Tag: real estate investing

All About Live-Work Properties

Posted on October 23rd, 2019

Homeownership can be a challenge in the GTA.  Home prices coupled with the desire to grow your business with a commercial space can add to that financial stress.  While some people can find solutions with co-working and shared space opportunities, others want to offer their customers a dedicated space.  Purchasing a live-work property gives entrepreneurs and small business owners the flexibility of having both a residential and commercial space in one.  While this option can be appealing, there are some things to keep in mind prior to starting your search:

1) Availability: there are limited options in the GTA for live-work units.  Working with a Realtor who can source different options can make your search easier.  However, you may have to sacrifice your ideal location in order to get into the right space.  Pre-construction condo projects are a good place to start as some developers offer live-work units on the ground level of their buildings.  Tip for Realtors: when looking for these types of spaces for your clients, a keyword search for “live work” in the Client Remarks or Brokerage Remarks of MLS will help find a list of opportunities.
2) Financing: not all lenders will finance mix-use properties. “Major banks won’t fund these properties under their residential financing policies.” says John Sinnott, mortgage broker with Dominion Lending Centres.  “For a property to be financed residentially, it cannot have more than 20% space allocated commercially. If it does, they consider it a commercial deal with different rates and policies.” continues Mr. Sinnott.  CMHC and comparable insurers will only insure spaces with less than 25% commercial space. Lucy Gagliardi, a mortgage broker with OZ Capital suggests: “have your income, down payment and current mortgage statement and property tax bill ready to give to your mortgage broker so that they can determine accurate figures for you before you go out looking.”  We agree – there’s no sense starting a search if you don’t have a sufficient down payment or you are unable to comfortably afford a property like this.
 
3) Property Taxes: the property taxes on live-work properties are higher, however they are assessed depending on the ratio of the space.  Therefore,  you would only pay the commercial tax rate for your commercial square footage. Also, all of the utilities are charged at a commercial rate and are not flexible depending on residential space.
4) Rules and Regulations: many live-work properties are condominium units.  Each condominium corporation has a set of rules regarding the use of all of the units within the building – including the live-work units.  Restrictions regarding the type of business, hours of operation, ability to make aesthetic changes to the unit (inside or out) or add signage could all impact your ability to run your business.  Hiring a real estate lawyer to review these rules along with the entire status certificate for the condominium, will ensure the property you are considering makes sense for you and your business.
5) Zoning: all commercial units are zoned for certain uses.  Together with your Realtor, ensuring that the permitted use of the commercial space will work for your business is essential.
6) Legal: Samuel Kazen, real estate lawyer with Hamburg Olson Kazen Law Professional Corporation, offers the following advice: “You don’t want to be subsidizing any purely residential units in the same building. If the property is in a building that has purely residential units, it would be wise to compare the common expenses you would be paying for a live-work unit to one of the residential units of comparable size. If you would be paying a lot more (as is often the case), then you might want to look elsewhere.”  Further, he suggests to “make sure whatever entity you are using to purchase the property is an HST registrant. Otherwise, the vendor would be required to remit HST and would seek to collect HST from you.”  Finally, “if the vendor wishes to structure the sale as a sale of shares to his/her corporation, make sure you obtain a full indemnity against any liability that may be associated with that corporation.”
7) Investment Opportunity: since these types of properties are few and far between, purchasing one as an investment could be a good way to get into the real estate investment world.  Your Realtor can guide you in terms of the rental opportunity available and can better direct you towards the properties that will yield you a good return.  Location (as with any property) is key and ensuring you are aware of the rules associated with leasing these units is important as well.
To get you started, here is a list of live-work opportunities throughout the GTA:
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Celebrity Real Estate Investors and What We Can Learn From Them

Posted on July 26th, 2017

What to do with all that money?  It must be a tough challenge to face, watching the millions of dollars roll in and being left to decide where to put it.  Don’t you wish you had that problem?

Yes, we are envious but also intrigued how celebrities invest their never-ending cash flow.   While some celebs like Robert DeNiro and Justin Timberlake invest in restaurants, other stars such as Jay-Z and Ellen DeGeneres are drawn to tech companies.  Real estate is also an investment choice for many of Hollywood’s rich and famous.  Take a look at these celebrity real estate investors:

ELLEN DEGENERES:

Ellen loves to diversify her investments.  In addition to her interest in funding tech start-ups, she also does quite well in the real estate world.  According to the Los Angeles Times, Ellen has made a profit on the same home not once but twice!  She sold her Hollywood home for $10 million in 2007, then decided to buy it back in 2014 for a lower price tag of $8.75 million.  She then sold it a second time for $9.9 million.

KEVIN JAMES:

King of Queens star Kevin James sold his oceanfront mansion in Florida for a whopping $7.53 million profit.  He purchased the home in 2012 for $18.85 million and sold it in 2016 for $26.38 million!  This 3-acre home has eight bedrooms, nine bathrooms, seven fireplaces and a 10-car garage.

 

Kevin James’ Home – Photo: realtor.com

LEONARDO DICAPRIO:

This A-list actor owns numerous properties across the United States including apartments in Manhattan, a Palm Springs vacation home and a mansion in The Hamptons.  According to Mansion Global, you can rent his Palm Springs estate home with six bedrooms and seven-and-a-half bathrooms for just $3,750 per night (subject to a two night minimum of course).

 

Photo: theloop.ca

PATRICK DEMPSEY:

Formerly known as McDreamy on the hit show, Grey’s Anatomy, Dempsey sold his Malibu home for an $8 million profit – almost double the purchase price.  Who knew that McDreamy could make a McFortune on his real estate deals?

 

Photo: Zillow

JENNIFER ANISTON

After some extensive renovations to her Beverly Hills mansion, Aniston sold her home in 2011 for a whopping $35 million.  She purchased it in 2006 for $13.5 million.

 

Photo: Architectural Digest

 

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While these celebrities can toss around a few million dollars here and there without much worry for appreciation, we can still learn from their investment tactics:

1. Location, Location, Location: Celebrities aren’t purchasing homes in random parts of the USA, they are buying in the areas everyone wants to live. Safe neighbourhoods close to restaurants, shopping, transit and easily walkable.  You will never go wrong purchasing a home in a neighbourhood that is in high demand.  Sure, you will pay a premium but that home will keep appreciating.  In Toronto, neighbourhoods such as Bloor West Village, Roncesvalles, High Park, Leslieville, Davisville – these are neighbourhoods that will always be a great investment.  Keep in mind that you can always change the look of a home but never its location.

2. Don’t Take Improvements Too Far: Let’s take a page out of 50 cent’s book. He purchased a 21-bedroom, 25-bathroom mammoth party pad in Farmington CT for $4.1 million in 2003.  He pimped the place out to the tune of $6 million to $10 million in additional expense.  Since 2007, he has tried to sell the home, starting at a list price of $18.5 million.  In 2016, facing bankruptcy, 50 cent was forced to reduce the listing price to $5,995,000.  The most interest he’s received, according to Realtor.com, is from a developer looking to covert the home into an assisted-living facility, minus the stripper poles of course!

50 Cent’s “Over-Improved House”

3. When In Doubt, Rent: Huh? A real estate broker advising someone to rent?  Sometimes it makes more sense!  New to the city?  Not sure where your job is going to take you? Going through a divorce? Not sure about your current relationship?  Consider renting until you are more comfortable with your life’s journey.  In 2011 according to Trulia.com, Katy Perry bought a home with then husband Russell Brand for $6.5 million.  The couple split up before moving in and Perry ended up selling the home at a loss ($5.65 million). Don’t worry – you are in good company.  Many celebrities such as Rihanna, the Biebs (aka Justin Bieber), Lady Gaga and basketball star Ray Allen prefer to rent as well.

4. We All Start Somewhere: before becoming the Terminator and the Governor of California, Arnold Schwarzenegger used his body sculpting money to invest in real estate. He started small and eventually built up his wealth in order to focus on his acting passion.  His first purchase was a six-unit apartment building in New York for $38,000 in 1971.  Over time, he was able to invest in much larger purchases such as a $450,000 Santa Monica building, which he later sold for $2.3 million.

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Why Real Estate Escalation Clauses Should Be Banned

Posted on June 8th, 2017

If bidding wars aren’t enough to turn buyers right off of the home purchase process, the introduction of an ‘escalation clause’ will definitely make matters worse. This clause is downright confusing and currently, there aren’t any rules and regulations beyond some warnings from the industry on how this clause should be used. An escalation clause is used when a buyer agrees to increase their bid by a certain amount over the highest bidder when bidding on a particular home. This amount can be capped at a certain price if the buyer chooses.

In our opinion, this clause is dangerous for many reasons:

  1. This increases the risk of unethical behaviour by realtors. If Agent Joe knows that buyer Paul is coming in with a $600,000 offer with an escalation clause of $5,000 over the highest bidder up to a maximum of $700,000, and if Agent Joe is extremely unethical, he could get bring in a fake offer to push buyer Paul to his maximum price.
  2. Due to the lack of rules surrounding this clause from The Real Estate Council of Ontario (RECO), what happens if an agent isn’t aware of the details of how to use this clause but uses it anyway? This agent might not know you can put a cap on the price. As a result, the selling agent can effectively force a buyer into purchasing a home that is likely way over his or her budget.
  3. What happens if two or three or more buyers use an escalation clause? This is a scary situation that would very quickly inflate the selling price of a home to each buyer’s maximum price limit (if they even set one).
  4. What kind of disclosure is needed to other buyers when a buyer uses an escalation clause? Again, RECO doesn’t have any set rules regarding this clause so other buyers would have no idea that this clause is in effect. Let’s say selling Agent Joe has two offers on the home – one from Buyer Paul at $550,000 using an escalation clause of increasing the price by $2,000 over the highest bidder and another from Buyer Sally at $600,000 without an escalation clause. Buyer Paul’s offer has now been increased to $602,000 and Agent Joe will likely go back to Buyer Sally and let her know that the offers are very close and ask if she’d like to improve her offer. Buyer Sally agrees to increase her offer to $625,000 and now Buyer Paul’s offer has automatically increased to $627,000. Again, Agent Joe will likely tell Buyer Sally that the offers are very close and if she really likes the home, she might decide to increase her offer again, which means Buyer Paul is going up $2,000 more over and above Sally’s improved offer. Buyers can quickly lose control within the offer process and may regret their decision.

What about sellers? You might think that this clause will benefit sellers but if buyers are pushed to their limit without having any control within the offer process, they might regret their decision and decide not to proceed with the purchase (even if they need to forego their deposit).  This could leave a seller in a very difficult position. Not only is the home put back on the market but if the seller has purchased a new home, financing for this new home is likely hinging on the sale of the current home. It’s a scary position to be facing and we would never want to put a seller in a state of uncertainty that this type of situation could create.

What’s the solution? First, let’s ban escalation clauses altogether. Next, why not consider an open and transparent auction model? This method of selling your home benefits both buyers and sellers for various reasons. Buyers have full control over how high to bid and are fully aware of the offer prices of other bidders at all times. Sellers can feel confident knowing they maximized the sale price of their home without worrying about a buyer having second thoughts over the price they paid.

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