Orangeville , Ontario · Member since 2017 · 10 posts · 0 votes
Hi There,
I'm planning on offering on a small apartment building in rural Ontario. The rents are very low and I want to pay people to leave. Has anyone had experience with this in Ontario? What is a reasonable amount to offer. The rents are so low that I think it would be worth $10,000 to pay them to leave. Has anyone had to give a tenant this much? Is that much normal?
I have paid tenants to leave, some will jump at 1 months rent, some don't want to budge at 1 year. I would start negotiations with those that seem the most likely to leave at a lower rate in case the tenants begin to talk.
Some questions that would help everyone out would be.
Current Rent
Target Rent
# of units
Purchase Price
Cap Rate being purchased at
Cap Rate you could sell at
Of course you may chose to keep that all confidential which is definitely reasonable, but if it is possible to share that info, it might be able to help people kind of get a better picture of things in terms of a dollar amount.
@Shawn Allen1 months rent would be great! I thought you have to give 3-6 months now based on the new landlord tenant laws? Have you been successful offering 1 months rent? @Jay Gill do you mean 1 years worth of rent? Do you have an example? Eg. if the rent was $1000 you offered $12,000 and someone said no???
The current rents range from $750-$950 average being $828. The market rents with some renos should be $1300 per unit.
8 units
$700,000 purchase price. Cap rate is around 5.8% but its rural so it can vary.
Based on the new income (66% higher) keeping expenses similar the building should be worth 1.3 million.
The risk is being able to get tenants out. There are a couple tenants that have been there for a few years and one thats been there for 25 years.
Yes I meant 1 years worth of rent! The tenant was absolutely adamant on staying no matter what and they treated the whole situation very very personal. Others simply don't care, they'll take the offer of a couple months rent and leave.
I don't think the new ONtario rules apply here as you're not asking them to leave for personal use, so it's up to you and your tenant to decide what's fair.
Your #'s look pretty good, I rarely find a true cap rate around 6% so if that area goes for around that cap rate you're already in good shape.
Even if a few of the tenants don't agree to move right away at 5.8% cap your're still in pretty good shape and you can slowly work on it. If you do have to get aggressive with your cash for keys offers it's still worth it as your upside is very high.
The way I see it is if you can get an extra $450/mo per unit that's $5400 in your first year paid back, you can recoup your costs very very quickly. The increased value is a complete bonus. If you're confident there's demand in the area and you can sell at around 1.3m or maybe refinance if you ever decided to, I'd get aggressive if needed. Start off low and renovate as they leave and maybe keep increasing the offer amounts if people stop leaving.
This is a great find, if you find any more like this shoot me a message!