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%.