Finding my first deal in SW Ontario

8 Replies

Hey BP,

I'm on the hunt for my first investment property.  Although I own one rental, it was originally our main residence and not intended to be a rental.  I am focused on SFRs or small MFRs, particularly in the Windsor, Niagara, and Kitchener-Waterloo regions.

I wanted to create a thread to contain all the questions that I've been having, and to run some numbers by the community for analysis and recommendations.  If a good deal presents itself during the course of this thread, I would be open on going in on the project with a partner with more experience.  I have time, energy, and capital that I can commit, but lack the experience.

I'll get it started with a few very basic questions that I have.

1. When a property is listed on the MLS with a realtor, is it even possible to try to contact the owner directly to negotiate a deal without realtor commissions, or is that property locked up to the sellers agent? Would you need to wait for this listing to expire to get around using realtors? How do you know when this expires?

2. Can I use RSP or TFSA money to invest in Canadian real estate, similar to what I've read about Americans using IRA money?

3.  I recently reached out to my current mortgage lender to see what I can get in terms of a line of credit, based on my current equity and home value.  They told me they would give me $28k, at prime + 8.  I feel that this money is very dangerous for me to touch for a long term buy and hold.  I have not looked at other financing options yet, because I don't know how much money I need yet, nor do I want the credit inquiries hitting my credit report.  Should I line up my financing first, or wait until I have a deal in front of me?  I do have cash as well.

Here are a few types of properties that I am l looking at:

http://www.realtor.ca/PropertyDetails.aspx?Propert...

http://www.kijiji.ca/v-house-for-sale/windsor-area-on/under-50k-good-central-windsor-area-warren-rutgers/1030920769?enableSearchNavigationFlag=true

My thought process would be to:

1.  Call the realtors and visit the houses, to get a good idea of the area, and a feeling for the property.  Discuss possible seller motivations, how long the properties have been listed for, and identify if the sellers want out ASAP and get a feel for the price they'd be willing to go to.  I consider myself very apt at negotiation, and am not as much concerned about my capability to get the right price.

2.  Understanding what the rehab costs will be.  Bringing in a trusted contractor or two, to estimate the rehab costs to get the unit into good rentable condition.  I want my tenants to be proud of their home, and since I plan to hold these properties long term, things like installing forced air, tankless water heaters, etc, are important to me.  I consider this area my weakest.  I can personally do demo work, roofing, and painting, but struggle with small handyman fixes, trim, plumbing, electrical, stuff like that.

3.  Researching comparable rents in the area.  Get a good understanding of what this property should rent for once it's fixed up.

4.  Setting my "number", and going back to the realtor to negotiate.  Be willing to walk away if we can't come to an agreement, but use the occasion to let them know what I am looking for, and to think of me if they come across something else.

5.  Pull the trigger! 

6.  Make the improvements, get the property tenanted, and refinance to pull my cash out for deal #2?  I'd like to keep this thread about closing the first deal rather than getting into screening tenants and managing the property, so I will end here.

All suggestions are welcome.  Thanks,

Tyler

@Tyler McKaig  

1) When a property is listed with an agent, the vendor has a contract with that agent to represent the sale of the property.   If you contact the vendor directly, s/he is obligated to refer you to the agent.  Even if the vendor was someone you knew and the two of you worked out a deal, the agent would still process the paperwork and get a commission.

2) Yes and No.  A registered account cannot hold real property.  That said, a self-directed registered account can make arms-length loans/notes and take mortgages on properties.  There are few brokerages/banks/credit unions who still offer this feature with registered accounts  - the Big-5 decided it was not profitable for them and have all discontinued their offerings of this service.

3) Is your mortgage with a 'B' lender?  A secured HELoC on your primary residence should come with a floating rate of prime +0.5 - 1.5% (rate pending your overall financial fitness).

In your list of steps I would insert 0.5: Find a knowledgable and experienced attorney who practices real estate law ... ask around with other local investors and realtors for references and interview them to find a 'fit'.

It's been a while...

I run several websites to find motivated sellers in Niagara. It is difficult to find good properties under market value in many areas due to the onslaught of flipping shows and everyone thinking they are the next house flipping genius :-(, but if you watch MLS and act quickly going in with few conditions you can usually get them under contract at good prices. Bank sales have been a big source of undervalued or distressed properties for us to date.

As to the arms-length mortgage that is how we secure a lot of our private funding for our flips. I am often surprised how little people know about this area and for those investing their retirement savings into non producing investments it's an amazing way to get high single and double digit returns without crazy BS fees. 

There is however a non-arms length mortgage through Canadian Western Trust that I have been looking into for investors who want to buy and sell real estate with their own RRSP and TSFA's. HELOC'S are some of the best ways I have seen to get low interest money without repayment penalties that mortgages have. We have investors that borrow on their home equity at 3-4% and lend it to us at 8-10%...it's a win win.

I'll be in touch with you Tyler...happy to help if I can!

@Dave Vogt  

Good to see you back. 

I've been writing seconds from and SDRSP at CWT for a bit now.   CWT or Olympia Trust are probably your best candidates (out of the four who remain) for holding arms-length mortgages in registered accounts.

Originally posted by @Roy N. :

@Tyler McKaig 

1) When a property is listed with an agent, the vendor has a contract with that agent to represent the sale of the property.   If you contact the vendor directly, s/he is obligated to refer you to the agent.  Even if the vendor was someone you knew and the two of you worked out a deal, the agent would still process the paperwork and get a commission.

2) Yes and No.  A registered account cannot hold real property.  That said, a self-directed registered account can make arms-length loans/notes and take mortgages on properties.  There are few brokerages/banks/credit unions who still offer this feature with registered accounts  - the Big-5 decided it was not profitable for them and have all discontinued their offerings of this service.

3) Is your mortgage with a 'B' lender?  A secured HELoC on your primary residence should come with a floating rate of prime +0.5 - 1.5% (rate pending your overall financial fitness).

In your list of steps I would insert 0.5: Find a knowledgable and experienced attorney who practices real estate law ... ask around with other local investors and realtors for references and interview them to find a 'fit'.

Thanks Roy for the insight, I will look into different options to self-direct my RSP to use some of the cash to fund a deal, if I need it.

My mortgage is with one of the big 5.  I am not familiar with Heloc loans, so I will do some googling and consider this strategy.

I spoke to the realtor for the first property I linked to above.  He told me that an offer was made and accepted, and the deal is pending an inspection next Friday.  I had a feeling that house would go quickly..

Thanks,

Tyler

@Dave Vogt  Thanks for chiming in, and the insight on the financing strategies you use.

As for the MLS, what is your experience with finding deals before they reach the MLS? Is there a big sub-culture of "we buy houses for cash" in Ontario? Around my circles, I would say almost everyone would just seek a real estate agent to list on the MLS.. Do a lot of the "good deals" get taken before being listed?

Originally posted by @Tyler McKaig :

Thanks Roy for the insight, I will look into different options to self-direct my RSP to use some of the cash to fund a deal, if I need it.

Tyler:

Your registered plan cannot lend funds against your {rental} properties.  The only non-arms length mortgage it can hold is on your personal residence ... and there is enough overhead that it often does not make sense.

However, you could hold first or second mortgages for folks like Dave who are flipping houses and looking to borrow funds short term (<= 1yr - 18mths) or another buy-n-hold investor who's looking for a first mortgage for 1-3 years while s/he forces appreciation.

Originally posted by @Tyler McKaig :

@Dave Vogt  Thanks for chiming in, and the insight on the financing strategies you use.

As for the MLS, what is your experience with finding deals before they reach the MLS? Is there a big sub-culture of "we buy houses for cash" in Ontario? Around my circles, I would say almost everyone would just seek a real estate agent to list on the MLS.. Do a lot of the "good deals" get taken before being listed?

 Tyler,

If you find a good agent in the area where you plan to invest (your farm) - one who works with, and is recommended by, other investors and/or is an investor her/himself - they will eventually bring you pocket deals (properties before they list) and off-market leads.

That said, we've taken tax records and identified properties in our areas that have not been sold since the electronic land-registry system came into effect in 1996.  From that subgroup we've identified the properties of interest and have sent letters.   

We have also used mail carriers as bird-dogs to tip us off on any empty properties, or ones that look like someone is moving / away for a prolonged period.

Roy that's awesome advice. I too have used the mail carriers to do my dirty work. They are all to happy to help especially since I offer a $500 dollars finders fee. My partner obtained her licensed a year and half ago so we could take advantage of both the " we buy houses" strategy and her real estate license. It's been dynamite. 

I think the tax record idea is absolute gold and one I have not used...you know for sure I'm stealing that one and putting it to use. WOW! Thank you!

You are welcome to come down to Niagara anytime Tyler. We would be happy to show you around if you want the tour...

Deals before they hit MLS are rare here, but it does happen. Your probably best to pair up with the local agent that has investment experience and have your finances in order to go in cash with no or very few conditions.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.