Some Good advice

By Brian Madigan LL.B.

Here's some good advice:Buy the biggest and best house you can possibly afford.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

Toronto Financial Core

By Brian Madigan

The best real estate in Canada is located in Toronto’s financial core. The problem is that there just isn’t enough of it.

For the last seven or eight years, tenants have been blessed with the opportunity to renew their leases at reasonable rates. The supply was more than sufficient, so developers stopped building.

But, now, the tables have turned. It’s a Landlord’s market and that will likely continue for the next two years.By 2010, there should be another 5 million square feet of office space. However, the problem is that at least one half of that space is already committed. Nevertheless, until then, the commercial office market in Toronto will likely remain a Landlord’s market.

With higher municipal taxes, the cost of parking and commuting times, smaller businesses are looking to locate in the 905. It simply makes a whole lot of sense, Class A office space at less than one half the price in most cases.Consider this, the big bank towers are almost $70 per square foot, high B Class exceeds $40, and new Class A in the 905 can be less than $25. In addition, take about one hour off the commute together with free parking and this proposition is quite attractive.

One item that you must remember is the Class A downtown is different than Class A in the 905. Granite, marble and real gold in the windows is something that you will really only find downtown. But, high end HVAC, electrical, fiberoptics, and security may be more commonplace in the 905.Once companies move to the 905, they usually don’t return.

So, if your lease comes up for renewal in the not too far distant future, you may wish to consider your alternatives, and if your lease is not due, and you must stay downtown, then you might want to renew early.The most common mistake made by tenants is leaving everything to the very last moment. So, plan now, do your research.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

What About a Cottage?

By Brian Madigan LL.B.

Come to think about it, why not the whole lake?

You might be interested in a rather excellent and new type of real estate investment opportunity.

As you know, cottages are getting very expensive. The most fashionable areas in southern Ontario are the three big lakes in Muskoka, Lake Joseph, Lake Rosseau and Lake Muskoka. But, do you know what the problem is there? Money! Pure and simply, money! Right now, you have to either be a Bank President or a hockey player to afford a cottage on one of those lakes. Many listings are well over two million dollars.

In surrounding areas, great properties are fetching well over a million dollars even on the smaller lakes.

So, why not consider a change of plan? Rather than one big cottage on a great lot that is going to cost you over two million dollars, why not buy 100? Ok, I know that they will not be the same, but you could make more money in the long run.

You are probably thinking that you would have to buy something 2 hours drive north of Timmins. No, not at all! There are locations in southern Ontario about that same distance from Toronto that provide excellent recreational investment opportunities.

A recent listing offers a parcel of 270 acres of property including a small lake. Crown lands provide some additional required privacy and for long range conservation purposes, these lands will remain under the ownership of the Province. The local municipality has not only permitted but encouraged some development since it would be good for the local economy.

So, here is the plan. Carve the property up into 100 one acre lots. That leaves 170 acres leftover for waterfront and shoreline, interior dedicated areas for access roads, visitor parking, nature trails, woodlots and beach. Also, there is no access to the lake other than through these lands. The next step, is to make the entire project a condominium. You might recall that the Condominium Act was recently amended so as to permit land lots.

In effect, each owner will own their own one acre parcel of land, as well as an undivided 1/100th interest in the common areas which are represented by the 170 acres.

The cost of the lots is about $30,000 each. That’s not much for a one acre parcel of property. You will have to build your own cottage on your lands. But, the control lies with the condominium owners. They select a Board of Directors which will be charged with the responsibility to approve the building plans. Obviously, there would be strict guidelines.

Now, all in all, you might think that I am proposing that you buy a lot, or maybe even two. No, I’m going to suggest that you consider purchasing the whole complex. It’s only slightly more than a high end cottage in Muskoka anyways.

However, there are some significant differences. You can sell lots off, year after year at increasing prices. You can control the development because you own all the lots. As time goes by, this will change, but at the outset, all the decisions will be yours and yours alone.

Or, you might need nine friends! You would each invest $300,000 and acquire 10 lots. You build on one lot and appropriate the use of the remaining nine. You remember the principal residence exemption rules under the Income Tax Act. You are automatically entitled to have one acre exempt, and you have to prove that you are using the rest. So, you now know where you have to locate the rest of your outbuildings. It’s not unusual for an entire 10 acre parcel of property to be exempt. Here, you will need to ensure that you have proper tax advice.

Over the years, you can add more cottages, one per lot, and give them to your children and grandchildren. This entire condominium approach solves the estate planning dilemma of what to do with the cottage, if you have more than one child. And, if your estate is subject to tax at that time, your executor could sell a lot to pay the tax.

With this condominium approach, the subdivision of the lots is already done. Most estates are confronted with the issue of having to sell the family cottage in order to pay the taxes and divide up the estate.

This presents a rather interesting alternative to buying a big, luxurious cottage in Muskoka. Ever try, selling it off “piece by piece”? That’s not going to happen.

So, save your money, buy 10 acres, all pre-divided, and ready to build, with some very interesting long term estate planning opportunities.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

Unfair Business Practices

By Brian Madigan

The Business Practices Act was a very good piece of legislation, but not too many people knew about it, so last year the Ontario Government replaced it with the Consumer Protection Act. When it comes to real estate there are some important provisions.

While the conveyance of real estate is exempt from the Act, advertising, the conveyance of chattels and agreements with realtors are all affected.No one is allowed to engage in an “unfair practice” with a consumer, and specifically it is an unfair practice for a person to make a false, misleading or deceptive representation.

These will include the following:

1. A representation that the goods or services have sponsorship, approval, performance characteristics, accessories, uses, ingredients, benefits or qualities they do not have.

2. A representation that the person who is to supply the goods or services has sponsorship, approval, status, affiliation or connection the person does not have.

3. A representation that the goods or services are of a particular standard, quality, grade, style or model, if they are not.

4. A representation that the goods are new, or unused, if they are not or are reconditioned or reclaimed, but the reasonable use of goods to enable the person to service, prepare, test and deliver the goods does not result in the goods being deemed to be used for the purposes of this paragraph.

5. A representation that the goods have been used to an extent that is materially different from the fact.

6. A representation that the goods or services are available for a reason that does not exist.

7. A representation that the goods or services have been supplied in accordance with a previous representation, if they have not.

8. A representation that the goods or services or any part of them are available or can be delivered or performed when the person making the representation knows or ought to know they are not available or cannot be delivered or performed.

9. A representation that the goods or services or any part of them will be available or can be delivered or performed by a specified time when the person making the representation knows or ought to know they will not be available or cannot be delivered or performed by the specified time.

10. A representation that a service, part, replacement or repair is needed or advisable, if it is not.

11. A representation that a specific price advantage exists, if it does not.

12. A representation that misrepresents the authority of a salesperson, representative, employee or agent to negotiate the final terms of the agreement.

13. A representation that the transaction involves or does not involve rights, remedies or obligations if the representation is false, misleading or deceptive.

14. A representation using exaggeration, innuendo or ambiguity as to a material fact or failing to state a material fact if such use or failure deceives or tends to deceive.

15. A representation that misrepresents the purpose or intent of any solicitation of or any communication with a consumer.

16. A representation that misrepresents the purpose of any charge or proposed charge.

17. A representation that misrepresents or exaggerates the benefits that are likely to flow to a consumer if the consumer helps a person obtain new or potential customers. (s. 14 (2))

It is also an unfair practice to make an unconscionable representation, and there are some “rules” which will help determine if this is the case.A Court may take into that the person making the representation or the person’s employer or principal knows or ought to know,

(a) that the consumer is not reasonably able to protect his or her interests because of disability, ignorance, illiteracy, inability to understand the language of an agreement or similar factors;

(b) that the price grossly exceeds the price at which similar goods or services are readily available to like consumers;

(c) that the consumer is unable to receive a substantial benefit from the subject-matter of the representation;

(d) that there is no reasonable probability of payment of the obligation in full by the consumer;

(e) that the consumer transaction is excessively one-sided in favour of someone other than the consumer;

(f) that the terms of the consumer transaction are so adverse to the consumer as to be inequitable;

(g) that a statement of opinion is misleading and the consumer is likely to rely on it to his or her detriment; or

(h) that the consumer is being subjected to undue pressure to enter into a consumer transaction. (s.15(2))

Section 18 provides that “any agreement, whether written, oral or implied, entered into by a consumer after or while a person has engaged in an unfair practice may be rescinded by the consumer and the consumer is entitled to any remedy that is available in law, including damages.”

These common law remedies are available in addition to the opportunity to report the matter to the Director and have the dispute investigated and resolved under the Act. The Director has been given rather broad powers by the legislation.And further, “each person who engaged in an unfair practice is liable jointly and severally with the person who entered into the agreement with the consumer for any amount to which the consumer is entitled under this section.”

So, this means that the particular salesperson is responsible as well as the company.Although, the actual “conveyance” of real property is not subjecty to the provisions of the Act, the matter of advertising is specifically noted as an included matter.Under section 109 of the Act, “if the Director believes on reasonable grounds that any person is making a false, misleading or deceptive representation in respect of any consumer transaction in an advertisement, circular, pamphlet or material published by any means, the Director may order the person to cease making the representation; and further order the person to retract the representation or publish a correction of equal prominence to the original publication”.

This section applies to any representations involving residential real property. If the purchaser cannot be described as a “consumer”, then the Act will not apply. So, commercial transactions are not affected. Houses, and vacation properties are included. There is a real grey area when it comes to farms. Large commercial operating farms would not be included, but a hobby farm might.

You will recall earlier that both principals and agents were jointly and severally responsible. This means that a vendor who provides false and misleading information to his realtor is jointly and severally responsible to the purchaser. All in all, the new Consumer Protection Act should be quite helpful to purchasers and consumers in Ontario.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

Commercial Real Estate Values in the GTA

By Brian Madigan

The large pension funds, public sector REIT’s and private equity real estate firms are all looking for the same properties. That is, of course, prime downtown Class A office space, located in Toronto’s financial district within walking distance of the intersection of Bay and King. Right there, you will find the Canadian Head Offices of TD Canada Trust, BMO, Scotiabank and CIBC. One block away, in what might be considered to be a low rise office compared to the skyscrapers is the Royal Bank Plaza with real gold inlaid in its windows. Certainly, all the property within walking distance is good real estate by Canadian standards.

The major investors, whether they be pension funds, mutual funds or foreign entities are all seeking to diversify their portfolio holdings and that means “real estate”. Naturally, it also includes venture capital, futures and other more speculative investments, but the tried and true investment with over 1,000 years of good historical performance is real estate.

There will always be the “hot property” or the ‘hot place to be”, but traditionally if you examine long term performance the blue chip investments will be located at the heart of Canada’s financial district.

For the last three year’s running the annual sales volume has exceeded $10 Billion. The market is not particularly functioning well. There’s just no supply and lots of players with lots of money. Obviously, the prices get bid up, and the cap rates go down. So, while the actual total volume went down in 2006 ($1.6 Billion) compared to 2005 ($2.3 Billion). You might think that there was a lack of interest, but that’s not true. The real story is that no one wanted to sell.

Just what do large properties command in terms of price? Here are a few recent transactions:

Wonderland ~ $167 Million

Vaughan Mills ~ 202 Million

Hudson’s Bay Centre ~ $112 Million

Why are some of the world’s largest financial institutions looking to invest here? Basically, because the land is cheap! Well, not really that cheap, but on the world stage, some of the most attractive real estate returns can be found in the GTA.

Here are some world based cap rates for comparison. The cap rate (capitalization rate) is essentially the net income of the property divided by the sale price.

8.0 Shanghai

6.5 Toronto

4.0 Paris

3.7 London

Investors are now turning to other types of properties in the GTA including industrial land, retail plazas and hotels.

One significant factor is the allocation of portfolios to real estate. The trend started in Canada about 20 years ago when large pension funds entered the real estate equity asset class. The percentage limit was about 5%, but very few reached that limit. Today, many large funds carry 10% or more of their investments in real estate. You might contrast this with UK based Pension Plans which frequently carry about 30% of their portfolios in real estate.

So, is real estate a good investment? The experts seem to think so.

Where are they looking now? The 905, because that’s where the land is!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

More Environmental Lawsuits

By Brian Madigan

The interesting point here is to figure out ultimately who should bear the loss. This is not as simple as it sounds. Even though certain parties have had their liability strictly imposed under the Environmental Protection Act, does not mean that they can’t recover some of their losses from others.

Remember, in this case:

Original owner – simply agreed to the work (tenant’s contract)Event occurredCurrent owner – acquired plaza

As between the two owners of the plaza, they are both liable to the City for reimbursement of the cleanup costs. However, the tax bill will go to the current owner, and will stop there, unless he can recover under the terms of the agreement of purchase and sale. There are of course issues related to disclosure but that is a topic for another day. The agreement of purchase and sale governs. If the current owner has a right to recover it will be set out in that agreement.

First Restauranteur – undertook the work, hired the contractor (contractor sub-contracted the plumbing)

Faulty hook-up took place

Second Restauranteur - some waste products entered the creek

Third Restauranteur - moved in after the fact

The actual event occurred while the second restaurant was there, So, naturally there is some liability there. However, the first tenant was the one who authorized the faulty work. So, this tenant probably has the right to recover from the first tenant. But, it will depend upon their agreement concerning the takeover of the premises.

The third restaurant gets stuck with the bill. He may be able to recover from the previous tenant (in contract) should his agreement permit him to do so. Nevertheless, he can sue the first tenant in tort (unless this right was waived).

The current owner of the plaza is directly responsible to the City for the bill. Under the terms of the lease, he simply adds it to the TMI (taxes, maintenance and insurance) assuming that the lease contains broad enough wording to permit its recovery.

He may however, have another remedy. He might be able to get the first owner to pay in accordance with the terms of the agreement of purchase and sale. The first owner no longer has a lease with anybody, so he cannot (in all likelihood) pass this along to any of the tenants. He could sue in tort, and the parties liable to him would be the second restauranteur and the first restauranteur. The first was negligent (even if vicariously) for the improper and shoddy work. The second fellow did nothing wrong, however his liability is imposed strictly under the EPA.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

Strict Liability under the Environmental Protection Act

By Brian Madigan

While it is sometimes difficult to imagine under our common law system, there is a place for strict liability.

Just a quick digression. There are two areas of the common law: contract and tort. In contract, two parties will have entered an agreement. A Court will assess damages for breach of contract. In tort, there is no contractual relationship between the parties. They are strangers, but nevertheless one has been injured as a result of the wrongdoing of another. Here, Courts will impose liability for damages in tort. An automobile accident is a good example, and so is a “trip and fall”.

Under the law of torts, liability is imposed where the tortfessor has done something wrong, that is, has been negligent, has caused a nuisance or has trespassed. But, in all such cases, the tortfessor has done something wrong and the Courts seek to have the tortfessor change his behaviour in some way, so as to prevent such recurrences in the future.

The concept of strict liability arose in the case of Rhylands and Fletcher. The owner of a tiger was held responsible for the damage caused by the tiger when it escaped, even though he was not personally negligent. The Court held that the tiger was an “inherently dangerous animal” and the owner should be strictly liable for any damage it caused, no matter what.

That doctrine now brings us to Ontario’s Environmental Protection Act (EPA). This is a strict liability statute. Liability is imposed regardless of fault. It should be mentioned that this is not the case in every jurisdiction. And, in some jurisdictions which do utilize the strict liability approach, there is a special exemption for “innocent landowners”. You may wish to see the U.S. Comprehensive Environmental Response, Compensation and Liability Act, or the “innocent purchaser” exemption under the British Columbia Waste Management Act.

The EPA provides that no “person responsible” for a source of contamination shall permit the discharge into the natural environment of any contaminant in an amount in excess of that which is prescribed by regulation. A “person responsible” is specifically defined in the EPA to mean:

1) the owner, or

2) the person having the charge, management or control, of a source of contaminant.

So, the owner does not need to be negligent, nor does the person having charge, management or control. They both have a positive obligation to prevent the contamination. If they fail to do so, then, they are responsible. It may not be their fault, but it is their responsibility and they are liable for the damages caused. It’s just like owning the tiger!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

Beware of Environmental Liability!

By Brian Madigan

Recently a restaurant proprietor wanted to determine his liability for payment of a tax bill to the City. Two previous tenants had operated restaurants out of the premises.

So, here’s what happened. The first tenant undertook some renovations to install the additional washrooms required for a restaurant. The Landlord who was the owner of the plaza agreed. There was, however, a small error made by the plumbing installer. The sanitary drain was connected by mistake to the storm sewer system. This resulted in waste products being discharged into a local creek. This situation went unnoticed for several years until there was a complaint by a neighbour. The City investigated, rectified the damage and sent a bill for the cleanup to the owner of the plaza. I should tell you this wasn’t cheap. The bill for the cleanup was over $ 40,000.00.

The applicable law in this situation is the Environmental Protection Act. In Ontario, this is a strict liability statute. It doesn’t matter whether it’s your fault, you may still be responsible. The Act imposes liability upon a “person responsible” who is defined to be the owner or the person having charge, management or control of a source of a contaminant. In this case, the noxious waste products were initially under the control of the restaurant proprietor and flowed from his plumbing system into the common system for the plaza before they entered the City’s storm sewage system.

The Act imposes liability upon the owner of the plaza as well as the restaurant proprietor. So far, so good! That seems to make some sense. But, there are a few complications.

The present owner of the plaza received the bill, but the contamination took place before he owned the plaza. The same was true for the tenant. The first tenant undertook the faulty work, sold the business to the second tenant (when the contamination occurred), who sold it to the present restaurateur.

However, under the Act, there may very well be liability imposed upon each of these individuals. The incidence of the liability can be shifted to another by contract, but it cannot be avoided. So, if the owner receives the cleanup bill and fails to pay it can be added to the municipal taxes. And, of course, most leases shift taxes to the tenant.

In this case, the present tenant is obligated to bear the loss and is left with a right to recover funds from others. That’s not the City’s problem.

So, be careful about the risk of environmental liability and have the issue properly addressed in all leases and sale agreements.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

Conviction of Homeowner ~ Illegal Basement Apartment

By Brian Madigan

I thought that you might find it of interest that a Brampton homeowner was charged and convicted under a by-law preventing the use of illegal basement apartments.

The homeowner will be required to pay a $ 25,000.00 fine, which happens to be the highest fine that can be levied under the by-law.

In this case, ignorance of the law could not be used as an excuse (by the way, this never works, but people still try) since this particular homeowner had been convicted once before. So, in essence this was a second offence.

Nevertheless, it certainly does show that Brampton is serious when it comes to basement apartments and the enforcement of its housing by-law.

In addition, the City of Brampton will seek to have the Real Estate Council of Ontario (RECO, the governing body for real estate agents) levy its own fines against the real estate agent involved. It will be the practice of the City to report any real estate agent who advertises an illegal basement apartment either for sale or for rent to RECO.

RECO, will have to determine how to handle such complaints. Obviously, some degree of censureship (not censorship) will be required. It would be reasonably expected that RECO will refer all such matters to their Compliance, Complaints and Discipline department. The agent involved in this case could face another fine.

And, this agent will not really be able to rely upon the “ignorance of the law” excuse. The agent was the homeowner!

In a press release the City has indicated that it will allocate additional resources to the enforecement of this by-law.It will continue to scrutinize MLS listings and classified ads, and will charge both buyers and sellers. The sellers are breaking the law now, and the buyers will be. The City will not provide any leniency just because the buyer claims some degree of ignorance
We’ll have to follow this case and see what happens.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters Coldwell Banker Innovators Realty Inc. 905-796-8888 or visit www.OntarioRealEstateSource.com

Illegal Basement Apartments

By Brian Madigan

So, you would like to have someone help you with your mortgage payments? Who wouldn’t! That seems reasonable. But, be aware of the risky proposition of renting out an illegal basement apartment.

There are literally thousands of houses available in the area right now with basement apartments, so finding one should not be that difficult. Right? No, absolutely wrong! In fact, most are illegal, so your chances of finding a legal unit is just like finding the proverbial needle in a haystack.

What difference does it make? If you rent an illegal apartment to a tenant and the municipality requires you to close it down, you will have some problems. You have to terminate the tenancy. This is your fault, and you will be liable for the Tenant’s moving costs, out-of-pocket expenses and the difference between what they paid to rent your unit, and what it will cost them to rent another (this time, legal) apartment. You may be charged by the municipality under the by-law and be obligated to defend yourself in Court. You will be ordered by the Court to complete the necessary repairs in order to convert the property back to a single-family dwelling.

Why does the municipality care? In an area where the municipality has expected 5,000 residents to live, there will be an infrastructure to accommodate 5,000 residents of various ages, including roads, schools, parks, and parking spaces on the street. If suddenly, that neighbourhood grows in size to 9,000 residents through a proliferation of basement apartments there will be a serious impact upon the community.

Just what is a basement apartment? The necessary features include 1) a distinct and separate, self-contained living unit, 2) a kitchen, or a place to prepare meals, 3) a bedroom or sleeping accommodation, and 4) a bathroom. Certainly, if it has all four features, then it is an accessory apartment. However, in many circumstances these features may be combined, and it will still be caught by the accessory apartment rules.

Why all the confusion with basement apartments and what makes them legal? In 1994, the NDP Government, then in power, passed legislation to provide that additional units (called accessory apartments) in houses were permitted as a matter of right. As a result, anyone anywhere in Ontario could create a second unit in their house. It didn’t matter what the local by-laws said; this legislation prevailed. About two years later, this Act was repealed by the Conservative government. Municipalities were again given the right to decide where these accessory apartments could be located. However, one of the most important provisions stated that all apartments that were created under the old legislation were still legal as long as they met the requirements of the Fire Code. And later, there was another change in the law to the effect that the second unit was legal only if it complied with the appropriate zoning by-law. So, the laws concerning this matter are quite complex. The application to particular circumstances is difficult, and it is almost next to impossible to determine the legal status of a second unit at the appropriate times.

Certain municipalities have introduced or plan to introduce a registration system which will record the legal status of all accessory apartments. Obviously, you should check the status if a registration system exists.

Nevertheless, you should beware of purchasing a house with an accessory apartment. Be particularly cautious when you see the words “owner does not warrant retrofit status”. This probably means that it is simply illegal. If it were legal, they would say so!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

Toronto Land Transfer Tax 2008

By Brian Madigan

After much debate for months and months, here is the new Toronto Land Transfer Tax that was just passed by Council on 22 October 2007 and takes effect on 1 February 2008.

Transactions entered into prior to the end of the year will be fully exempt whenever they close. For the first month of the year, the deals must close before February 1st 2008. After that, the full tax applies.

For all purchasers:

• one-half of one percent of the value of the consideration on sales up to and including $55,000;

• one per cent of the value of the consideration on sales exceeding $55,000 up to and including $400,000;

• two per cent of the value of the consideration of land containing one and/or two single family residences exceeding $400,000;

• one and a half per cent of the value of the consideration on commercial properties including multi-residential units exceeding $400,000 up to $40 million;

• one per cent of the value of the consideration which exceeds $40 million.

Where the net revenue after transaction fees would result in revenue to the City of less than $2.00, the purchase would be exempt from the Toronto Land Transfer Tax.Purchasers with a Purchase and Sale agreement on or before December 31st, 2007 will receive a full rebate of the Toronto Land Transfer tax regardless of the closing date.

Purchasers with a Purchase and Sale agreement signed after December 31, 2007 with a closing before February 1, 2008 will not be required to pay the Toronto Land Transfer tax.

Purchasers with a Purchase and Sale agreement signed after December 31, 2007 with a closing on or after February 1, 2008 will be required to pay the full Toronto Land Transfer tax.

For first time purchasers: a rebate of up to $3,725 will apply to first-time purchasers of both new and existing homes. This means a full rebate for first-time buyers of homes valued at $400,000 or less. For example, a first-time purchaser of a home valued at $600,000 would pay land transfer tax according to the scale shown above, and receive a rebate of $3,725. A first time home buyer of a home valued at $300,000 would get a full rebate on the land transfer tax.

These taxes are in addition to the Land Transfer Tax imposed by the Province of Ontario.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

Thinking About a Restaurant

By Brian Madigan LL. B.

The franchises are pretty expensive, with the franchise fees alone often amounting to over$1 million. After that, you have to acquire the site, furnish the restaurant and pay regular monthly fees to the franchisor.

Did you ever consider going it alone? There are many good restaurants available from $ 250,000.00 to $ 400,000.00 and they are making money. There’s no point buying a place that’s going out of business, unless you’re a turn around expert.

Look for a good restaurant and the first place to start is with the financial statements. The most important feature is to make sure that it is making money consistently. After that, you will want to visit the site and conduct your inspection. How good is the equipment, from ovens and stoves to fridges and freezers? Are they new, or is this the reason the owner is selling?

Review the records of the Health Inspections over the last two years. Consider the source of profit from both food and beverages. What hours did the owner maintain and what group constituted the major component of the clientele?

A recent listing shows a 5,000 sq. ft. restaurant producing a yearly profit of $ 125,000.00. It is listed at $ 375,000.00, or 3 times earnings. Is this a good deal? Well, it all depends on how you look at it. If you bought a share in the ownership of a company on the stock market, you would have to pay about 12 to 14 times earnings. But, you wouldn’t have to cook any meals! So, you have to deduct the reasonable wages of the owner from the profits.

In this case, the financial statements confirm that all staff are paid; servers, bartenders, busboys, chefs and the duty managers. The owner’s return comprised management fees, supervising services and shareholder dividends. The owner only spent 5 hours/month on all activities related to the restaurant. So, all in all, the price represented just a little more than 3 times before tax earnings.

In addition, the financial statements disclosed that almost $ 100,000.00 had recently been spent on equipment and another $ 150,000.00 had been spent on leasehold improvements. If the business appears to be a viable one, and you have studied the financial statements, an individual restaurant with a good track record can represent a very attractive alternative to the national franchises.

Whatever your choice, you should look into the matter of financing before you submit your offer. Some institutions shy away from restaurants and particularly single locations. However, there are other investors who specialize in restaurants and can provide valuable advice, as well as financing.

So, this brings us right back to our question, is this a good investment or not! Probably, it all depends on the lease. If the lease is about to expire, what does the restaurant owner really have to sell? If it provides renewals at rates substantially higher than the market; that is not good either. What about rights to renew at rates below market? That would increase the profitability in the years to come. And, higher rates could wipe out the profit in its entirety. If you’re planning to buy a restaurant, negotiate a good lease with the landlord, with guaranteed renewal terms at favourable rents before you agree acquire the business from the present owner. Make this a condition in your offer.

A realtor experienced in restaurant acquisitions can be very helpful in such circumstances. And, don’t forget a good accountant and lawyer too!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,
Coldwell Banker Innovators Realty
905-796-8888
http://www.ontariorealestatesource.com/

Be Cautious if You are a Residential Landlord!

By Brian Madigan LL.B.

If you are a residential landlord or you are contemplating becoming one, you should have a look at some of the new rules.The Residential Tenancies Act came into force in January 2007.

Basically, it tips the scales of justice a little further in favour of tenants and particularly professional tenants.Some of the changes are difficult to justify and one might speculate that they are motivated more by politics and perception than they are by necessity.

One of the new hotly contested issues is the matter of the eviction process. Under the former legislation, a Landlord could make application to evict a Tenant for non-payment of rent. If the Tenant did not oppose the application, the Landlord could obtain a Judgment by default. This streamlined the eviction procedures somewhat and is similar to other civil actions in other Courts. This right has been changed. All cases will now be placed on the trial list, whether the Tenant opposes the eviction or not. Naturally, you can assume and you will be right, this takes up a lot of additional time and makes for an inefficient system.

There is an additional issue. If the Tenant shows up before the Landlord and Tenant Board, any issues related to the tenancy can be raised. This matter is fraught with difficulty. The Landlord is caught off-guard and either the case needs to be adjourned or the Landlord needs to be ready for a full trial on every occasion.The Landlord and Tenant Board has the right to reduce the rent, order payment of a abatement in rent and freeze the rent pending a further application.

This can happen simply in a proceeding to have the Tenant evicted for non-payment and essentially without notice to the Landlord.The result is difficult for Landlords. Every case must be prepared thoroughly, as if all issues that might arise during the course of a tenancy must be defended against. Obviously, this will be costly.In addition, at every Landlord and Tenant Board hearing, there is a lawyer made available free of charge to assist tenants, no not both parties (that would be too fair) just tenants.

So, if you are a residential Landlord be careful!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

Keep Good Financial Records!

By Brian Madigan

If you are in business you should keep good financial records. Many small businesses neglect this tedious and somewhat time-consuming task. Careful records take time. And, if you don’t really have the time yourself, then you should retain a bookkeeper and an accountant.

Why? It will simply pay big dividends in the future. I’m not really talking about all the tax deductions that you don’t miss because you have proper receipts, or even the warranty claims that you can present because (again) you have receipts. What I’m talking about is much more significant.

It’s the sale of the business, the accumulated wealth of your lifetime of work. Is there any value to it? What is your business really worth? Who will buy it? And, most importantly, what will they pay for it?

In most industries, there is some kind of a “rule of thumb”. Businesses are worth a certain multiple of their net profits. Oftentimes, this ranges from three to seven times the net profits. But, how are you going to prove your “net profits” if you don’t have good financial records. They need to demonstrate some stability. Basically, that means at least three solid years. Also, they should illustrate increasing profits. The more you pay in income tax, the better. If you’re generating profits and paying income tax and GST, then this must be a worthwhile business.

The Real Estate and Business Brokers Act calls for the production of financial statements in all cases. However, there is a specific exception under the Act. If the purchaser agrees, the vendor can simply provide a list of assets (equipment and chattels) included, and another that sets out what is excluded, as well as particulars of the possession or occupation of the business premises. Far too many vendors take advantage of this opportunity. The problem is that they often only receive a tenth of the true value of their businesses (or even less).

If you are planning to sell your business in the next three years, the first item on the agenda should be to retain an accountant. The second item should be to drive the net profits as high as possible and in fact pay a significant amount of income tax.

So, keep excellent records, if not for yourself, for your purchaser!

Brian Madigan LL.B., Realtor, Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

Multi-Unit Apartments

By Brian Madigan

A number of clients will ask about multi-unit apartments. Are they good investments? Do they make sense? What’s the cash flow? How do you manage tenants? And, more importantly, can I afford one?So, let’s have a look a recent listing and see if the numbers make sense.

As for the tenant issue, most people make good tenants, so you really just need to know how to find them. The bad tenants get all the publicity. Rarely, do you hear a story about a good tenant who pays on time.

Here are some of the particulars:

20 units

almost ½ acre of land

2 storey structure

about 30 years old

brick and concrete construction

26 parking places

hallways of terrazzowood floors in suites

Financing asking $ 1,850,000

assume first and second for $ 1,500,000

cash required $ 350,000 as in cash to mortgage (ctm)

Gross Income

gross income $ 197,316

expenses $ 76,613

More detailed Expenses

Taxes $ 36,419

Insurance $ 2, 074

Gas (heat) $ 9,910

Hydro $ 8,455

Water $ 6,273

Maintenance $ 9,000

Superintendent $ 1,500

Vacancy allowance $ 2,000

Snow removal $ 1,000

Total $ 76,361

The cash flow

net (before mortgage payments) $ 120,685

1st $ 5,473.89 (p+i) monthly (interest rate 6.53%) due in 2 years

2nd $ 1,744.81 (p+i) monthly (interest rate 5.00%) due in 2 years

net cash return $ 34,061plus (p paydown) $ 19,260

Total annual return $ 53,321

Analysis

So, a $ 350,000 investment will yield an annual return of $ 53,321.Or, another way of looking at it would be to say that your income will return your cash investment in 6.56 years.The income is 15.23% of your actual cash investment.You should also know that financially you will not be able to mortgage the rest. In other words, you really need this $ 350,000 as your downpayment. If you have it, then the numbers will work for you. If you don’t, then the additional costs of financing will remove all of your profit.On these types of properties most banks will provide up to 75% by way of a first mortgage.

Secondary financing will provide a further 15%. So, in most cases, the amount of equity you will require will be 10%. Another way of looking at this would be that you would be generally able to acquire a property 10 times the value of your downpayment. The revenue stream from the building will be all the information that the lender requires. It’s not like a residential mortgage that would be limited by your other income.

If you were to compare it to a GIC from a bank, you’re likely to find that you will have about triple the return. In addition, the $19,260 is principal paydown and it’s not taxable. In fact, should you later withdraw these funds by way of an increased mortgage, you will find that it will not be taxed at that time either.

You will be able to deduct your expenses for tax purposes and you will have to include your income. You will also be able to claim depreciation on the building at the rate of 5% per annum. When you sell, the increase in value will be subject to capital gains tax, unless you are considered to be “in the business” in which case, the increase in value must be reported as income.

While this is not intended to be an exhaustive list of what to look for in a multi-unit building, you will want to inspect the building carefully for any immediate repairs. In fact, you should set up a budget for capital replacements. Obviously, you should have the building professionally inspected.

When it comes to residential tenancies, you will have to look at the Residential Tenancies Act that came into force in January 2007.Some investors like multi-unit apartment buildings and some don’t. Others seek to acquire them in order to convert them to condominiums. There is usually a good profit if this can be done.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Coldwell Banker Innovators Realty

905-796-8888

www.ontariorealestatesource.com

Retirement Homes ~ A Business Opportunity

By Brian Madigan LL.B.

Did you ever consider a retirement home as a business opportunity? Did you know that it is one of the fastest growing sectors in the market. Obviously, this is due to the aging population. And, the demand for space in retirement homes will continue to grow.

You should be aware that retirement homes unlike Homes for the Aged, Nursing Homes and Private Hospitals are largely unregulated. Space, accommodation and the services provided are all subject to the market forces of supply and demand. A good and successful facility will house a good mix of people. It will have a reasonable division between private areas and common areas. There should be plenty of places to sit and relax, and simply catch up on one’s reading. If you don’t have the time to read in your retirement, then just when are you going to read?

There is also a need for physical activities. Today’s aging population is far more active than were previous generations. A place for a gym, yoga class or dance class would work well. Playing cards and pottery classes are becoming less popular.

If you are considering starting a retirement home or acquiring an existing one, you should think about the maturation of the home population over time. A retirement home which opens up to new residents, will soon fill up with the young elderly. These are people in their seventies, often with an average age around 75. However, as time goes on, the retirement home will find that its average age increases with its residents. In 10 years, the home will have a population of 85 year olds, and in a further decade the average age will be 95.

Now, of course, there’s attrition. Some residents will move, some will become ill and require a nursing home and others will pass away. But, the important matter to note is that the average age is increasing. As new residents move in, they are likely to be attracted to a home with an average age close to their own. So, if your average age has increased to 85, then you are likely to attract 85 year olds. The 75 year olds will go elsewhere. That issue becomes the most difficult matter to manage when you are running a retirement home. So, what’s the solution?

Actually, the solution is obvious. You expand! You continue to build onto your existing facility. You need to attract the young elderly and in order to do so, you will have to offer relatively new facilities catering to the young elderly.So, when you are looking for a facility you will need to ensure that there’s lots of room for expansion. You need to have a 20 year strategic building plan.

To simply acquire an existing facility and hope that the business will maintain itself would be rather foolhardy. Your business success is in the “mix’. The changes in demand for services will never be greater than the 75 to 95 age range. Residents will become more and more dependent and require more and more services to assist them in their daily living routines. Each of these additional services becomes an additional profit centre.

So, if you’re thinking about buying a retirement home, be sure you know the average age of the residents and be sure that you have room to expand.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Coldwell Banker Innovators Realty

905-796-8888

www.ontariorealestatesource.com

Ontario Real Estate Source

Brian Madigan LL.B.

This particular blog will focus upon commercial real estate, investment properties and businesses.

The articles will deal with the markets, law, and finance as they relate to commercial real estate.


Emphasis will be placed upon the small entrepreneur and investor.

You can visit my other real estate blog which has a more residential an individual perspective:
http://ontariorealestatesource.blogspot.com/

or my website.

Brian Madigan LL.B., Realtor, author and commentator on real estate matters
Coldwell Banker Innovators Realty
(905) 796-8888
http://www.ontariorealestatesource.com/