Toronto Legal Luxury Triplex Conversion – Real Life Example!

It’s a lot harder to find a cashflowing property in Toronto… but it is very much possible if you’re looking at real estate through the right lens.

One of the things that we hear over and over is: Isn’t Toronto too expensive?  Isn’t Toronto too risky? There aren’t any good investment properties in Toronto.

To those people, we reply “It’s just because you aren’t working with the right Investor Realtor”.  

We get it.  Investing in Toronto is tough.  It’s a lot harder to invest in Toronto than it is to invest in Hamilton, or Windsor or Waterloo.  It’s a lot harder to find a cashflowing property in Toronto… but it is very much possible if you’re looking at real estate through the right lens.

Not everything in Toronto will be handed to you on a silver platter.  Because property prices are much higher, it means that mortgages are much higher… and as a result, it is harder to obtain cashflow positive properties.  While they do exist, and while we do find them for clients, they are far and few between.  This leads some investors to create those opportunities themselves.

One of the best investments in Toronto is a Legal Luxury Triplex conversion.  It does take considerable resources to undertake, but for those who have the means, it is a solid way to invest.  Not only do you get the equity upside from the change of use from a single family to a legal triplex, but you already get increased rents.  And after refinancing at the higher property valuation after the renovation, you can often get back almost all of your renovation money back in the form of an equity takeout.

Here is a recent real life example of a Legal Luxury Triplex conversion that a client completed:

• Acquisition: $1.35M
• Downpayment (20%): $270k
• Mortgage (80%): $1.08M
• Closing costs & LTT: $51k
• Reno: $550k
• Length of reno: 16 months
• Carry costs: $80k
• Total invested capital (downpayment, closing, LTT, reno, carry costs): $951k
• ARV Market value: $2.2M
• ARV as per appraisal: $2M
• Refi mortgage (80%): $1.6M
• Equity takeout: $520k
• Net invested capital: $431k

The $520k equity takeout means that the investor gets back almost their ENTIRE renovation costs!!  Keep in mind that while the market value of the property may be $2.2M at the end (i.e. that is what it would be worth if you were to sell it), appraisers may only conservatively appraise it at $2M in order to protect the banks’ interest, which means that you won’t get the maximum refinance possible – c’est la vie.  That said, if you want to learn more about how Volition advises clients in order to get the highest possible appraisal value, click here!

Here is the cashflow analysis after refi:

• Rents: $8600
  • $3600 (2nd/3rd Floor: 3bdrm/2bath) 
  • $2800 (Main: 2bdrm/1bath) 
  • $2200 (Lower: 2bdrm/1bath) 
• Expenses (property taxes, insurance, hydro, gas, water): $1200
• Monthly Mortgage Payment: $5700
• Cashflow: $1700

This is an incredible amount of cashflow even after the increased refi’d mortgage!  (Not to mention the additional $200k built in equity lift that we weren’t able to refinance – i.e. the differential between the $2.2M market value and the $2M appraised value).

At the same time, it took a lot of time and effort to create this opportunity.  We illustrate this example to demonstrate that there are indeed solid investment opportunities in Toronto if you have the capital, mortgage qualification, and savviness to make it happen.  Volition offers the Advisory services (to help you plan and strategize), Investment Realty services (to help you find that ideal property to execute this investment strategy on), and Design/Build services (we can manage the ENTIRE construction and conversion and approvals process for you) – everything you need to be successful.

Lastly, some of our more sophisticated and aggressive investors choose to use this $500k+ Equity Takeout in order to roll forward and do another project.  Rinse & repeat.

It might not be for everyone, but if you think this might be for you, reach out to us and let’s have a conversation about it. Book an Advisory Session.