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Now that the Multiple Listing Service (MLS) is open to Realtors that do not require a full-service agreement with their clients, real estate agents are looking for ways to give themselves an edge over the competition. Agents have a new ally in the marketplace– the upcoming book called The Canadian Realtor’s Essential Business Guide (Wiley; Cloth; 2011) by Claude Boiron.

Claude Boiron, co-author of Commercial Real Estate Investing in Canada (Wiley), is a successful Realtor whose primary focus is commercial properties, but he also has extensive residential real estate experience.  While conducting numerous seminars through private employers, and teaching at the University of Toronto’s School of Continuing Studies, he received many requests to help Realtors upgrade certain skills, especially the “soft skills” that have to do with communication and client relationships.

“The real estate industry is notorious for eating up a Realtor’s time, energy and money. It may be a difficult pill to swallow, but many of the inefficiencies are of their own making and those of companies that refuse to break old habits,” says Boiron.

Boiron will be delivering help in the form of The Canadian Realtor’s Essential Business Guide, scheduled for publication in September of 2011 by John Wiley & Sons. The book will cover all of the essential things that a Realtor needs to know such as how to effectively attract clients, market properties to a Landlord or Seller’s benefit, represent a Buyer or Tenant, and properly and legally close a business deal.

Boiron hopes that Canadian Realtors, by acting on the lessons in his book, will improve service to clients, ensure that transactions are done in an ethical manner, and improve the ROI for sellers through using technologies such as social networking to advertise properties and attract clients.

Realtors have significantly more influence over their clients’ money, in one transaction, and often for a larger dollar amount than other professionals (financial advisors, lawyers, accountants, etc.) will ever have over a client’s money. The Canadian Realtor’s Essential Business Guide will be an indispensible guide for the Canadian Realtor to conduct their business in a way that engenders trust, gets results, gives the maximum value possible to their clients, and raises the profile of the industry itself.

As well as being an author, Claude Boiron is a sales representative with Coldwell Banker Terrequity Realty.
For more information on the upcoming publication and development of the book, contact:
Claude Boiron
http://www.realestatementor.ca/
Preferred E-Mail: claude@rementor.ca

Preferred Phone # 905-882-8800

On October 13th, Pierre Boiron’s advice appeared in an article by Kathy Flaxman in the Globe and Mail. The article was on buying a small, income-producing commercial property, something we’ve been consulting on for a number of years already. Other real estate experts agree that purchasing commercial properties is a solid investment. “If I had put my retirement money into real-estate investments instead of the stock market, I’d be doing back flips now,” Francois Brosseau of Cityspace Corporate Real Estate Services stated in the article.

Gymnastics aside, Pierre Boiron pointed out that commercial properties in the Greater Toronto Area are very attractive to both domestic and international buyers at the moment. One of Claude Boiron’s (Pierre’s partner) clients, Jonathan Rosemberg, hails from Venezuela and is looking at properties in the GTA for a group of investors. He states that “In Venezuela the situation is very chaotic. Here (in Toronto), property owners are unlikely to have their investment seized by the government.”

There is especially fierce competition in the $500,00 to $2,000,0000 dollar range. These properties are generally smaller properties with a couple of small apartments and a store, a 10 or 12-plex, or a similar setup. The factors forcing sellers to sell in the current market are generally a neutral or negative cash flow. When this situation occurs, despite the fierce competition, you can still ask for concessions on the sale and add items tailored to this particular situation. Here are just a few of Boiron’s tips for the informed real estate investor:

Put More Money Into the Down Payment

This will help generate some cash each month that you can put into doing necessary improvements on the property. While most improvements will improve your cash flow month over month, we recommend purchasing our book, Commercial Real Estate Investing in Canada, to get more tips on what specific improvements will help. One of them is to clean as much as possible. The cleaner the building, the more comfortable your commercial and residential tenants will be with the arrangement, and the less likely they are to move to another property.

Negotiate a Vendor Take Back (VTB) Mortgage

A VTB mortgage is great for buyers, especially on commercial properties, because it saves money. Surveys, appraisals, inspections and other various reports are costly and are not necessary with such an arrangement.

Go Outside the Greater Toronto Area

In order to find properties with a higher Capitilization Rate,* you may need to turn to properties outside the Greater Toronto Area. The capitalization rate is the ratio between the net operating income produced by an asset and its original purchase price or its current market value. It is simply the annual Net Operating Income divided by the current market value/original purchase price. While the GTA offers more of a demand, the costs involved in operating an income property within the GTA are also higher than costs further afield. Hamilton, St. Catherines, and Kingston may offer you higher capitalization rates and lower initial investments than a GTA property.

Can You Lower Operating Costs?

Sometimes a negative cash flow property is simply just that, and no stunning feats of brilliance can turn it around. Do a thorough analysis on the property to see if you truly can lower operating costs without huge capital investments. If you are new to the game, consider hiring experienced real estate consultants to help you with this analysis.

I Only Have $50,000. How Can I Get Started?

Realistically, most of us cannot save a million dollars. You have to start small. The Boiron Group administers Real Estate syndicates, which allow you to make smaller investments of $50,000, $100,000 or $200,000 in a pool with other investors in order to put that money to work for you immediately. This is a much better strategy than letting it languish in the bank until you reach your magic number.

The Boirons have been consulted by the Wall Street Journal (see articles at realestatementor.ca/wsj) and now, more recently, by the Globe and Mail for their expert real estate advice. This hardly comes as a surprise to those of you who are already their clients. They are also presently teaching a Commercial Real Estate Investing course at the University of Toronto’s School of Continuing Studies. Those of you who haven’t yet become clients can contact The Boiron Group for referrals and testimonials about their service and investment acumen. Contact them today to get their expert advice working for you.

A good deal of the savvy advice that the Boirons have to offer is available in their book, Commercial Real Estate Investing in Canada, which may be purchased at a significant discount.

* To obtain the Cap. Rate, divide the Net Income by the price.  Example: $87,000 / 1,160,000 = 0.075 or 7.50%.

The Wall Street Journal has consulted with this leading Commercial Real Estate team for two articles on Canadian commercial real estate within the past two weeks. We were very excited to see our names in print in one of the most respected business publications in the world. Both articles were written for the “Getting Personal Canada” section of the Journal which is designed to address business issues of import to a Canadian audience.

First Article: Commercial Real Estate Lagging
The first article, Commercial Real Estate Lagging, was published on September 4, 2009. Pierre Boiron’s opinions on the recent downturn in the Canadian commercial real estate market are cited throughout the piece. Pierre Boiron is in a unique position to comment on the state of Canadian commercial real estate, having decades of experience in the business and a keen eye for trends. In this excerpt, Boiron indicates that the market has signaled that it is bottoming out, with solid explanations for his reasoning:

Boiron estimates the commercial market is nearing the bottom of the adjustment phase, a time characterized by slowing demand, inventory peaks and price declines. “It means that the mess is being cleaned up,” he said, adding that lenders are selling properties through power of sale, buildings that had been under construction are being finished and put on the market, and pessimism is widespread.

Boiron goes on to counsel commercial real estate investors to practice cautious optimism when investing in the market, stating that the momentum is sure to move slowly at first before it ramps up to “boom” levels again.

Second Article: Build Commercial Property Know-How
The second article, Build Commercial Property Know-How, was published on September 11, 2009. In it, Pierre Boiron shares his tips for running a real estate investment property successfully. He gives away one of the biggest secrets in real estate investment, which you will definitely want to read. He also counsels that multi-unit apartments are the least risky commercial property, due to the fact that you typically aren’t relying on one tenant to make mortgage payments in a residential apartment building.

Boiron also points out the importance of being a hands-on property manager if you do want to deal with a multi-family residential property, as property management options can quickly eat up profits for the smaller investor. For those who can’t deal with this hands-on approach for multiple residential units, he recommends a small commercial property with a few business tenants, such as a store with apartments above it.

In both articles, Pierre Boiron shares more expert real estate knowledge than you will typically get out of a one-week course. Any one of the valuable tips offered in both articles will give you a push in the right direction if you are considering or are already participating in real estate investment in Canada. We run our business this way as well, as most of you already know; if we have a valuable tip or opportunity to share, we will happily tell our friends and business colleagues. We’re very excited that these two articles gave us the chance to share these tips with the world.

“Commercial Real Estate Lagging” and “Build Commercial Property Know-How” were written by Andy Georgiades, a business reporter at Dow Jones Newswires. Georgiades mentions our book, Commercial Real Estate Investing in Canada – The Complete Reference for Real Estate Investors and Professionals, which is available at a discount.

We are your on-call experts for any kind of real estate advice. While we wrote the book on commercial real estate investing, we can also consult with you on residential real estate, land development, property management, or any other issues that you’ve been meaning to ask someone about. When you are dealing with the same people that the Wall Street Journal turns to for advice, you know you’ve got the right people on your team. Contact us today to make us your real estate experts.

Piggyback Mortgage

This mortgage is a new first mortgage that closes the original simultaneously with the piggyback mortgage.  There are usually two lenders with this mortgage, without the second mortgagee assuming responsibility for the first mortgage.  The interest rate is often higher than the first mortgage because of elevated risk.

Construction Loan/Mortgage

Construction loans are generally used by builders and are usually only granted for a short period of time (12-24 months) by an institution.  Interest is paid monthly and the interest rates are higher than that of a “regular” mortgage due to increased risk.  Pre-sales of a certain amount, such as 50% for a condominium, are usual riders in such a mortgage.  The loan is expected to be paid progressively when units are sold.  Construction progress payments are made when the financial institution receives signed documents from an architect or engineer.

Bridge Financing

This is a very short term loan that covers the time gap between when a person has bought a property and sold one they owned, but they must close on the purchase before their old property is registered for closing.  The cost of bridge financing usually comes in at a few points above prime and a bank fee.

Participation Mortgage

This is a mortgage in which the lender receives a portion of the profits when the property is sold.  It is also known as a “Shared Appreciation Mortgage”.  The interest rate is usually lower than it would have been in anticipation of a payoff at the end of the term.

Development Land Loan

A land developer who has obtained a Draft Plan of Subdivision Approval will sell land (or the lots, already serviced or to be serviced) to a builder under the terms of this loan.  Terms are usually much more easygoing and at a lower interest than you would find with regular mortgages.

Leasehold Mortgage

Leasehold mortgages are used to make improvements to land, such as buildings, when that land is leased from the land owner rather than owned.

Collateral Mortgage

This mortgage is backed by both the property itself and a promissory note signed by the borrower.

Bond Charge/Mortgage or Trust Deed

These are generally only given for many millions of dollars and are given by the borrower to a trustee who holds title to the property in trust for several lenders.  The borrower must affix a corporate seal to this deed.

Adjustable Rate Mortgage (ARM)

This mortgage is rarely used for commercial real estate.  Rates are based on prime less a certain percentage.  If the prime rate changes, the rate is adjusted, usually on a monthly basis.  Principal payments are constant; it is only the interest that changes.

Ordering a Proper Land Survey

Before you buy or sell any commercial property you should require a land survey of the property in order to ensure that the land encompasses the area that you were told it does.  This is important, especially in urban areas where price per square foot is a factor.

To find an Ontario Land Surveyor (OLS), visit the website of the Association of Ontario Land Surveyors (AOLS) and look for one in your area.

In order to become a Land Surveyor, one of the following is necessary:

-A university degree.,
-A minimum two-year technological degree or diploma in Engineering or Geomatics.
-A professional survey commission from another recognized jurisdiction.

According to the AOLS website, they also require: “a minimum of 1-1/2 years of training and experience in professional land surveying to the satisfaction of the Academic and Experience Requirements Committee. This is done under Articles of Agreement with an Ontario Land Surveyor/Ontario Land Information Professional.”
You must decide on the type of survey that you are looking for, and they will vary according to your needs.

Plan of Survey

This is the most common survey that you will receive when you ask for a survey.  This shows the boundary lines and corners of the property.  Your Land Surveyor will visit the registry office to ensure that all of the data provided in this survey are correct.

If you want a more complete version of this document, you must ask for a Surveyor’s Real Property Report (SRPR).  This legal document shows the location of improvements in relation to property boundaries.

Construction Layout Survey

This survey is made prior to construction or when it is already underway.  Your surveyor checks elevation, dimensions, stake-out lines and grades.

As-Built Survey

This survey locates physical structures and improvements and is often needed in order to get a mortgage on a commercial property.

Topographic Survey

Required for all new subdivisions for proper grading of land and services such as water and sewer.  It shows lines of contours, watercourses, and trees.

Quantity Survey

This isn’t a land survey per se, but you may be asked to provide one.  This specifies measurements of quantities such as soil, concrete and fences as they pertain to the construction process.  This may be requested by a lender to determine when progress payments need to be made to the builder.

Your land surveyor can tell you which of these surveys are required for your particular situation.

A “Power of Sale” is also called a Contractual Power of Sale Clause.  This is a standard clause inserted into any mortgage agreement. It states that if the mortgagor is in default of their payments for an agreed upon term, the lender may sell the property in order to clear their debt without the mortgagor having to take possession of the property.

There are many conditions in which a borrower may default, initiating the power of sale process.  These are failure to make mortgage payments, failure to have proper insurance, failure to pay property taxes, extended vacancy, causing damage to the building, or using the property for unlawful acts.

The standard time that is given before a notice is sent is fifteen days after one of the above conditions has been met.  The lender should then provide at least thirty days notice in writing that the property will be sold under a Power of Sale.  The borrower then has thirty days to pay or correct the issue involved before the Power of Sale clause is executed.  This is usually deemed to be a reasonable period in a court of law.

The property is usually placed with a real estate agent in order to satisfy the condition that the best possible price must be sought on behalf of the owner.  Power-of-sale properties are usually placed on the Multiple Listing Service (MLS) at an inflated price so that the mortgagor may not be seen as selling the property at too low of a price to a new purchaser.  An appraisal, or even two, are typically sought prior to listing the property in order to verify the property value.

Once an offer has been accepted, the vendor may take out of the proceeds of the sale all costs of selling the property, property taxes that have not been paid, rent deposits, and the interest and principal that are due to them under the mortgage.  If the net proceeds of the sale are positive after all of these expenses are paid, the remainder is paid to the borrower.

If the net proceeds of the sale do not cover the money that is due to the lender, they may then sue the borrower for the remaining balance.

If the market is good at the time of listing, a Power of Sale property will generally take three to six months to sell.  No land transfer tax is payable by the vendor on a Power of Sale property; this must be paid by the new buyer.  The disadvantage to the Power of Sale clause is that the best price must be sought by the vendor/lender, or they risk legal recourse.  Very strict recordkeeping of all transactions must be observed in this situation in order to satisfy any courts that may become involved.

The question of whether to own or lease is one that crops up when the outlook of a business is more stable. While this is written to help property owners showcase the benefits of leasing to clients, leasing really is a smarter way to go for most businesses for a variety of reasons.

Active Equity

Capital used to purchase property now may have shown a much more exponential return if it had been invested in the business. Purchase of a new machine may mean higher production rates, for example. Unless your business is real estate, this money may be better spent elsewhere.

Do What the Big Boys Do

Almost 90% of large corporations lease their space, even though they can easily afford to purchase property.

Consider Growth

The main goal of a business is growth. With the growth of a business comes the outgrowing of a space. Take, for example, the former Zenon, now a division of GE. It started out of a modestly sized house in downtown Hamilton, Ontario. It ended up in a huge 175,000 square foot facility on 150 acres of land in Oakville, and is continuously adding new facilities all over the world. If Zenon had only taken enough orders to sustain their small business during their initial growth period, they would have never grown to the size that they did before they were purchased by GE. Purchase of a property limits growth, both psychologically and financially.

When it Makes Sense

In a case where a company plans to spend more than ten years in a particular property, or if it has an unconventional (special purpose) use for the space that may make it difficult to move operations, such as a plate glass manufacturer, it makes sense to buy the property.

Put it To an Accountant

Since the argument for leasing is coming from such an obviously biased source, tell your clients to go to an accounting firm and solicit their advice on the matter. For tax reasons alone, they will very likely back up our points.

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See Page 451 in Commercial Real Estate Investing in Canada (realestatementor.ca) for figures that show a huge increase in cash flow when leasing versus owning.

You need a solid team behind you in order to achieve success in any business. In commercial real estate investing, whom you choose for your property team is key to your success.

Real Estate Agent

A lot of people try to invest in real estate without an agent. This is a little like flying an airplane without a pilot. These people know the industry and constantly have their finger on the pulse of the market.

Lawyer

There are many lawyers out there that specialize in real estate. Make sure one of them is on your team.

Architect

An architect can give you valuable feedback about the improvements that can be made to a property, advice which can increase the amount of rent you can charge.

Engineer

If you are in a larger metropolitan centre, you may be able to find an engineering firm that specializes in real estate. You’ll need them to evaluate structural integrity for renovations or inspections, to produce environmental reports if needed for a Lender or governmental agency, and a bunch of other uses as well.

Appraiser

While this is an area that you can educate yourself in with some training in night school, you will never have data collecting systems in place the way an appraiser does. Make sure that the one that you hire is acceptable to your Lender.

Accountant

There are “run of the mill” accountants that are used to doing very simple, basic business taxes. Then there are accountants that think outside of the box and try to get the best tax deals possible for their clients. It will take you some time to find a good one, but when you do, treat him or her very well. They are arguably one of the most important members of your team.

Mortgage Broker

The mortgage broker will save you the time involved in running around and asking different Lenders for quotes. They are also highly motivated to keep repeat customers like investment buyers and will tend to go the extra mile for you.

For the other members that should be on your team, see the “Property Management” chapter in our book, Commercial Real Estate Investing In Canada (www.realestatementor.ca).

Many factors influence the mortgage amount, including the following:

• Size of mortgage requested
• Type of property
• Property Use
• Tenancies
• Financial Means of the Borrower
• Experience and Credibility of the Borrower
• Availability and Timing of Funds

While the above items and more influence the mortgage availability and amount, the two most important formulas used by lenders are the Loan to Value and the Debt Service ratios.

Loan to Value Ratio (LTV)

This ratio compares the value of the property, as determined by the Lender, to the amount of the mortgage. This determines the maximum loan amount. The formula is:

LTV = Mortgage/Value of Property

Example: $650,000 / $950,000 = 0.68, or 68%

Typical LTV ratios change with the market and with the state of the economy. For residential properties, the Canada Mortgage and Housing Corporation (CMHC) will allow higher LTV ratios than normal because it insures the loan. However, they charge a premium of 1.75% to 4.50% for the service, an amount that some borrowers feel is too high.

Debt Service Ratio (DSR)

The other term used for this is Debt Coverage Ratio (DCR). This ratio reflects the difference between the Net Operating Income (NOI) and the loan payments (including both principal and interest). The formula is:

DSR = Net Operating Income/Annual Debt Service (principal and interest)

Example: $75,000 / $45,000 = 1.67

This is used to determine the Lender’s margin of safety in a loan. Most Lenders require a minimum DSR of 1.1 or higher. The lower the DSR, the lower the loan amount that a Lender is usually willing to grant.

In order to appease the Lender when applying for a loan, it is a good idea to include the math that goes into the DSR in your application. These items include:

• vacancies and bad-debt allowance
• property management fees, even if outside property managers are not involved
• maintenance reserve
• additions or adjustments to Income and Expense Statements received from the vendor, as these are traditionally incorrect.

Some of us fall into being landlords by renting out a second apartment. Some of us have multi-tenant properties and plan to purchase more and treat our landlord duties as a full-time passion. However we ended up here, most of us could use some tips on how to attract and keep tenants that treat our units well and pay the rent on time.

Do Renovations with Target Tenants in Mind

First of all, ask yourself who your target tenants are. Are they young professionals? Are they retired singles? Are they blue-collar workers? Install appropriate appliances and features that will attract the people that you want to your units. Young professionals will appreciate green building efforts, where a blue collar family will prefer stainless steel appliances and easy-clean surfaces.

Check Out Potential Tenants

Check your potential tenants very carefully and thoroughly. Spend the time required to do so. If you do not, you will be sorry down the road. Credit and employment checks are necessary. Renters may not have top of the line credit scores, but a bad credit history will tell you that they may not pay the rent.

Work on Tenant Retention

Once your tenants get in there, don’t be an “absentee landlord”. While a bit above and beyond, one of my landlords brought us a bottle of wine on Christmas Day. Efforts like that do not go unnoticed and you will retain tenants by simply being there when needed and doing a little extra now and then.

Get a Longer Lease on Life

Tenants are usually unwilling to lock in a tenancy longer than a year because of the uncertainty of life. Some are hoping to buy a house and some are younger people that don’t want to be tied down to a particular city. You can offer perks for tenants to lock into longer leases, such as minor upgrades. While some laws are against any lease longer than one or two years, you can include a clause that the lease is month-to-month but the intention is for the tenant to remain in place for the desired amount of time. Consult a lawyer for the best wording.

Schedule a Yearly Meeting

Have a casual meeting with your tenants once a year in which you go over their concerns and renew the next year’s lease. This way tenants are more likely to air any concerns rather than simply moving to a place where their current problems don’t exist. People don’t like to complain, but they will talk to you about their issues if asked.