# Pondering a two-fer



## Prospector (Jul 25, 2014)

Sorry to keep bothering folks with daydreams. 

I have been hunting for a good rental for a while, and I've been having a hard time finding something that works. I just found a pair of houses down the road from each other that do though. I mean individually, they both fail, but the combined efficiencies of the pair of them means the math works. 

What would happen if I went to the bank and tried to get financing on this? Would it be a traditional mortgage on each house, or would the bank raise an eyebrow to see a buyer coming in with two deals at once? Also, how do I make an offer on 'House A' conditional on getting 'House B' and vice-versa? I am not interested in buying either house on its own.

Any tips?


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## Just a Guy (Mar 27, 2012)

I often go to the bank for mortgages on multiple houses. They don't care as long as the math works.

Speaking of math, you may want to check yours again as I've rarely found where if you lose money on both, you can suddenly make money if you buy both. That sounds a lot like we lose money on every sale, but plan to make it up in volume.

Even if you somehow fudge the numbers to show a profit, it can't be much of one if they both fail individually. 

As for the conditions of sale, you can write up whatever you want, as long as the seller accepts.


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## Rusty O'Toole (Feb 1, 2012)

Prospector said:


> Sorry to keep bothering folks with daydreams.
> 
> I have been hunting for a good rental for a while, and I've been having a hard time finding something that works. I just found a pair of houses down the road from each other that do though. I mean individually, they both fail, but the combined efficiencies of the pair of them means the math works.
> 
> ...


You will have to make offers on both properties conditional on financing, and any other conditions you choose. You could make both offers conditional on getting the other property. Once you have 2 accepted offers you can try and get financing. It should not matter that you are buying 2 properties as long as you qualify.

If you don't get both properties or don't get financing you can let the matter drop or back out of the deal.

Will offer one other word of advice. If you ever own two adjoining properties they will merge automatically whether you like it or not. This reduces their value and saleability as it means they must be sold as one property, and it is very costly to sever them again and might not even be possible. To avoid this you will need to register them to two separate owners. Ask your lawyer about this.


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## Prospector (Jul 25, 2014)

Thanks guys - maybe I should be clearer, the margin of profit individually is not high enough to give me comfort. In this sense the math fails. Once the two properties are combined though, the margin gives me more comfort. Plus 100% vacancy on 5 units is less likely than 100% vacancy on 2 units, so the risk is lower. If I lose both tenants in house A, I still have the income from house B to offset the losses somewhat. 

Both of these need interior redos, so I will be needing to stagger possession by a month or so to get a contractor in for electric/drywall/roofing. I can book one guy for both places and having him already set up and just moving down the street means a bit of an efficiency there as well. By redo, I mean drywall, trim and flooring. Although there is a cost to this, it will mean instant equity - crumbly plaster on an old house is scary, I guess. BTDT, not too worried - plus I can insulate while I'm at it. Laminate goes nicely over lino in the living room/bedrooms, so I'm not worried about that.

The only spot my math may be telling me lies is on the HELOC - I'm guessing a 5% interest rate on it and using the calculator on RBC's site. Nailing down an interest rate on anyone's website is pretty near impossible though. Anyone willing to share what they use for a HELOC interest rate for down payment?

My other numbers are all pretty conservative - I'm using a 5% mortgage (fixed) on a 5 yr term with a 30 yr amortization - grossly overestimating costs there since reality is 2.6 - 2.75%. Taxes I'm getting from MLS, and for maintenance/PM I have based on 10% of rents individually. If a property (usually duplexes) shows less than $350/month I move along. If its over $400/month I get interested.


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## Mukhang pera (Feb 26, 2016)

Rusty O'Toole said:


> If you ever own two adjoining properties they will merge automatically whether you like it or not. This reduces their value and saleability as it means they must be sold as one property, and it is very costly to sever them again and might not even be possible. To avoid this you will need to register them to two separate owners. Ask your lawyer about this.


Not saying you're wrong, Rusty, but that's the most bizarre thing I have ever heard applying to real estate law. It is certainly not the law in British Columbia. Can you tell us the jurisdiction to which you refer and the enactment under which it occurs? Also, how does the "automatically" part work? Does a computer somehow scan all documents filed at the Land Title Office or Land Registry Office and, in the process, it identifies identical names and and contiguous parcels? Is it smart enuff to ferret out that John Doe is the same person as John David Doe? If there be doubt, is an investigator assigned?

In British Columbia, a "Transfer of Estate in Fee Simple" form might identify the purchaser thus:

John Doe, real estate investor, of 2607 West 35th Avenue, Vancouver, British Columbia.

Let's say next year, the same John Doe buys the house to the immediate east (2599 W. 35th). He tenders for registration a transfer identifying the person entitled to be registered as owner in fee simple thus:

John David Doe, businessman, of 2599 West 35th Avenue, Vancouver, British Columbia. 

Will the "system" be smart enough the ferret out that the same person holds both estates and merge the titles? And what happens once the automatic and undesired merger occurs? Presumably a new title and legal description must issue. If merger has occurred there is no longer, for example, Lot 1, District Lot... and Lot 2, District Lot.... So the system has to create a new description. Also, in BC, "parcel identifiers" now issue for all parcels and, upon merger, one will be struck. Which one?


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## nobleea (Oct 11, 2013)

Prospector said:


> Thanks guys - maybe I should be clearer, the margin of profit individually is not high enough to give me comfort. In this sense the math fails. Once the two properties are combined though, the margin gives me more comfort. Plus 100% vacancy on 5 units is less likely than 100% vacancy on 2 units, so the risk is lower. If I lose both tenants in house A, I still have the income from house B to offset the losses somewhat.


Why do they have to be beside each other, or even a few houses away, for this to be true? Are things likely to fail at the exact same time such that a maintenance call out can be done as a two-for-one? How is this different from House A and House B being 10 mins apart? And why do they have to be purchased together and not a few months or a year apart?


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## Prospector (Jul 25, 2014)

While it is strange, I was aware of the danger of merging properties through buying adjoining land in the same name. I often see developers playing this game through my work. Buyying lots in their name, their wife's name, and jointly to create 3 different owners until the parcel is to be joined, then selling the whole block to a numbered corp before redeveloping. Its very common here (GTA).


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## Prospector (Jul 25, 2014)

Nobleea - It doesn't, but it is a nice thing to have one property manager to deal with and to have them together running in a team.


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## Rusty O'Toole (Feb 1, 2012)

Mukhang pera said:


> Not saying you're wrong, Rusty, but that's the most bizarre thing I have ever heard applying to real estate law. It is certainly not the law in British Columbia. Can you tell us the jurisdiction to which you refer and the enactment under which it occurs? Also, how does the "automatically" part work? Does a computer somehow scan all documents filed at the Land Title Office or Land Registry Office and, in the process, it identifies identical names and and contiguous parcels? Is it smart enuff to ferret out that John Doe is the same person as John David Doe? If there be doubt, is an investigator assigned?
> 
> In British Columbia, a "Transfer of Estate in Fee Simple" form might identify the purchaser thus:
> 
> ...


I thought so too but it is true in Ontario. I'm not saying everywhere but it is definitely true in Cobourg and Belleville. In one case I bought 2 adjoining semi detached houses. They had been built in the 1870s as semi detached houses, were sold as 2 houses on 2 lots and had never been anything else. I bought from the estate of a man who bought one side in 1954 and the other side in 1956. They were registered at the registry office as 2 separate properties, at the tax office as 2 separate properties but as soon as I bought them they became one property. It cost me $7000 to get them severed. I tried to get my lawyer to register them separately when I bought them but he said it could not be done and there was a danger that I would end up with title to only one of them.

I have heard of others having the same problem. I don't know why they have such a ridiculous law unless it is to scam the public out of more fees but there it is.


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## Prospector (Jul 25, 2014)

Back to my original post...

Has anyone rented out rural homes? These are on well/septic, which doesn't bother me as an owner/occupant (I've lived with wells/septic many times), but is a little scary as a LL.

1. What are my liabilities as far as drinking water go? I've jumped to the conclusion that I will be putting in UV filters as a due diligence piece. Who is responsible for drinking water quality testing? Knowing that a sample has to be taken under certain conditions (disinfect the spigot, run water for 10 mins. collect in clean bottle, keep cool until delivered to lab) what recourse do I have if a tenant is bringing in bad samples and I get into a he-said-I-said type argument? Is there a high probability that I'll end up paying for bottled water to be brought in?

2. Does anyone have wording in their rent agreement regarding septic systems - both liability related with them backing up, and with regards to 'what not to flush'. For instance, "Only bio-solids and toilet paper are to be introduced to the septic system, if the system is damaged through abuse, the tenant can be held liable" or something like that.

3. Where a property is bounded by a river, is there an additional element of liability to the LL? For instance, if a tenant's child/dog/friend was to drown in the river, how likely is a suit against the LL for not fencing off the waterway? Is the LL burdened with the safety of the tenant where water is involved?

As a test, I put a kijiji ad out in the community where these are located and got about 10 responses in a day - that would be an indicator to me that there is a market for country rentals at my pricepoint. I'm feeling fairly confident right now.


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## Mukhang pera (Feb 26, 2016)

Rusty O'Toole said:


> I thought so too but it is true in Ontario. I'm not saying everywhere but it is definitely true in Cobourg and Belleville.
> 
> I have heard of others having the same problem. I don't know why they have such a ridiculous law unless it is to scam the public out of more fees but there it is.


Well Rusty, that is decidedly weird, but you speak from personal experience and I am content to take your word. Maybe the reason for it is as you suggest - a tax grab.

In BC, and just about everywhere else, I suppose, the populace has accepted an ever-increasing real estate connected tax burden. Way back when I was doing conveyancing, the BC transfer tax was calculated thus: 1/10th of 1% of the fair market value + the number of 10,000s divided by 2, + $19. The example I had under my blotter, for a $70,000 purchase (this was awhile ago, like I said) read thus: 1/10 of 1% = $70 + 7 ÷ 2 = $3.50 + $19, for total tax of $92.50.

The BC tax now is:

1% on the first $200,000,
2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000, and
3% on the portion of the fair market value greater than $2,000,000. 

So, using the $70,000 example above, even if that same house could be bought for that same price, the province would collect tax of $700 under the new regime. But wait! There's more! The province wants to double your order, and then some, if you act now. That Vancouver house that cost about $70,000 back in the 70s is now around $2 million, for a total transfer tax burden of $38,000. Talk about a tax grab! Then, on top, the city taxes annually based on that assessment.

I took a look at the Bank of Canada inflation calculator. It says that $91.50 in 1975 is today equivalent to $1,938. So, if the tax on our hypothetical transaction had simply kept up with inflation, that should be the amount payable. The province has managed to blow it up to $38,000 and no one complains. If that money were wisely spent, it might no be so bad, but for my part, I do not see government as doing any better for the people today than back then. Unless you call "more" government "better" government.


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