Riverside Square Phase 1 – Investment Analysis

Two and a half years ago I was actively on the hunt for another US property. I had visited Grand Rapids Michigan on two occasions and was getting closer to putting in an offer on something in the city. It’s such a cool pocket of Michigan with strong growth in the medical, academic fields/industries and the furniture industry. The DeVos and Van Andel families (founders of Amway) had invested heavily into the arts and culture scene in the downtown core and because of this, coupled with the medical schools and furniture manufacturing industries in the area, I felt there would be great opportunity for growth.

Well, I missed that boat. A recent article was posted that showed Grand Rapids was amongst the top ten cities for real estate appreciation in the past year. I was disappointed that I didn’t buy a home in the city, but my rationale for not buying was due to the inability to manage the properties with ease (it deviated too much from my over-arching investment strategy). The low-rise homes we were considering would have required a management component and without multiple homes in the area, it wouldn’t make sense nor did I have the time to invest in managing a single home that far away.

As I contemplated a purchase in Grand Rapids and cross referenced my ‘hands-off’ and passive approach to buying real estate (as mentioned before, I gravitate towards condos and condo townhouses for residential purchases because they require less hands on management), I was presented with Riverside Square. 

Let’s jump right into the details;

The Location – Queen and Broadview (2.5 years ago) was still a touch edgy as the Broadview Hotel (aka. Jilly’s strip club) was still operating. Not the classiest joint in town but the aesthetics of the building were beautiful. You could see that there was an opportunity here. Proximity to the King and Queen Streetcar along with a direct route up Broadview to the Bloor-Danforth subway line were literally at your door from the front of this condo building. For the commuter, the DVP and Gardiner were seconds from the building. Small, low-rise buildings were in the immediate area, but the likelihood of competing against 30-40 storey towers wasn’t likely as Brad Lamb’s project on Broadview (Broadview Lofts) that had been proposed only 7-8 years before was shot down by the neighbourhood association and residents as being ‘too much’ for the area (it was a 10-11 storey building with few or not building set backs). The Riverdale area is to the north and Leslieville to the East. People in this pocket were a 20 minute commute via streetcar to Yonge (depending on the time of day, it could be 25 min). If you venture east, the Canary District was almost complete as the PanAm Games were on the horizon. Cabbagetown to the north as well as Regent Park (which was 6-7 years into a 15 year, billion dollar overhaul). Bottom line – this area is poised for growth, in my opinion. 

Resale Activity – in the area, condos were trading for upwards of $580-$620psf (2.5 years ago). Since then, the market has caught fire and I’ve personally sold or been involved in resale activity in the area that has seen prices jump to $700-$800psf (and higher, in a few instances). We were considering buying in at $495-$565psf so the numbers ‘made sense’.

The Developer (Streetcar Developments) – they specialized in low/mid-rise developments along major transit (aka. Streetcar) lines. I liked their standard finishes and more importantly, in a market where developers seemingly do whatever they want, whenever they want (and occasionally to the Buyer’s demise), their reputation was important. They had a track record of generally happy customers, good build quality and projects that seemed to run reasonably on-time.

Rental Activity – Looking back 2.5 years ago, it was a stretch to think you could fetch $3.00 psf but the market was on a trajectory to hit this number. We based our valuations on these figures during analysis prior to investment. Since then, rental rates have already jumped to the $3.00 – $3.50 psf range.

My gut told me this would be a good buy. There were so many other reasons I liked this project, but the fundamentals made me feel confident that this would be a good purchase. As mentioned before, when I promote or approve a project and if finances permit, I buy in. Details on my purchase are below;

505 sq. ft. – 1 bedroom, 1 bathroom. No parking. No locker

Price – $250,000 ($495psf)

Current (approximate) market value = $700psf = $353,500

Profit = $103,000 (pre-tax)

Deposits = 15% = $37,500

Anticipated completion date – Originally January 2018. Likely revised to Winter/Spring 2019.

Anticipated Rent = $3.15psf-$3.25psf = $1590 – $1640/mth

Anticipated Mortgage interest rate = 3.5% (5 year term)

Anticipated Maintenance fees = $0.54psf = $273/mth

Anticipated Property Tax = $175/mth

Anticipated Mortgage = $1000/mth

Anticipated Insurance = $10/mth

Total anticipated monthly costs = $1458/mth

I hope to achieve a slightly higher rent but even airing on the side of caution, I suspect I could lease this property out for $1590/mth. This puts my monthly cash flow, after expenses at approximately $132/mth ($1584/year). This amount of cash is complemented by the $5000+/year the tenant will pay off of my mortgage. Based on the assumption that the property will continue to appreciate with inflation (or higher) would put the R.O.I (pre-tax) in the range of 22% per year. Keep in mind that there are other fees when selling (ie. commissions if you use a Realtor) and of course, you need to pay the Canada Revenue Agency their piece too) but overall, it’s not a bad addition to any portfolio of investment products.

I would also like to highlight for all the investors that in addition to the costs outlined above, I’m anticipating development costs and levies to be capped in the range of $7500 (inclusive of Tarion and miscellaneous discharge fees). My HST bill will be hefty but I’ll apply for my rebates after registration and have full intent of disclosing to the CRA that this is an investment property.

Let’s be honest. I’m not sipping coconut cocktails and retiring off an extra $3000 – $5000 per month in cash flow from my current investment properties. Sticking to my game plan and continuing to acquire 1-3 properties per year will put me in a great position to leverage these properties and invest in other opportunities (or more properties) in the future. 

Please note that all the figures above are based on my personal acquisition and are presented for information purposes only. I always encourage buyers to complete their own due diligence before buying and more importantly, ensure your Realtor and accountant are working with you and advising you based on your personal goals. Real estate has been a great way for me to build wealth. I’d strongly encourage all investors to stick to a strategy/game plan when buying real estate and to plan to hold your property for a 7-10 year term – unless someone wants to offer you a big boat load of cash to sell, in which case, cash in 🙂

Brandon.

Photo Credit:http://urbantoronto.ca/news/2016/10/lights-come-streetcars-restored-broadview-hotel,

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