VIDEO TRANSCRIPT: Let’s talk about Residential Real Estate Investing in Edmonton.
Real Estate Investing in Edmonton – Tips for the Edmonton Real Estate Market
First, I’ll contact my appraiser, my mortgage broker, my realtor, and we’ll make sure that it will make financial sense to you before you even make an offer. So we’re being proactive, instead of being reactive. That’s number one and that’s the biggest thing.
When I was looking for a realtor myself, I joined Green Real Estate Investment Networking, they always said, “Make sure that your realtor is also an investor, because then they’re going to understand.” You can read all the cheesy Real Estate Investing books you want in the library, buy them at Chapters, but nothing beats real world experience, which I’ve done myself. And my hope is that by sharing my experiences, both good and bad, positive and negative, it will help you in your journey.
Any realtor or any investor who says they’ve never made a mistake or had a setback, isn’t telling you the truth. And also a lot of it is just fishing. Let’s be real, a lot of these guys, they’ll send you a book for five bucks. Sounds all great and good, and then before you know it they’re cold calling you because they’ve got your email address from when you did the order, and now they want you to come take some “Real Estate Investing” course for three or four grand to get their secrets, right? There are no secrets, it’s safeguards. There’s little hints, there’s things that’ll stack the deck in your favor, which is what I’m going to share with you now, but there isn’t some sort of magical conglomerate of rules when it comes to real estate investing. Most of it is pretty-much common sense, right? I’m going to help you implement some of these rules and hit it hard, tell you what to do, what not to do, and hopefully you will gain something out of this and take it with you and build some trust. And when you need your innovations, you need a sweet develop, you’re going to be calling us.
Our website is www.bwpconstructionedmonton.com. I know it’s a mouthful!
So benefits of an income suite. Typically we have three customers…
- We have the investor who doesn’t live on site whatsoever, they’ll typically buy a bungalow, they’ll develop the basement into a legal suite. We will, they’ll hire us to do it and then we’ll renovate the main floor. So you have two separate suites, two separate entrances, and you’ll probably rent out the main floor for $1400, basement for $1200 rent that double detached garage with $200, covers your bills and then some. You’re going to get cashflow, you’re going to make probably $400 or $500 a week, even $300 or $400. As long as they’re making some money, you’re happy, because in 25 years that sucker is paid for and you’re laughing. That’s the first client.
- Second client, they will live there, live on site. They be in the basement renting out the main floor.
- Or they’ll be on the main floor, renting out the basement. That’s third client.
And either way it’s a win-win scenario. You can’t go wrong. It’s great for income help. Things happen, people lose their work. If you’re living in the basement and you’re renting out your main floor, that’s basically covering your bills, covering your mortgage. So at least it’s a safeguard for the worst case scenario.
And the other thing, reappraisal amounts and equity. So when we do these suites, it increases your resale value huge. It’s massive. When I do my own… I will go put down my down payment, my 20%, I’ll do my reno, then at the end when I’m done, I refinance it. I borrow that equity. And typically when I borrow that equity, when I’m done, that will actually reimburse my costs for my down payment and my reno. And then you just roll it into the next one and just keep it going.
Eventually you hit five mortgages, then you’ve got to do commercial lending, it’s a whole other ballgame. That’s all I need, four or five properties, up and downs, eight or 10 doors, I’m happy. That’s my retirement savings, because I don’t have a pension like anybody else. I’m self employed, so I got to make my own way. So in 25 years when those suckers are paid for and I’m ready to retire, that’s what I’m going to live off of. You’ll be able to live off the rental income. Maybe I’ll sell, don’t know, but we’ll see. So I highly, highly recommend these legal suites to you.
Do It Legally!
Also do legal, don’t chintz out, don’t be a slumlord and put some crappy kitchen in a basement. You’re going to get burned. The City of Edmonton actually has a group of people that work downtown, they will go on Kijiji or Rent Finder, they’ll see your ad, your address will be on there. They will cross reference it with their system, they see that you don’t have a legal suite, they’ll serve you and notice. And in that notice they’ll say, “Hey, we’re going to conduct a secondary inspection in 90 days.”, whatever it is, 120, and you’ve got to either legalize this suite, or decommission it. Which basically means get the appliances out of there, the 220 in the wall for your stove, you got to cap it, put a plate over it. So they’re on it. They are on it. And the thing is, you don’t get the resale value if you have a, they say a legal security, but a noncompliance suite, right? Do it legal, spend the money, do it right. It’ll pay dividends, because you’re going to have that rental income, you can sleep at night, it meets fire code, you don’t have to worry about lawsuits, and the biggest thing is resale value. If you ever want to flip that thing, sell it, you’re going to get your money back a few times over.
Flip? Or Buy and Hold?
Now flip? Or buy and hold? Personally, again, I like to buy and hold, because I’m going to get into the longterm game. Some people prefer flipping, that works too. Investors, they don’t like their money, typically, tied up for a long period of time. If it’s sitting stagnant, it’s not helping them, they’re not making anything. So some of them, they just want to pull it out, their initial investment, pull their profit, and then roll it over into the next job. That’s fine too. Whatever works for you.
My humble opinion, it’s better to hold it right now longterm because the economy resale values aren’t great now. You get for a properly done legal basement suite, and the main floor reno, and all the exterior done up proper, new shingles, all that, you’re looking at I’d say 410, 420. Typically. For three bedroom up two bedroom down, in good times it’d be more like 440, 450, 460. Plus you got to pay your realtor. So in my opinion, you’re better to hold it, pay down that mortgage… in four or five years, you’ll be in a way better position to sell, and you’ll make more money. Your mortgage will be paid down further, you’ll have more money in your jeans. So my take, you do what you, want completely up to you. I’m just full disclosure.
Now do you want it turn key property, or do you want to buy a fixer upper and hire us to do a major innovation? Obviously myself, for my own stuff, I want grandma’s, I want an original 1960s bungalow. If there’s some built in value that no one else sees, it’s there but it’s not all that obvious. Maybe they replaced the windows and put in vinyl windows. They’ve got newer appliances, those are huge cost savings. So if I can find a house like that, I’m laughing. Everything else I want original, because I’m going to be essentially gutting it and redoing it. New flooring, new doors, baseboards, casings, sometimes we’ve got to re-texture the ceilings because if they smoked in it and it’s frigging yellow now, new cabinets, countertops, tile back splash. Basically we’re redoing it. So I don’t want to pay for value that isn’t there, because I’m just going to rip it out anyway. So I want original. So that’s what I look for.
Garage Suite, or Basement Suite?
Garage suite, or basement suite? A lot of builders now, because the city is doing such a good job of, I wouldn’t say pushing, of allowing people to do these basement suites and garage suites, the City of Edmonton, specifically, realized there’s a need for affordable housing. They would rather keep it in an area that’s already developed, because you already have the infrastructure, the public transit, the rec centers, the roads, the services. As the city sprawls out and expands and plops up around the Henday. That costs everybody money. That costs the city money. More roads to build, more roads to maintain. So they would rather keep it centralized and within the city. So that being said, they even have a cornerstone grant program where you can apply for up to $25,000 reimbursement for the cost of your renovation. There’s some stipulations (you can check that on the City of Edmonton website), you have to live there for five years, you have to rent a medium or lower, charge a medium or lower amount of rent per month. So there are some stipulations, you’ve got to submit paperwork, but it’s still worth it. Anyway, moving on.
So there’s a real high demand and the city is working with builders and working with people to get these suites done, which is great. There’s garage suites, there’s basement suites. Rosenthal Griesbach was the first major development I know that was zoned to do garage suites.
The garage suite costs quite a bit more. It’s about 120 grand and up, that’s for a new build, if the builder’s doing it while they’re building your home. If it’s an infill, or an existing home, and you’re adding the garage suite after the fact, it’ll actually be a little bit more. Biggest thing, we’ve got to chew up that yard, we got to get a secondary gas line in there, water, sewer, power. Gets expensive. Pour the foundation, frame it, shingles, all the interior work, it’s not cheap to do. And typically for a garage suite, you might get $150 – $200 more in rent, not that much more. Then it costs you $120K right. If you do… let’s suppose you’re buying a 2000 square foot, 1800 square foot, two story home, your basement’s 900 square foot, maybe 800, it’s going to cost you $50 – $60 grand for your builder to do that basement suite while they build the home, right. Half as much, 60 grand versus 120. You rent out the basement for 900, or you rent out the grad for 1100, right? I would take the basement suite all day long.
Only thing, when you do that basement suite, make sure they do proper insulation and resilient channel. So they put… or us, or whoever you’re hiring… if it’s a new build, honestly I’ll be straight with you, get your builder to do it, they’re there anyway. Probably cost you the same. It’s easier to do it while you’re building the whole home, right. If it’s after the fact, call us, we’ll take care of you. But you put your batt insulation, doesn’t have to be rock salt because that’s more expensive, just a pink batt soundproofing insulation up in your floor joists. Except the return areas, your return air areas, don’t do that because then your furnace won’t be able to pull any air.
And then you put resilient channel. You strap your floor joists, so if your floor joists are running front to back, you strap your resilient channel left to right, and then you drywall. Half inch drywall’s fine, you don’t need to do five eights. You don’t need to do two layers either. They do that in apartment buildings, you don’t need to do it in single family. So, that’s how you do that. So make sure you spend the money and do that if you are going to have a basement suite no matter what, highly recommend it. Because there’s no going back after the fact. If you chintz out, try to save some money, just going to bite you in the end.
Creative Investment Deals
Now the other thing we do, we do creative deals. So typically your traditional draw renovation will go in stages as construction progresses. So the way I do it, I get a 25% deposit, we go apply for permits, get a bin on site, do our demo, get the draftsman and do the drawings, yada yada, yada. So we do 25% deposit, 25% after all of our rough-ins pass. So after a plumbing, heating and electrical passes, another 25% due. After drywall taping and texture is done 25, and at the end after a final occupancy’s done and everything’s signed off, 25. That’s our 100%.
The benefit with us, we know what it’s like being investors, you don’t always have the cash. When you can’t always keep up like rapid fire as things come. So we’re willing to work with people. What we sometimes do, we do joint ventures. I’ve done a couple of joint ventures before clients in the past. Basically they’ll float the costs and at the end we split it 50/50. This way they’re not out of pocket during the construction process. Also we do back loaded reno’s. So, customer will come to me say, “Hey, I need a reno done.”. We’ll crunch the numbers, figure out what the after-reno-value is, figure out what they can pull when they reappraise it and pull the equity out. So let’s assume a 1000 square foot bungalow, say they’re here for $260, they go do a reno, we’ll actually do it for cost. They just basically have to pay for our costs.
So let’s assume $250 K and then they have to pay for their holding costs, their renovation, the trades, all that sort of stuff, just going from point a to point B. Let’s say they’re in $350 K, what we’ll do is at the end when it gets reappraised and it’s worth $460 K or $470 K, they can borrow up to 80% of that with a traditional lender. So off of that, whatever it reappraises at, they’ll pay us that or a percentage of that. Depending on what the numbers are. We work it backwards, run the numbers, come up with a deal. So that way there’s no markup. And again, I can do stuff cheaper than they can, or than most other contractors can, because I get wholesale pricing. So anyway, you can ask us about our creative deals and how we want to work things with you.
Real Estate Investment Negotiation
Negotiation’s another thing, when you’re going out and negotiating on these contracts, think with your head. Don’t lead with your heart. Don’t try to put a square peg in a round hole. Rain has a great method, what they do is they’ll take your projected income every month from our rental property, they’ll times it by 12. So you get your annual rental income off of the property, then they’ll divide it by the purchase price. If it’s 0.08 or higher, it’s a buy if it’s lower, walk away. And that’s what I like, it’s black and white. Either it’s good or it’s not. So, that really simplifies things. So if you can use that to your benefit, do it. And again, don’t take things personally, think with your head. Don’t get emotional, or don’t make it a prideful thing where you have to win this negotiation if there’s someone else involved, or you got to get this place.
Right now, it’s a buyer’s market and there’s lots of stuff out there, lots of inventory. Even if you get four or five people say, “Get out of here with your offers.”. Eventually you’re going to get someone that’ll hit on it. So don’t get impatient and don’t get emotional. That’s the best advice I can give you.
In closing, again like I said, we’re not like every other contractor out there. We know the deal start to finish, and we can put you in touch with the professionals that we know and that we work with and trust 100% from start to finish. They’ll make sure you’re looked after and we want you to get off on the right foot with real estate investing in Edmonton, because if that first one goes well, you’re going to have more work for us down the road and we want to see you do well.
So anyway, get in touch with us. Our number is 780-233-4713 and our website is www.bwpconstructionedmonton.com. Again, it’s Built With Pride Construction, and wish you all the best. Happy investing and if we can be of any help, you just let us know. Cheers!