Comments on: Discount Purchases

By: Mr. Cheap

Mr. Cheap — Sun, 18 Oct 2009 22:33:42 +0000

Marina: Good luck for your hunt in Toronto! It’s interesting that after you’d paid reno costs on your second buy, it was the same price as the low end of the market range you’d seen (I hope its condition was more like units from the high end though!).

By: Marina

Marina — Sun, 18 Oct 2009 18:13:48 +0000

I have bought two places and both were of the “no one wants them” variety. Both were bought during down times in the market and were not aesthetically ideal.

The first was a bungalow that had been converted to three apartments. It was in great condition but the decor was pure 1970s. It had already been reduced from $119K to $109K (this was early 1990s, and Montreal, not Toronto), I offered $87K and got it for $92K. It has been rented out pretty steadily ever since, with upgrades made when needed (one kitchen is still pretty much 1970s, but my long-term tenant is not complaining yet).

The second was a co-op bought in 1998. I had seen one-bedrooms for between $65K-$85K (one in the same building, again this is in Montreal) and saw an ad for a 2-bedroom asking $52K. I went to the open house and saw people turning away without even walking through the door. The place had not been lived in in 8 years, had wall-to-wall green shag carpeting from the 70s and the original kitchen and bathroom from the 1940s, it was a disaster. I offered $45K and got it, gutted the kitchen and bath, put about $20K in to redo those, refinish the hardwood floors, and repaint and had a great place to live for the next ten years.

I definitely recommend this strategy if you have the patience and the vision. I am living in Toronto now and am hoping to be able to find a similar deal here.

By: Alexandra

Alexandra — Fri, 16 Oct 2009 15:33:06 +0000

I’ve never heard of “kill-rate” before – cool term. I’m not sure on the exact number, but in each case it took several months of searching, offering and turn-downs before a fish bit. It never got him down though – he knew that most people selling also had their own “number” in their head that they would not sell for less then. The trick was to wait for that guy who was just sick of the game and wanted to unload, even if it meant giving the place away for less than he thought he would get for it.

Yeah, a few people were insulted by the low offers, but in this game you can’t afford to be swayed by other people’s emotions.

By: Mr. Cheap

Mr. Cheap — Fri, 16 Oct 2009 12:33:09 +0000

Potato: Yes, that was one of the “problems” with co-ops that led to the low prices. The others were that the buildings often weren’t well maintained (they don’t have the same legal requirements for maintenance & a reserve fund condos do) and the co-op board can sometimes be autocratic (and may prevent you from renting it out)

In spite of these issues, as you say, if there’s a high rental yield that makes them enticing to buy as rentals. At the time I thought I could live with a 25% down payment if it meant I could pick up some property cheaper.

(I also thought an interesting business might be to offer financing on better terms to people buying co-ops).

By: Potato

Potato — Fri, 16 Oct 2009 02:01:51 +0000

I was surprised at how relatively cheap some Toronto co-ops were. One we saw actually had a decent rental yield of about 8.5% — it made me wonder if the rent they were asking was too high (or if there was some other issue with the building/neighbourhood). Turns out it was a co-op that required a 25% downpayment to buy in. Other co-op issues aside, that probably drove off a lot of potential buyers.

By: Mr. Cheap

Mr. Cheap — Thu, 15 Oct 2009 16:56:37 +0000

I put $6K into my condo, so it seems like a bit compared to that (but a house would definitely have more things to maintain). I also avoided bathroom / kitchen renos which would have upped the cost (although, interestingly, my parents just renovated their severely out-of-date kitchen for about $1,500 – so they probably think I spent too much ).

By: Four Pillars

Four Pillars — Thu, 15 Oct 2009 16:49:23 +0000

Well, $20k isn’t a whole lot (especially compared to my 2nd house). About $7k went for a complete new bathroom reno. $3k fixed up the electrical. The other $10k was just minor fixes/upgrades around the house over the 5 years.

By: Mr. Cheap

Mr. Cheap — Thu, 15 Oct 2009 16:03:43 +0000

Mike: Sweet! Sounds like you got lucky when you were buying and selling. I didn’t realize you’d put that much $$$ into your first house…

Alexandra: Your husband sounds like my kind of guy. I’ve done a fairly similar strategy, but found the angry sellers got me down. What was your husband’s “kill rate” (number of offers per successful purchase)?

By: Alexandra

Alexandra — Thu, 15 Oct 2009 13:49:58 +0000

My husband has gotten some super deals on real estate – I guess by buying from the “no one wants” category. Basically he spent a large amount of time looking at rental properties in Toronto with three units (usually in older homes) that needed some renovations but nothing major. He would then make a low offer – usually about 20% below asking price. Eventually someone would be tired of showing the place and having it listed, and would bargain with him (instead of just dismissing the offer outright, which was what a lot of people did). Two of our rental units were purchased this way, and have been very lucrative. You have to have a number in your head for what you are willing to pay and simply walk away if it goes over. No emotions whatsoever.

Our last house was also in the “no one wants it” category, but only because no one was able to look past it’s flaws and see the potential. Even our real estate agent who is used to seeing bad properties walked in, said “nothing to see here, let’s go” and almost walked out, but I would not let him. We had to level the floors (they were so uneven it gave you vertigo), knock down a few walls and float a staircase, and suddenly the place opened up and looked like a modern day loft. It only cost us $2oK to fix.

We sold it less than two years later for $150K more than what we bought it for. Cha-ching!

By: Mike

Mike — Thu, 15 Oct 2009 11:41:09 +0000

My first house *sorta* fits into the “nobody wanted it” category – I bought it at the end of 1999 and it had sat on the market for 2 months. I don’t think it was a “deal” but the price seemed reasonable.
At the time interest rates had gone up a bit, maybe Y2K was a factor? The house wasn’t in great shape and same for the neighbourhood.
Things had completely turned around in 5 years – I only put about $20k into the house and there were 14 bidders.

Another example is timing – I know of one friend who bought a house that went on sale on Sept 10, 2001 (yes, the day before). I don’t think anybody was looking for a house for a while after 911 (except my friend) and I’m sure she got a good deal. Unfortunately her “super” agent choose to sell her house (a few years later) via auction over the July 1 holiday which is probably the worst time (other than Xmas) to sell a house in Canada. She told my friend not to worry about the timing since buyers are “motivated”. Yah, right.