MULTI-UNITS\APARTMENT BUILDING – LOCATION: MONTREAL, CANADA – PRICE – $1.5 Million.
I will walk you through the complete process of how I recently bought an apartment building in the heart of Montreal, Canada for $1.5 million. It would be easier to understand and to follow the whole process in steps to make it easier to understand. I cannot emphasize enough how much I like MULTI-UNIT PROPERTIES; from my 8 years of experience.
It is the best investment anyone can do to BUILD WEALTH over time. Most of the time people are really scared to invest for no good reason.
COVID-19 has impacted many lives around the world and luckily, I completed my first and probably last house flip. We listed our house after a long renovation period through winter around Mid-March 2020 and as we know how COVID-19 stopped everything in Canada starting Mid-March.
In short, we found a buyer for our house after the real estate market opened in May and I was waiting so eagerly to go back to my usual business of rental properties and get over with the nightmare of flipping. Some people say that flipping has a lot of money and is one of the way to obtain financial freedom but it didn’t work for me. I will write another blog about why I do not want to do flipping anymore.
NOTE: The whole process of closing this apartment building deal took close to 6 months due to COVID, normally it should take 2-3 months.
Step 1 – (June 11, 2020) – Planning
I had a meeting with my realtor (Jean Dreau) to send me property listing alerts by email. Normally, I give him specific requirements like 7 or more units, price between $800,000 to $2 Million in the Montreal Area excluding neighborhoods like Laval, Longueil. I never saw any good deal coming out of Laval. But Longueil always has good deals, but I do not fancy that neighborhood yet.
REASONS TO GET LISTING THROUGH REALTOR
- There are sites like realtor.ca, centris.ca or remax.ca which has most of the listings available but they are missing one of the main information which is Income and expense details. Information like property income, total expenses and other ratios are not shared on those public sites. This is only available through the special link provided by my realtor.
- Realtor’s know about Locations, properties and other Realtors. They provide insights which we won’t know without their help. It’s very important to work with qualified Realtor.
About Jean Dreau, I have been working with him for the last 6-7 years and all my real estate deals came through him. I have tried other realtors before him, but it never worked for me and for some reason he is very lucky for me. I have found every single deal with him within just 30 days from the time we actively started looking for property. He is a very polite French guy and very valuable for my progress. I strongly recommend him (email@example.com) if you are looking for any good deal around Montreal or South shore areas.
Step 2 – (June 12, 2020) – Analysis and Reviewing Listings
I received an email with a list of properties the next day and there were around 120 active listings available matching my criteria.
I just spent one hour going through all the properties quickly and shortlisted 10 Properties. I just sent 1 property (listed for $1,539,000) out of 10 to Jean Dreau to check out if this property is still available.
Mind you, this property is in one of the best areas of Montreal and I have no hopes of getting any positive response because these properties go fast.
Step 3 – (June 13, 2020) – Property with accepted offer but shady buyer
Well, as I expected that Property already had an accepted offer. But we were informed that the offer may be failing because the buyer is not able to get financing. Current buyer is trying some weird financing method and trying to get 35-year Amortization which is not heard of anymore in Canada. They were asking for some old invoices of renovations which are not available and there is no way they could go through.
Step 4 – (June 14, 2020) – Taking a chance.
Seller offered us to place an offer at second position and we will go directly in if the current offer fails.
We decided to place an offer at second position to take a chance because property is located at one of the best areas in Montreal. Mind you, this will block us for buying any other property while we are at second position.
At the same time, we sent the property details to the mortgage broker to find out how much down payment is required to buy this property.
We were informed that it would be around $350,000 and we were fine with that. It will be mentioned in the offer that we will be putting down $350,000 to make this purchase.
Another important point about down payment, I knew it will be a bit more than $350,000 for sure based on my earlier experience with other deals.
Step 5 – (June 15, 2020) – Good News
Here comes the good news! We are informed that the current offer has been dropped, and we are in a good position to make an offer. Current offer is expiring in a week, but we are already talking to the Seller, so we will be able to make an offer before systems generate an alert that this property is back to market.
This is kind of good for us as there is no competition. We were able to make an offer before the property is going back to market.
Step 6 – (June 16, 2020) – Making an offer
Purchase offer was prepared by Jean Dreau, he sent us to review it to make sure it’s all good before preparing for the final offer to sign. We made small changes and the final offer to purchase was signed online by us. We made an offer at $1.5 million.
One of the big differences between buying a house and rental property is that we do not visit the property before giving the offer. We are sending offers based on location and property income. We will be able to visit the property once the offer is accepted and we will have a choice to quit from this deal if we do not like the property.
June 16th, 2020 around Evening – Offer Accepted
I received a text from Jean Dreau that our offer is accepted, and We will have a call next day to plan for next steps.
Hurrah! It’s a big deal to have an offer accepted these days in Canada because of the sellers’ market and there are a lot of buyers normally fighting for the same property.
Step 7 – (June 22, 2020) – Property Visit
Earlier, I mentioned that we cannot visit the rental property without an accepted offer. Now, it’s the time, we have 7 days to visit the place as per conditions of accepted offer. Jean Dreau coordinated the property visit with the seller for 22nd of June.
This visit involves visiting all the units and checking outside.
It is an old property, and it needs some work outside. We probably need to repaint the outside and fill some holes. Lot of light fixtures are missing on balconies; brick walls need some repair. Balconies need a lot of repair.
Estimated repairs – $10,000 – $15,000
No easy access to Roof, we will check during inspection.
All the apartments are in very good conditions, and all of them look clean and well kept. You want to especially check the Washroom and kitchen because that is the main area which costs during renovations.
There was a big renovation done around 2014 and all the washrooms and Kitchens looked very good.
Step 8 – (June 23, 2020) – Appointment with Property Inspector
We are satisfied during property visits and like to go ahead with the next step of getting property inspected by a professional.
I just made a quick call to my regular property inspector to book an appointment for 29th June. We are on the clock to complete all the steps; we have 14 days to complete the inspection.
Step 9 – (June 23, 2020) – Documents
We have 60 days to get the financing and the first step for that is to collect all the documents for paperwork for my mortgage broker and bank.
- Apartment rental leases
- Insurance invoice
- Electricity and Heating bills
- City and School Taxes
- Phase 1 Report
- Property Listing with all the details.
- Certificate of location (Need new one if it is 10-year-old)
- Environment Report
- Copy of Accepted Offer
There was a lot of work to match the rents and apartment size between lease and the listing. We found a lot of mix-up for the rents on the listing. Rents were listed against wrong apartments.
We had this corrected by the Seller’s agent to make sure we sent the correct listing to the bank.
Step 10 – (June 23, 2020) – Financing through Mortgage Broker
I have been doing all my banking with TD and I have mortgages with several other banks. But I have never gone directly to the bank to get a mortgage.
I have been working with Louis (Mortgage broker) for the past 3-4 years and have done multiple financing through him. It is a good time to be a mortgage broker, I have sent some basic details about this deal to Louis around the time we gave the offer to purchase. But now it is the time to involve me completely.
Mainly, I sent all the documents which I mentioned in the previous step to Louis by email. Earlier, he used to tell me what exactly he needed or missed but now I know exactly what he needs at this point after doing so many deals.
Step 11 – (June 24, 2020) – Personal documents for Financing
Financing has two parts:
- First it is all about the property and its income.
- Second, it is all about me and my current income, assets, and liabilities. Bank does not care too much about my personal income because we are buying rental property with good income. But still the bank wants to make sure I have a good credit record.
It gets very tedious and time-consuming dealing with all the documents. Sometimes, I wish I had a secretary to get all this done.
Here is the list of documents which I had to provide.
- Current rental Property leases and Rent Roll, Bank can see my liabilities in credit report, and they want to write it off with the income. So, I need to show all the Rent rolls for current properties.
- Notice of Assessments for past 2 years. There are 3 incorporations and 3 people who own these incorporations involved in this transaction. I need to get the past 2 years Notice of Assessment for all these 6 entities.
- Most important, Down Payment. I need to provide bank Statements for the past 3 months to show down payment which is around 25% of purchase price.
- Incorporation’s Financial Statements
Step 12 – (June 29, 2020) – Property Inspection
The Property Inspector will check every single detail of the property which mainly includes Plumbing, Electricity, Foundation, Roof, Heating System, Outside brick wall, Balconies.
- Roof – It is old and needs to be replaced within 5-8 years.
- Balconies – Wood seems rotten, so they need to be changed or repaired soon.
- Foundation – It is newly done in 2014, so it looks pretty good.
- Apartments – Apartments were renovated in 2014, so nothing wrong there, they are in very good shape. Just some minor things here and there.
- Exterior–It needs some work, there are holes, brick issues, paint is peeling off.
In general, it looks like there can be around $25,000 – $35,000 need to be spent on roof, balconies, outside walls and sidings. We originally got a discount of around $25,000 when we gave the offer and I think we will settle with the current price and we will not further negotiate any price.
Normally, this is the point when you can go back to the buyer and negotiate the price again based on how much work property needs. This all depends on the market whether it is a buyer or seller’s market. You have more control of negotiating prices in the buyer market but good luck getting any price reduction in the Seller market.
Step 13 – (July 1st, 2020) – Still waiting to hear from bank for Financing
We are still waiting for approval from the bank. I have no news about this at this point. I like to remind you, we are buying this property during COVID 19 Pandemic, so there is nothing normal these days.
Now we have Mortgage approval that is one of the main things left to close this deal. We received a couple of documents like Insurance and Hydro invoices little late. So that may have delayed the mortgage process. I will be calling my mortgage broker sometime tomorrow to find out what is going on.
I know from my previous experience that we will need at least 1-2 months to go through the whole process.
It is mainly because we are going to take CMHC Insurance which is separate from the Bank and that process takes 1-2 month before COVID.
What is the benefit of going with CMHC Insurance?
CMHC is extra insurance and we will be paying quite a bit in fees. Just bank processing ($1300) and CMHC application fees ($1700) will cost around $3,000 and around $50,000 will be added to the mortgage.
So, why would I pay extra $50,000 to get this insurance?
- We will be able to get 30 Years amortization instead of standard 25 years, this will reduce our monthly payment.
- We will be paying around 1% less in interest, so just 1% difference in interest will pay off $50,000 in 5 years.
- Down payment will be lower by taking CMHC Insurance, in some cases it can be more.
- In short, we will be able to keep more money in our hands instead of paying to the bank by going with CMHC and this money can be reinvested in next property soon.
Step 14 – (July 6th, 2020) – Financing with TD Bank
We will be working with TD bank for the mortgage and I have received a couple of forms to fill out my personal financial information. It took me over 2-3 hrs to fill out these forms because it needs information about all my savings, stocks, existing rental properties, property Insurance, property taxes, all debts and liabilities, all assets and total net worth.
I am in direct contact with TD Small Business Account Manager and sent all the filled-out forms to him by email.
Step 15 – (July 7th, 2020) – Inspection report and Payment
We received the inspection report a few days prior, and there are a lot of details. I will go crazy and will never buy any property ever if I must follow this report to each word. Mainly, we need to look at big stuff.
Also, I have sent a check of $1,400 payment to the Inspection company by mail.
Step 16 – (July 14th, 2020)
Still waiting for further information from Mortgage Broker or TD Bank, it feels like the Bank is very slow in processing my file. I sent a follow up email to my mortgage broker to find out what’s going on with my file and we should push it to complete it this week. So, it can be sent to CMHC for insurance. CMHC is supposed to take around 4-5 weeks.
Step 17 – (Oct 15th, 2020) – Loan Approved
COVID 19 has its effects; it took forever to get approval from the bank, and we seem to be lucky to receive it by October. I was told that it is taking 6 months for any new files that goes through CMHC. It’s difficult to believe that it can take that long.
At last, we have the approval from CMHC and the bank is still taking some time to provide us with final approval from their side.
Step 18 – (Oct 18th, 2020) – Property Insurance
Property Insurance is required by the bank and it’s needed before we go for notarization to sign the final papers.
In the past, I have gotten insurance within 1 week. But I had no idea that this is going to be one of the difficult things to do out of all the steps. Something has changed for insurance companies in the last 1 year in Montreal. No Insurance company wants to insure any property older than 50 years, that’s crazy because 99% of the properties in Montreal are older.
It took me over one month to finalize insurance at around $8k and the seller was paying around $4k. It sucks but that is what it is, I will have to try something next year to find cheaper insurance.
Step 19 – (Nov 20th, 2020) – Notary\Lawyer Appointment
We normally hire Notary in Quebec to do final paper signing, People use Lawyers at some places in Canada.
Bank is still working on papers, I thought I will call the Notary to start getting dates for signing.
Normally, you can get some dates within 2 weeks range, but it is COVID time and nothing is Normal.
I was told that there is no date available before January and banks are taking very long to provide papers. So, Notary will not even give me a date until the bank sends him the documents.
Step 20 – (Nov 25th, 2020) – Final papers from bank
I started to put a lot of pressure on the bank and started calling them daily until they sent the papers to Notary around 25th Oct.
Step 21 – (Dec 1st, 2020) – Notary Follow-up
Now, I started calling Notary daily and even they started dodging my calls. Eventually they gave me an appointment for 10th Dec for final signing. Hurrah.
Step 22 – (Dec 3rd, 2020) – Missing Minute Book
Hurrah, Not so fast.
I received a call from Notary that the bank needs a “Minute Book” for my incorporation, and I do not maintain a Minute book. I called my accountant, and he will talk to Lawyer to get it done ASAP but now there is a possibility of missing 10th Dec date.
I made a quick call to my Accountant who connected me to one of the lawyers. He helped me to put together a Minute book quickly within 2-3 days, it cost me $500 though.
Step 23 – (25th Jan, 2021) – Signing
We did the final paper signing on 25th Jan 2021, it took forever for certain things to work out. It never took so long for any of my previous deals.
We had to sign lot of papers sometimes around Mid-January which is mainly for the bank to release the funds to Notary. Normally, it’s done around 1 week before the final signing date, to give enough time for the bank to release funds. Notary received the funds from the bank on 22nd Jan.
Also, we did the wire transfer for the whole down payment to Notary’s account on 22nd Jan. We can either get Demand Draft, Certified Check or wire transfer, later option seems to be the fastest.
Notary did the final adjustments to calculate rents, property tax as of 25th Jan.
We will receive the final papers from the Notary in a few days by mail.
Step 24 – (25th Jan, 2021) – Meeting Tenants
We have just few days before 1st Feb (To make sure we receive the rents) to meet all the tenants to hand over the letters signed by Notary shows the change of ownership.
We bought small chocolate boxes for each tenant and they were so happy with the gesture.
We were also very happy to see tenants. Everyone seemed very nice.
Step 25 – Welcome Tax\Land Transfer Tax – (Within couple of months)
Let us not forget the government\city, they want their share in this transaction as well. It can be quite a bit based on the property purchase price. Every city has its own calculation, it works in a price range portion and different percentages are charged for each portion.
For example, in Montreal for year 2020-2021 –
- 0.5% on the first $ 50,000
- 1.0% on the portion of $ 50,001 to $ 250,000
- 1.5% on the portion of $ 250,001 to $ 500,000
- 2% on the portion of $ 500,001 to $ 1,000,000
- 2.5% on the portion exceeding $ 1,000,001
For this purchase, we will be paying around $28,000 which is a substantial amount. While buying a real estate you need to make sure you have a plan for this as well.
You will receive the bill from the city within 1-3 months and payment needs to be done within few days. You may need to call the city to find out different payment plans.
We are really happy with this purchase and I like to thank my team and family members for supporting and making it happen.
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