It’s a common question. Do I start with little green houses? Or do I go big and grab me a nice red hotel? The big money in real estate is always made by holding on to properties for long periods of time. So over time each of these is going to do really well. However, there are a few things to consider that we share in this week’s Rock Star Minute, enjoy!
Hey Everyone, it’s Tom Karadza with another Rock Star Minute and today we’re talking about the difference between little green houses big red hotel.
Probably one of the most interesting questions we get from investors is should you start with little green houses or just jump into big multi-unit apartment buildings and commercial office space. Kind of like the big red hotel and the things to consider in these two worlds are this with little green houses.
You’re in Canada you’re always going to get the most financing options on residential houses. Banks consider them the most liquid piece of real estate, so they have the most financing option, so it’s always going to be the easiest to get financing options. On residential houses, you’re going to have the most strategies that you can put on them. For example, you can rent a house out as a straight rental. You can turn it into a legal second suite and increase your income on the property. The two families as a duplex are your second suite. You can do rent to own strategy on it. If you’re close to some universities, you can do a student rental on it. So, there’s a lot of different strategies you can use on a single-family home. And when you want to actually sell it, it’s the easiest property to sell. It’s a very liquid piece of property.
Bigger properties like this, some of the things to consider is all the banks don’t have the greatest financing options. You might have to go to a company like First National. You might have to work with mortgage brokers.
It shouldn’t stop anybody, but just be aware the financing options are a little bit different and the revenue that you’re going to generate from bigger property like a commercial office space or a large multi-unit residential, it’s tied to the income that the property generates and not the residential real estate market, like these are. So, the value is tied to the income that it generates typically, and the calculation that most people use to evaluate these things is called the capitalization rate. So, that’s how these things are valued. Google can help you learn more about that, but these aren’t going to jump up and down as fast as property fees. And the flipside, they might not come down in value of the residential market because the income kind of stayed pretty solid in general. So, the value is tied to the income. There is less financing options. Now we know a lot of money a lot of people who’ve made good money on these properties right across Canada. If you can buy a multi-unit building that is renting out below market value and can go in and fix up all units and get refinancing, you can create a lot of value. There is great money to be made here. Just be aware that in general in the Greater Toronto Area you’re going to make probably about 4-4.5% on your money. So, for example, the office building the rock stars and right now we do not own it but probably worth about 12 million dollars.
If you were to buy that four storey building in Oakville you’re probably going to make about 4.5% of your money. So, with the strategies we’ve discussed here, there’s a lot of opportunity to make my bigger money here faster.
So, in general, the way we sum it up really quickly is that we tell people, hey, look when you’re trying to make money start in this world, when you’ve made your money, park it in this world.
Hopefully, that gives you something to think about. Until next time, your life your terms.