How To Invest In Strata And Be Profitable
Investing in Real Estate in British Columbia has become one of the most profitable ways to make money. As the market continues it’s unbelievable assent; many people are wondering how they can catch-up and even get into the investment Real Estate marketplace without considering what they should be purchasing. In this blog, we are going to cover the best Real Estate investments in Metro Vancouver you can be making that is under $1,000,000.
There are two; one is purchasing a unit in a building that is likely to be assembled, this is called “Strata Assemblies” and uses the Strata-Wind up clause of the BC Strata Properties Act to dissolve a Strata. The other is buying and flipping pre-sale condominiums.
If you have been paying attention to the Vancouver market, you are likely aware of Land Assemblies. An example of these resides along the Cambie, Oak, and Granville Streets where re-zoning policies to increase density have driven land prices to astronomical highs. These large land deals are driven by speculation as well as an insatiable demand for housing. For many, to achieve the windfalls that the individual landowners have enjoyed over the last few years it is too late, the secret is out, and those that live and own property on arterial roads are aware that high-density rezoning is coming for their property and they need are prepared for the coming potentially lucrative knock. Needless to say, if you are looking for a land opportunity like this, you will be paying an inflated price and jumping into the speculation marketplace which for a new investor is an incredibly dangerous place to be.
So, you cannot get in on the land assembly game, where can you go? The answer is Strata Assemblies. These are difficult to do (I work on these and also have this website <— hyperlink to strata assembly .co), but they can be successful and very lucrative as long as the subject property meets the necessary requirements of the planning department at the time of assembly. To help you understand these demands, I would need to write a book but to summarize: they are overly complicated and wordy. Your best place to figure out if your building would qualify as a potential tower site is to read the Official Community Plans for each neighborhood and municipality that a subject property is located within. Additionally, consider where the property lies and the developments around it. Think of the rezoning process as a court case or academic argument; you have to prove that there is a precedent for the use of past, current, and future zoning policies as well as community support.
Why is this an excellent idea?
Firstly, usually, units in buildings that have a possibility of being assembled are less expensive for a myriad of reasons listed below:
1. The unit is in original condition
2. The building is in disrepair
3. The building requires significant work
4. The building lacks pride of ownership
Therefore, many buyers looking for a home will likely pass on the opportunity to own in this particular Strata because of the significant investment required in the coming years. That means that it is probable you will be competing with other investors that are looking for the same play as you. You will know if you have hit a right unit by the individuals viewing the property as well as the Realtors that are showing it (I know most of the other Realtors who champion this strategy as well as their Buyers).
Secondly, even if the building does not get assembled there is still a significant demand for rentals in Metro Vancouver, you will always have a property that is paying down the mortgage and hopefully generating positive cash flow. When, and if, the times comes that you believe that the Strata will never Wind-Up but you have held it long enough to see appreciation in the market, and you’ve paid down you equity significantly, it is likely that when you take it to market, you will make a hefty profit. Thus making this Real Estate Investment Strategy in Vancouver a winner as the worst case scenario still sees a significant net profit.
The next investment strategy we can look at is flipping Pre-Sales. I do not condone this practice as I believe it is unfair to end-user consumers and developers. Nevertheless, how the process works are covered in the next few paragraphs.
To flip a pre-sale – the proper term being “assign” – the practice is pretty straightforward; however, you will be competing with people that have unprecedented access to these units which makes it difficult to compete. Firstly, you will need to get early access to the Development. You do this by finding what is called a “Whale Realtor,” these individuals are known to Developers and are often courted to bring their clients. They will have a private appointment a week or so before the development goes to market. At said meeting, the clientele of the “Whale Realtor” will be able to submit suite request forms before anyone else. On many of these forms is multiple units which they purchase in bulk (I have heard instances of individuals or holding companies buying up to 30 units at one time). When Sales are open to the general public many find that the units that they were hoping to purchase (smaller one-bed units) are no longer available with the only ones being available are those of both higher square footage and cost leaving the independent consumer frustrated and unable to purchase a unit.
Pretty depressing, right?
Okay, let’s just say you did manage to purchase a unit in a hot development, what do you do next? Well, you wait. Do not put that unit on the Market until the building is a maximum six months out of being finished. Why do you ask? Because who would pay the top end of the market cost to wait another one-two years? That makes no sense! Your goal of this investment is to capitalise on people’s desperation and urgency. To do this effectively, you wait until the building is nearing completion. Not only will you achieve the highest price per square foot but the individual purchasing the unit does not have to rely on a floor-plan and building model. Instead, they can go and see the new development almost finished and they can picture themselves with their name on the intercom system and the keys in their hands. In their minds, they only had to wait three months whereas others had to wait three years.
Now, the paperwork for this is pretty straightforward. You use something called an Assignment of Contract which is comparable to a Purchase and Sale Agreement; however, it is a document that is replacing your name as the buyer for the new development with that of the assignee. It is important to keep in mind that many developers are trying to stop people assigning presale contracts as they do not like the idea of individuals making a profit off of their hard work. Let’s be honest, all you have to do is put down the deposit and then wait for the property to grow out of the ground, there is no additional capital outlay until the building complete and the title transferred into your name making this an attractive volume based investment for many.
In this blog, I have covered the two best Real Estate Strategies for those investing under $1,000,000 in Metro Vancouver. If these strategies are of interest you and you would like to discuss them further, please drop me a line as I would be happy to answer your questions and work with you on either strategy. If this entry has angered you, I apologise, I only wish to put the facts out there in a clear and concise way to help you the consumer understand what marketplace and the playing field that you are entering. I seek to educate my clients through empowering them with the facts that they need to make the quite decision for their financial well-being.