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8 Questions You Should Ask Yourself Before a Buying Retail Space or a Commercial Building

While renting a commercial space or building may appear less binding than purchasing one, ownership does offer several advantages. Is this the next step for you on the real estate ladder? If you want to be sure that the property you choose will meet your needs, ask yourself the following 8 questions first.

Even if your space won’t be open to the public, many of these questions remain relevant.
Even if your space won’t be open to the public, many of these questions remain relevant.

1- Does Its Location Correspond to the Market Study Results?

One of the purposes of market research is to determine the ideal place for you to establish your business so that you are located as close as possible to your target customer base. Trust in the findings to choose the most attractive site for your customers.

2- Might Local Bylaws Cause Issues?

Every neighbourhood or city has their own set of bylaws, regarding signage or noise levels for example, that could prevent you from achieving your business goals. Familiarize yourself with local regulations to make sure they won’t conflict with your operations.

3- What About the Available Parking?

Outside large urban centres, where people are accustomed to walking or using public transit, parking is important for retail shops and service providers. Having multiple parking spaces is just as much a plus for your customers as for your employees and yourself. A limited supply of parking could even negatively affect your business by decreasing footfall and driving your customers to switch to a more car-friendly competitor.

4- How Accessible Is It?

It is important that you think about customers with reduced mobility. Is the commercial space or building you have in mind adapted to their accessibility needs? Accessibility also extends to safe streets for pedestrians. Are the sidewalks sufficiently wide for passers-by to make an impromptu visit to your store?

A real estate broker knows their area like the back of their hand. They can find you a location or building that isn’t even listed.
A real estate broker knows their area like the back of their hand. They can find you a location or building that isn’t even listed.

5- Will Its Size Continue to Be Appropriate Over the Short or Long Term?

When you buy a space or a building, it’s usually because you plan to stay there for a long time. With that in mind, and based on your business projections, ask yourself if it will still meet your needs in a few years. Can you eventually reconfigure the space by removing walls or extend the building itself as your company grows? If you don’t think you’ll ever need to expand, just consider whether you have enough space for your current activities.

6- Will the Commercial Building’s Other Spaces Attract Tenants?

Before buying a commercial building for the purpose of setting up shop in one space and renting out the others, try to ascertain how quickly you will be able to find tenants. No one can predict the future, but you should carry out a market study or an analysis of the areas’ economic potential.

7- Is It Sufficiently Prominent?

If your business relies on foot traffic, i.e., the number of customers coming in and making purchases, shoppers must be able to easily find you from the street. If your location does not offer an attractive store front, get potential customers’ attention with an eye-catching poster. Make sure you put it up in a highly visible location!

8- Do You Fit in With the Local Commercial Mix?

A store that sells goods or provides services that are completely different from its commercial neighbours might flounder. Take, for instance, a street with only restaurants; an antiques store might go unnoticed by passers-by. The same is true for a notary’s office in a building where there are numerous health care services. Ideally, you should choose a street or building with a mix of businesses or, on the contrary, with shops and services that are complementary to your sector of activity. However, in this second scenario, you must avoid becoming a new competitor, especially in a small market. For example, a suburban neighbourhood doesn’t need two sushi restaurants!

Have questions, doubts or fears regarding this important business decision? Let a RE/MAX commercial real estate broker take charge. They can be your guide in your quest for the perfect commercial building or retail space!

Commercial Lease? Everything you need to Know

So, you want to rent a commercial space, but you don’t know exactly what that entails? Here’s a fact to note: a commercial lease is often a 3- to 10-year term with no termination option, and unfortunately the law does not protect the tenant in the same way as a residential lease. It is therefore strongly suggested to consult a professional before signing anything. To help you familiarize yourself with the essential components of a commercial lease, below are some important clauses to consider before signing one.

The Rent of the Commercial Lease

There are several types of lease: gross lease, net lease, net net lease (double net) and net net net (triple net) lease. The gross lease is defined as a lease in which the rent payment is fixed, monthly and represents all the costs even if the owner’s expenses increase. The price charged to the tenant therefore includes everything and no other charges are required from the tenant. With regard to the net lease, in addition to the base rent, the tenant pays a contribution proportional to the area they rent for school and property taxes. In a double net lease, a contribution to the building’s insurance costs is added. Finally, in a triple net lease, the landlord sends the tenant a monthly invoice representing all the expenses for the building, whether it is insurance, taxes or maintenance. Therefore, the amount owed monthly can fluctuate considerably.

The Duration of the Commercial Lease and the Renewal Clause

It is best to include renewal options in the lease. Otherwise, it may occur that you lose the space or the building at the end of the term and by the same token have find a new location for your business. While negotiating renewal options, try to get as many details as possible, including the rent increase to avoid an unpleasant surprise.

Obligations of the Owner (Lessor)

The landlord is required to return the premises/building to you in good condition as well as to allow you to take full advantage of it for the entire duration of the lease. A good idea would be to include these obligations clearly and unambiguously in the lease with specific clauses on this subject. It often happens that landlords withdraw these clauses from the lease and even indicate that the tenant waives the application of the articles of law that offer this protection. It is recommended not to consent/agree to that.

Obligations of the Owner (Lessor)

Before committing, it is very important to ensure that the space you are considering renting is appropriate for the business you want to operate and to have obtained the required permits. If a person wishes to operate a restaurant that serves alcohol for example, the zoning of the municipality may not allow it. It would therefore be prudent to find it out in advance to avoid a situation in which we later realize that the space does not correspond to our needs and that the landlord has excluded his responsibility in this regard.

Interesting Clauses to Include

In a commercial lease, several clauses are interesting to include:

  • Exclusivity (or non-competition): this clause would prevent the landlord from renting another space in his building to another business similar to yours. If you operate a café, for example, the landlord could not rent another space to someone who also wishes to operate a café.
  • Rental improvements: these clauses allow the tenant to foresee what they have the right to improve, install or change in the rented space. It is also possible to agree that the landlord makes improvements before the start of the lease.
  • Repairs: these would specify who of the landlord or tenant is responsible for the repairs to be made. Here we can distinguish between major and minor repairs, define the context and determine the modalities for undertaking said repairs.

Commercial Lease Termination, Assignment and Subletting

A good thing would be to check in which situation the parties can terminate the lease. If the lease stipulates, for example, that the landlord can terminate if a rent is unpaid after 24 hours, then it would be suggested to negotiate a less penalizing clause for the tenant or include a grace period to make up for the missed payment. It would also be advantageous to list/predetermine the situations in which the tenant would have the right to terminate the lease. It is not easy for a tenant to get rid of a commercial lease – however, assignment and subletting can be a way out. If no clause has been made in this regard, the Civil Code would apply and allow the tenant to sublet or assign his lease, and the landlord could not oppose it without valid reason. Again, the landlord can indicate in the lease that he does not allow it and that the tenant renounces to apply these articles of law, which would be a considerable disadvantage for the tenant. Hence the importance of being very precise and not forgetting to include any important point for your protection.

Bond

The landlord may require a personal bond from you, especially if your business is new and fresh. The landlord could sue you personally for any missed payment if your new business ever experiences difficulties, and the protection of your patrimony with regard to the landlord disappears.

Publish Your Commercial Lease in the Land Register

Although optional, it is strongly recommended to publish your lease in the Land Register (as allowed by the Civil Code of Quebec). That way, in the event that the landlord sells the building where you rented a space, the publication would protect you against eviction by the new owner. However, you may be limited in what you can post to the Registry: the information may be reduced to lease term and renewal options. In short, the commercial lease is not an easy one to demystify and is often not in favor of the tenant. For this reason, it is better to seek the services of a professional – the important thing to remember is that everything is on a case-by-case basis and everything is negotiable.

What is a Class A building?

The definition of a Class A building reads as follows: “Prestigious building offering countless and various amenities, located in the best area, usually most enticing and designed using the highest quality construction methods and materials. The owner of such a building usually contracts a professional manager. A Class A building is easily accessible and located in high visibility neighborhoods on busy streets. In general, prestigious tenants occupy the spaces of class A buildings, since rental rates are the highest in the market”

For a building to be considered as a class A one, it must meet several criteria:

Architecture and Components

  • Concrete and steel construction, design with distinctive features, beautiful appearance, superior exterior finishes of the curtain wall, superior quality of finishes in the entrance hall and common areas (including elevators and washrooms).
  • Building in excellent condition, recent construction or recently renovated.
  • Well-configured floor areas of a reasonable size that can accommodate one or more tenants on the same floor.
  • High rise building in the central business district.
  • Model building in its market.
  • Strong presence in the market.
  • Easily identifiable location and convenient access.
  • Building managed by a professionally recognized real estate management firm.
  • Built by a reputable developer and contractor.
  • Highest rental rates, prestigious tenants.
  • State-of-the-art systems according to industry standards (automated mechanical, electrical and safety systems, higher capacity emergency generator set, etc.).
  • Sufficient number of elevators for the number of floors and people in the building.

Environment

  • Recognized environmental certification.
  • Security 24 hours a day, 7 days a week (controlled access system, camera surveillance, or access control system and remote-controlled alarm system for smaller buildings / for those located in the regions).

Parking

  • Sufficient public and private spaces for tenants and visitors – 24/7 access for tenants with security controls in place.
  • Bicycle parking areas and charging stations for electric vehicles.

Services

  • Access to weather-protected pedestrian corridors, conference center, fitness center, various retail services (including but not limited to convenience store, cafeteria, food courts, dry cleaning services, ATMs, wireless internet, etc. – in the case of buildings not located in the city center, cafeterias or food courts represent a higher level of service).
  • Professional and qualified manager offering a centralized service call system including maximum response time, concierge services, a program of relations and regular activities with tenants.

Rental Property Investment: What You Need to Know

Investissement immobilier locatif

In Outaouais, like various regions in Quebec, the prices of plexes are constantly rising. Investors are not discouraged, however: many of them still want to buy these income properties. Would you like to also be one of those investors? Here are some tips to help you make a profitable purchase.

First of all, you need to determine if this type of commitment is for you, because investing in real estate requires a lot more than just putting your money in bonds, funds or stocks. Liking management is a prerequisite, you have to have a lot of patience with tenants and be available to respond to their requests or concerns. If not, then it would be more beneficial for you to meet with a financial adviser and invest elsewhere.

Calculate the Profitability of the Property

The very first step to take to know if a building can generate a good income is to estimate its profitability. It’s important not to rely exclusively on the Gross Income Multiplier (GIM), which comes down to the price paid divided by the income. For a more concrete analysis, also consider the expenses using the Net Income Multiplier (NIM).

Net income is determined after subtracting the operating costs of the property (this includes but is not limited to electricity, heating, insurance, maintenance and snow removal, property taxes, management fees or concierge, etc.). Thus, if you spend $450,000 for a building with 4 units and the annual net income goes up to $30,000, you acquire a ratio of 15. In this case, you generate a good return, since the target to strive for sits between 10 and 16.

Determine the Rent Prices

What makes it possible to pay off the mortgage (capitalize) and increase the equity between the value of the property and the balance of said mortgage, is the income generated by the rents.

Therefore, the purchase price must reflect the condition of the building as well as take into account the number of rents. A property with apartments rented at below market amounts does not have the same value as one with leases signed at a higher price. It is necessary to fix the acceptable amount of the rents according to the type of building, its location and its condition, and to put it in relation to the purchase price.

To be able to determine these amounts, do not hesitate: ask the seller questions to find out how many years tenants have lived in the apartment, what is their average duration of residence, and when the last increase was. In short, any relevant question you ask will help you get a better idea of the prices to set for these rents.

You can run scenarios with the actual GIM and the market GIM and use these figures to present an offer to purchase and negotiate. It would not hurt to also compare the sale price to that of similar buildings during the last year (and this always taking into account the price of the rents). A real estate broker can help you in this exercise.

Would You Be an Owner-Occupant?

It would also be necessary to determine whether you would like to reside in one of the accommodations or not. If all the dwellings are already rented, the current expenses related to the building may be subtracted from the income. On the other hand, if you are an owner-occupant, only the expenses for the rental accommodation will be deductible. Upon resale, the part of the building inhabited by the owner is exempt from capital gains tax (i.e., capital gain). Fully leased, the entire capital gain is taxable.

Provide the Required Down Payment

No matter what real estate, you need a minimum amount of cash to buy one. In the case of an income property, the minimum deposit is 20% of the purchase price if all the units are rented. If, on the other hand, you decide to occupy one of the units, mortgage loan insurance (such as that of the Canada Mortgage and Housing Corporation (CMHC) allows you to reduce the deposit to 5% for a duplex and 10% for a triplex or quadruplex.

Consider Related Expenses

It is important to consider the transfer tax, notary fees, the cost of the inspection as well as school and municipal taxes before concluding the transaction. The standard among Canadian mortgage insurers is to calculate an amount equal to 1.5% of the purchase price of the building to be able to cover these costs.

Likewise, to prepare for unforeseen events, many financial institutions recommend anticipating a security fund (i.e., 3.5% of the price paid) in the form of easily accessible savings by using a line of credit or even a savings account.

Re-mortgage to Buy a New Property

Sometimes, when possible, some investors make the decision to re-mortgage one property to finance the purchase of another. If a significant portion of your mortgage has already been paid off, you can use that asset to borrow at a lower rate than a personal loan. The new mortgage can thus reach 80% of the value of the first building – this is the leverage effect. You can make an appointment with your financial advisor and discuss the advantages of such practices depending on your situation and therefore learn more about the specifics.

In short, before jumping at the chance to own an income property, it is imperative to take into consideration the financial and human factors – keep in mind that preparation is key to a good real estate investment.

3 strategies for finding bargains

EBWaite - 3 stratégies pour dénicher les aubaines

Investing in rental real estate is one way of securing additional income in the medium and long term. But how to distinguish an average deal from a real bargain? With experience, but also with a lot of research, you can hone your skills in order to better recognize great real estate investments when they present themselves.

1— Know the dollar value

First, what is a bargain? It is generally accepted that this is a property that sells for at least 10% less than the market price.

To properly compare the value of a building with the market and its location, it is essential to understand all the factors that justify its price per square meter. In real estate, the saying “Knowledge is power” is worth its weight in gold.

Familiarize yourself with the areas that interest you in a meticulous way. Study how location, nearby services, inconvenience (railroad, noisy area) and future urban developments influence the price of the real estate you covet. This data will be valuable to evaluate your bargains and will make you an ultimate real estate fox.

2— Tracking sellers under pressure

Identifying distressed sellers, heirs and other anxious owners could save you a considerable amount of money. The problem? Foreclosures are often sold before being listed on the market.

Here are some tips for locating distressed sellers:

  • Consult the Government of Quebec’s land records every day.

  • Do business with a broker who will put you in touch with reputable bank representatives and trustees.

  • For a property that is not a foreclosure, detect if the seller seems in a hurry to sell and use this information to negotiate a better price.

3— Evaluate profitability

Sometimes you have to look beyond the purchase price to find a good deal. Two buildings at the same cost will not necessarily generate the same quality of income. You must therefore favor a property that will bring you the most benefits (financial and other) for a lower cost.

Here are some factors you should consider:

  • The ratio of net income to the value of the building

  • The age of the building, its condition: anticipate major renovations and changes to building construction standards.

  • Urban development and the economic revitalization of a sector.

  • The anticipated popularity of a sector with a promising clientele.

There are also more sophisticated calculations to quantify the potential profitability of a residential building. To learn more about this, contact me to discuss your project.

In conclusion

Finding good deals is a skill that depends largely on the art of accurately assessing the true value of a building. In this area, nothing beats the expert advice of a broker to assist you in this process!

10 Tips for Buying an Income Property

Are you ready to begin the great adventure that is the purchase of an income property? Be well prepared with these few following prudent tips.

Owning an income property has several advantages. The financial return is the most compelling. Usually, the revenue generated by the rents is sufficient to cover the mortgage payments and other maintenance costs. Moreover, one can take advantage of certain taxes benefits. However, being a landlord is not all positive. There is the stress caused by the loss of revenue when a unit is unoccupied. It is best to be prepared for all eventualities. Here are ten tips from the experts.

1— Look Over the Bills

Long before visiting the notary, make sure that you have analyzed the building’s various expenses. Insist on seeing all accounts for the past two previous years. This will avoid any unpleasant surprises and ensure that the building’s service fees won’t eat up your revenues.

2— Obtain Estimates of Renovation Costs

A building as recently constructed as 10 years ago may require major or minor renovations. It is always important to have the place inspected by a certified expert. You can also ask two or three contractors to submit estimates on the costs of renovations and when they will be needed, both short term and long term. Then check your numbers to evaluate if this purchase is profitable.

3— Don’t Exclusively Rely on Your Talents

Being an income property owner can be demanding. Are you handy and think that you will be able to make the most of your skills by carrying out the renovations yourself? This can be a cost-effective choice, but don’t forget that some repairs, to be legal, must be undertaken by a licenced professional, such as any work related to electricity or natural gas. And this can be expensive.

4— Be Prepared to Deal With All Sorts of People

If we don’t get to pick our family members, we certainly don’t get to choose our tenants’ personalities. Some only show their true face after having signed the lease: bounced cheques, damage to the unit, disrespectful attitude. Some people are real pieces of work. Before buying an income property, think carefully about your own temperament. How would you respond to such behaviour? Would it make you miserable or could you let it go? Your own well-being is the priority!

5— Choose a Building near Your Own Residence

If you don’t intend to live in one of the building’s apartments, it is important that you select a property located in your home’s vicinity. We sometimes underestimate how often we will have to go visit our building. If possible, you should avoid a location that requires driving on busy streets. Nobody likes to be stuck in traffic!

6— Think of the Future

Is the building for sale that you are considering going to increase in value over the next few years? Certain changes to the environment may impact its value, such as the construction of a convenient road or of a noisy airport. Get all the facts.

7— Rent the Units at a Fair Price

Many factors can influence a unit’s rental fee, like location, style, the number of rooms or the quality of the building materials. On the one hand, if the rent is too high, you may discourage perfectly good tenants or, even worse, experience a loss of revenue by having it remain empty. On the other, if the rent is too low you will needlessly lose money.

8— Be Ready to be Called at All Hours

Managing an income property is a 24-7 job! Tenants have the right to get in touch with you anytime they have a problem with the unit. Could you handle this eventuality? You could also hire someone trustworthy to take care of such issues (if your budget allows!).

9—  Don’t Wait too Long

The best time to purchase an income property is now! It is rarely advantageous to wait for mortgage interest rates to go down or to have saved up a bigger down payment. In fact, if you find a good deal, jump on it. You always win when you invest in real estate.

10— Work with a Broker

Our last bit of advice is to work in collaboration with a real estate professional. They will assist you in uncovering a hidden gem and in evaluating the pros and cons of the properties you visit. Some have specialized in income properties. Don’t hesitate to use their services!

We hope you find your ideal building and that your search will be crowned with success!

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