Toronto Investment Property Makeover: From Run-Down to Cash Cow - The Incredible Transformation!
Today I’ll take you to another major value renovation team project here in Toronto that’s just wrapping up.
In this video, Phil from our team will be walking us through this incredible transformation, and we’ll also give you a behind-the-scenes look at how this became a successful real estate investment in Toronto and dive into the numbers.
What Made This A Great Opportunity?
One big reason is because Phil took on major renovations. This requires a lot of capital that not everyone has and a lot of work that not a lot of people are willing to take on. Because of this, we ended up getting strong bargain power and a great price on the purchase.
Another reason was because we got lucky with the timing. Of course, nobody has a crystal ball, and we really couldn’t predict the bottom of the market, but this house was purchased in the summer of 2022, around the bottom, and so this 3-unit home was bought for a great price at $820,000 with a 20% downpayment. You saw the work involved, and that translated to around $180,000 in renovation dollars, so the total capital used here for the project was $370,000.
Another reason that Phil talked about was how he managed to turn three one-bedroom units into three two-bedroom units, and that’s what helped a lot to make rents look very strong. Then, add in strong migration back to Toronto post-COVID, and these things also helped to boost rents and make the deal look better.
The leases just got signed, tenants are moving in, and so now we can confirm that total rents here are going to be $7,200 per month. This means that after expenses and our mortgage payment, we’re looking at very lucrative positive cash flows of over $3,000 per month!
What Are The Next Steps?
The first one is to finish the exterior. The renos were done in the winter, and it just wasn’t a great time to get the outside done. But now that the inside is done and rented out and the weather is getting warmer, Phil’s going to be prettying up the outside next.
At the same time, we will be going back to the bank to see how much of the capital-intensive project could be refinanced. If we valued the property at $1.25 million, that would free up almost all of the cash put into the property. Keep in mind that the property would still be cash flowing $900 per month here or a 6% cap rate.
In other words, it could be more given that cap rates these days are closer to 5%, but honestly, it’s really hard to tell in this market and risk adverse environment, and so we’ll just have to be patient and see what it comes back at. If all works out, after the cash comes back, we should be putting that money to good use again in another investment!
How We Can Help
Phil mentioned was that most buyers have been choosing turnkey properties over those needing major renos, and that’s precisely why the price gains have been pretty uneven lately. Prices have been coming up, but the bigger increases have been more so with end-user type homes that are all done up, and so that also means that we are seeing the price gap between renovated and unrenovated homes widening.
Even though the market has recovered by around 10 to 15% since when this project was purchased, the current price difference between renovated and unrenovated homes is still around $300,000. So if you renovate a smaller house for $100,000 to $150,000, then there’s still a good chance to make a healthy extra bump in value-add return in a shorter period of time if you’re ready for a renovation challenge.
We are a Toronto real estate brokerage and our focus is to on help investors buy and growth their wealth through real estate investing in Toronto. So if this is something that you want to explore a bit more, we are happy to chat privately with you!
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