I’m going to say this one last time out of a sense of compassion as someone who’s been here before. Don’t buy it. It barely breaks even on the expenses as it is, before even making your mortgage payments.
Unless you’re a millionaire who has a lot of money lying around and has the freedom to gamble on a development like someone who can fly down to Vegas and blow millions on a roulette table or black jack instead of someone starting out, base your decisions on the results of past income tax returns.
GR mentioning a handyman working full time for a year is NOT a valid comparison to minor repairs being $35K to $45K a year and why it should be reduced. Handymen can’t pull electrical permits and other permits, which are $100 a piece btw. I had two alarm bells that had to be added into two apartments because the hallways weren’t loud enough. I got eight quotes and it came just under a grand for install, parts and permit. I had to change a fire alarm panel because there was a delay on the reset button. ULC standards wouldn’t allow a button to be soldered in and replaced, so I had to change the whole panel. With panel and electrical permit and install by a master electrician (which is required by law), it cost me another grand. And I had to have the work done or I would have to deal with the fire marshal, which is not a pleasant experience.
Not only that, what if you require asbestos removal by professionals prior to repairing a water damaged wall or other work?
If this is a heritage designated property (which I think it is with the $5K/yr insurance for a 7,000 sq. ft building), repairs could very easily go beyond $45K. I’ll give you an example. There was a large two storey house in my city (around 6,000 sq. ft) that switched hands and was on the market several times that had a leaky roof. It was a designated property and had a wavy thatched roof which was a mandatory requirement to upkeep in the designation. For around $10K, you could rip it out and replace with plyboard and get Home Depot shingles on it, but the heritage restrictions required a replacement thatched roof, which would have cost those owners $200K. As ridiculous as it seems, these are some of the things you have to look out for, which is very telling when you read the past financials on the property.
Maybe the property is way up north and that’s why snow removal is so expensive. For example, in Fort McMurray, Alberta, it is normal to have below -20 celsius weather, even though real estate is expensive because it’s located in an oil rich boomtown. Everything in that town is brutally expensive because it’s in a remote area and anyone with no education can work in the oil fields and make $100K a year, so why would a snow removal guy work for less? There may be a legitimate reason here why snow removal rates are so high, which can’t be lowered through competitive bidding.
As for competitive bidding on energy, garbage, etc., let me tell you something. Electricity is not as deregulated in Ontario as in the US. I looked into this. Even though they sell you fixed rate power for 5 years, what these scumbag sales people often leave out is that a variable global adjustment rate set by utility company is also added to the bill which doesn’t exist with the city’s utility provider. When power goes up, except in rare cases, the global adjustment rate goes up so at the end of the month your final bill under fixed rate is almost always higher than with the local utility provider. I had to call several energy companies to explain to me what the global adjustment rate was because a sleezy salesman told me it was a delivery charge and that I wouldn’t pay the delivery charge with the local provider if I switched over, which was a flat out lie. At the end of the year, your electricity bill is always higher under fixed rate with the private competitors.
These same sleezebags also do the same thing with other energy such as natural gas. There’s no savings here. At least, not in Ontario.
As for other bidding such as garbage removal, let me tell you something. I had steel garbage bins from a local company. I talked to a salesman from a national company who offered it cheaper. I signed up. A few months later, they added a fuel surcharge and my monthly bill was higher. I debated this with the salesman, and he said sorry, I can’t help you because of rising costs. I spoke to the local provider again and got a better quote. I called the current provider, they gave a big rant that everyone is doing it and how I was dealing with a national company and then he offered to beat it and lock in that price for 5 years. I said I’ll only do it if you write in there that there is no fuel surcharge. He did. I stayed with the current provider, but put the bills on my credit card this time and signed a 5 year contract.
A few months later, guess what happened?
They added a monthly administrative fee and environmental fee which made it a lot higher.
I was furious and phoned the salesman about my garbage bill doubling. He said sorry, I’ll take it up with my manager.
The salesperson ducked my calls and I left several angry voice mails. I threatened to take them to small claims court. Then I told their accounting department to cancel it and get their bins the f out of here.
They slapped me with a bunch of cancellation penalties. I threatened again to take them to small claims court. He told me the fine print allows him to do that and he ignored me again. I challenged him and said it specifically doesn’t say that, and that his response was a way too creative interpretation of some of the clauses. They didn’t care if I’d take them to small claims court. I finally had the last laugh when I filed a fraud complaint with my credit card company and the credit card company investigated it and reversed the credit card charges.
GR makes it sound so easy to cut these expenses. But, often it’s not. If they could lower it, why wouldn’t they do it to make the property more marketable. Often it’s a lot of wasted time and stress and it doesn’t come down. It might come down and that’s icing on the cake, but don’t count on buying this property and cutting those expenses in half. Base your decisions on the tax returns of the history of that property and what you know about the current political climate, otherwise, you’re asking for trouble.
At 7,000 square feet with 85% occupancy making $125K a year with $122K in operating expensive, I really can’t see the upside on this property. It’s a recipe for bankruptcy. Keep your money in a government insured savings account ready for a real deal when it shows up because it will when you least expect it. Don’t buy on emotion.