satellite university. “It kind of mirrors Waterloo.”

In Cambridge, tenants are eager to rent within a few minutes drive of Highway 401 [emphasis added], because it makes for an easy commute to work in Mississauga. Move away from the freeway and the rental market is soft, Traschel said.

A one-per-cent vacancy rate in Waterloo doesn’t surprise Mike Belanger, director of residential services for students attending Wilfrid Laurier University.

That’s the usual fall vacancy rate for apartments to serve the 50,000 post-secondary students in Waterloo. The vacancy rate jumps to about eight per cent in mid-winter as students take out-of-town work placements. In summer, when school’s out, the student vacancy rate bounces to 30 per cent.

In the early 1980s, Belanger remembers student housing vacancy rates as low at 0.5 per cent. That student housing crisis eased long ago — just look at all the student lodging built along Columbia Street — but Belanger wonders if another crunch is looming.

As Laurier and the University of Waterloo continue to expand to help fight the recession, bank financing for new student housing projects has “dried up,” Belanger said.

“There is some anxiety if the universities grow and the private accommodation does not.”

The note about being close to the 401 in Cambridge is spot on.  We just bought, along with a number of our clients, in a new construction Cambridge development just off the 401, on Fisher Mills Rd (which turns into Maple Grove which turns into Sportsworld Dr and connects up with the Kitchener Expressway), and we’re seeing very healthy rents there (between $1250 and $1399 a  month plus utilities)

If you have any questions about the current conditions in the rental market or how you can take advantage of investment opportunities in Kitchener Waterloo & Cambridge, Ontario you can email me or call me at 519-772-4376.  You can also follow me on http://twitter.com/BenjaminBach for up to the minute updates

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Ottawa hints at tighter mortgage regulations

From the Globe & Mail today:

Hints by Finance Minister Jim Flaherty that Ottawa may tighten mortgage eligibility rules to avert a possible housing bubble sent ripples through the industry Monday, with analysts urging a cautious approach to avoid damaging the economy.

Mr. Flaherty told CTV’s Question Period that one thing the government will likely do is increase the minimum down payment on residential mortgages from 5 per cent “to a higher figure.”

The government may also reduce the amortization period from a maximum of 35 years “to something less,” he said.

…

The effect of any move to reduce the maximum amortization period would be difficult to judge. The last time that happened, when the period was reduced from 40 years to 35, “was probably not significant because not a lot of people were going to 40 and we hadn’t had it that long,” Mr. Siegle said.

Meanwhile, Mr. Tal took some comfort from the fact that Mr. Flaherty was not specific as to the size of the increase in down payment and reduction in amortization period the government was considering.

“The trend (on consumer debt) is not extremely positive but the situation is not alarming,” he said.

“I think they’re concerned about the next 12 months and where we will find ourselves a year from now. So they’re trying to be pre-emptive here and basically start to make sure the inflow of new business is of a higher quality.”

“Therefore I don’t expect this to be a huge increase (that would have) … an unreasonable and unnecessary impact.”

I’ve spoken to some other investors today who are a little annoyed that Flaherty isn’t speaking in specifics – i.e. raising minimum downpayments from 5% to 7,5% or 10%, or taking amortization terms from 35 to 30, or 25 – and I concur with them. I would like to see the government give some certainty when they start speaking about changing the rules for buying and investing in real estate, as opposed to speculating about possible changes.

If you are looking at a condo or home that is $200,000, a 5% downpayment is $10,000.  If the minimum downpayment required goes up to 7.5% or 10%, the minimum initial investment required would be $15,000 or $20,000 at 10%. 

If you are looking at buying real estate, whether to live in or as an investment to rent out, I recommend talking to your mortgage professional immediately to lock in loan terms.  Contact me by email or phone (519.772.4376) to discuss finding the right opportunity for you right now.

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Illegal Real Estate Investments in Kitchener Waterloo

What they are and how to avoid buying them & losing money

By and large, most of the investors we talk to about real estate opportunities in Waterloo Region want to invest in quality properties that they can own and profit from for the long term.   They don’t have to worry about buying an illegal rental property (well, as long as they are using the services of a professional REALTOR [like me!] who has experience in the local investment market they’re buying in); if this is you, this article will just be a reminder to you of why you want to do things above board.  If you might own one of these, or a dozen, pay attention!

A minority of the people we speak to are trying to ‘game the system,’ by fitting more rental units into a property than the city will allow, or by renting a unit legal for 3 lodgers (in town, you need a Lodging License if you’re renting most units out to 3+ non related people. Typical in the Student Rental market, for properties 3 units and under) to 5 etc.  When I explain to them the danger they are putting themselves in, they typically assure me that they ‘know what they’re doing’ and that ‘this is how all the big guys got started’ or some derivation of that theme.

In this video, I lay out what an illegal rental property is, what to do if you have one, and the consequences you are exposing yourself too if you continue to operate illegal real estate properties.

If you do have a property in Kitchener Waterloo or surrounding area that you are unsure of the legality, contact me at 519-772-4376 or email me, or find me on http://Twitter.com/BenjaminBach or http://Facebook.com/KitchenerWaterloo

Operating illegal rental properties means you are likely violating the terms of your mortgage covenant, as well as the terms of your insurance.  In Waterloo, for example, there are hefty fines that can be levied against owners – even without an incident to prompt this (i.e. if your tenant, or any member of the public tips the City off, you can face a large fine). 

If you are violating the terms of your insurance (i.e. your property is a legal duplex, and insured as a duplex.  You ‘were smart’ and converted the basement to a third separate unit, and now rent out the property to three different tenant groups.) and there is ever an insurance claim (fire, flood etc), your insurance company is likely going to discover that you are running the property contrary to what they believed when they insured it, and they’ll probably stick you with the bill.  No fun!  The consequences can be even worse – a claim against you that isn’t covered by your insurance can bankrupt many people – dont let this be you!

When in doubt, and before you invest your hard earned cash in a property, consult the professionals.  A lawyer, a REALTOR who deals with investments, the necessary people in Zoning or By-Law enforcement at the City or town you’re investing in etc. Better safe than sorry, and finding out before you buy is always better than finding out there is a problem once you own the place.

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Understanding Investment (and Commercial) Real Estate Terms

Ever heard real estate investors talking about NOI, the gross, Cash on Cash return or comparing caps, and not known what they were talking about? In this video, I explain some of the terms investors use when looking at investment opportunities.  Even if you’re shopping outside of Kitchener Waterloo, understanding these terms will help you be a more educated investor.

 

Click the video above to learn about Net Operating Income, Gross Rental Income, Operating Expenses, Cap (short for Capitalization) Rates and more

What terms would you like explained? Let me know in the comments, by sending me a reply on twitter (@benjaminbach), or via email, Benjamin[AT]BenjaminBach[DOT]com

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