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Income property Montreal

Hello everyone,

It’s been a while since I last wrote you. I was waiting for the launch of my new website, hoping that it would be ready in the fall. The creative process took much longer than expected, but finally here it is. It turned out well and will grow and continue to be perfected over time. An English version will follow soon.

I invite you to have a look at it. Your comments are welcome.

Here is the link: immeublearevenumontreal.ca

Thank you.

Michel Leroux

Chartered Real Estate Broker

Via Capitale du Mont-Royal

Mathématique immobilière
Marché ouvert ou fermé
Entretien Fondations

The Real Estate Mathematics

Many of you are likely to use the gross income multiplier (GIM) when the time comes to evaluate the selling price of an income property. This is usually the first analysis someone does in order to see if it is worthwhile to consider a specific property. When the answer is positive we usually follow with the net income multiplier (NIM). This step is a little more complicated due to information that is often incomplete. However, if you are able to get accurate data and the results are good, then it is time to go for the big analysis: DCR, IRR, CapRate, ConC, BER. These are all different ratios that give a good idea of what lies ahead financially speaking during the first year of operation of a new acquisition. To be really sure of hitting the mark, it is wise to make projections on the next five years to determine if the project is really worth the effort. If this is positive, we are quite possibly looking at a very interesting deal!

The final details to be considered and studied are the technical aspects of the building and the quality of the clientele. These two elements will have an impact on the financial perspectives in the medium and long term as well as the time and energy that the new owner will devote to the management of the building. It will be important not to neglect them.

All this takes time, but when you know that income property can generate an annual return of around 25 to 40% on the amount invested, then the effort is absolutely worth the trouble.

Open and closed markets

There is a real estate broker who did an analysis of all the income properties sold in Quebec in 2013. His analysis showed that 60 % of these sales were made off-market, ie. without the property being marketed by a real estate broker. Information flows within tight circles, like family, work or business relationships and sales are often concluded directly without any intermediary.

The study also demonstrated that properties sold in this way are selling on average 11% cheaper per unit than those marketed by brokers. 11% of a million dollars amounts to $110,000. If one subtracts the average real estate commission and additional capital gains taxes, it's a net loss for the seller of about $37,000 for every part of one million dollars on the sale price.

There are obviously a few sellers who make their money at any cost and prefer to avoid publicity. But more often there are buyers who seek out and get their hands on properties priced well below market value. This is unfortunate, especially for long-time homeowners, quite often older people, who see the fruits of their long term work reduced because they have been taken advantage of.

A lack of marketing almost always plays against the seller since there is less competition for the buyer. The seller may have the impression they are getting a good deal, but it is just an impression. Statistics clearly demonstrate this.

Maintenance - Foundations

After preventing water from infiltrating the property, the second priority should be to ensure that the support of the building is strong and stable. A structure which is not strong enough to support its own weight plus the weight of water and snow that accumulates on it, is a potential danger to all who use it.

In Montreal, most foundations are made of stone or concrete. Quality often depends on the construction period, since materials have not always been good nor the expertise of those who built them consistently high. Strength and sealing are a foundations two main qualities.

It is important to know that a foundation must be able to breath from the inside in order to withdraw moisture that emerges from it. A space of one inch should generally be maintained between the foundation and any material that covers it.

The ground on which the building lies is also an important consideration. Montreal soil is a clay mat resting on the rock of a mountain which rises towards its centre. There are places where the rock is flush with the ground and others where the clay is deep. There are places where the buildings are perfectly stable and others where it is rather precarious and unstable. In between is a range of possibilities from a total peace of mind to a nervous crisis and a financial disaster. One should therefore pay careful attention to this issue when choosing a building.

Immeuble à revenu Montréal

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