A Creative Way to Build a Portfolio!
By Arcton Lancaster & Damian Duncan
Building a real estate investment portfolio can often seem like a challenge. Savvy investors educate themselves on markets, follow systems to crunch the numbers, and pull the trigger when a great investment comes across their desk. But there s not always a big supply of cash flowing properties just waiting to be scooped up, and finding those properties often takes a little extra work. Investors may need to get creative when looking for that next property. Creative thinking means thinking outside of the box. Or in the case of a recent investment by two Alberta REIN Members, sometimes thinking outside the box means actually moving that box.
In October 2008, in the Central Alberta Town of Bowden, an 18-unit apartment building sustained a fire that resulted in the complete loss of the building. The owner of the building decided not to rebuild and subdivided the lot into three R2 lots. Rebuilding began with the first two lots, where the owner poured new foundations and then moved bungalows from inner city communities in Calgary and set them on new foundations built in Bowden. These iconic homes, built in the 1950 s, were destined to be demolished so that infills could be built in their place. Instead, these sturdy houses were relocated to their new home, saving them from the landfill and providing new housing for the Town of Bowden.
Fast forward to 2013. With the Alberta economy in the upswing, and property values on the rise, Alberta REIN investors Arcton Lancaster & Damian Duncan were looking for an opportunity. Through a mix of networking and previous investments, the opportunity surrounding the undeveloped third lot in Bowden came to light. With a proven recipe of house moving already existing on the first two lots, and the backing of a REIN education on economic fundamentals, the serious discussions began and a creative investment plan was hatched.
Read more creative solutions to real estate investing success.
With due diligence on the economic fundamentals fully supporting the decision to invest, the empty lot was purchased and the search began for the right building to move. Moving a building with the desired floor plan not only decreased the construction timeline and costs, it also meant saving a lot of unnecessary garbage from entering the landfill. With rental vacancies under 1% and a strong desire from the town to increase the rental supply, the decision was made to develop a side-by-side duplex and suite it into a legal fourplex.
The search for the right box ended in the Calgary community of Altador. As the population in Calgary continues to increase, so does the density of the inner city. With developers frequently building infills on the larger inner city lots, many of the 1950 s homes that exist there now are demolished and discarded in the dump. With demolition costing large sums of money, negotiating an agreement to move the home presents a win-win situation. Developers can save on demolition costs, and the building can be had for just the cost of the move. As was the case with a 1600 square foot duplex in Altadore that was slated for demolition to make way for a pair of massive infill homes. However, if they still want to do an interior selective demolition, they can speak to a demolition company within their area about doing this instead of a full-blown demolition.
The building was secured at no cost, and prepped for the move to Bowden.
In July of 2013, beams were placed under the duplex and it was loaded on wheels for the journey to its new home. When arriving in Bowden, a crowd of spectators gathered to see the building placed in position, with one senior even commenting on the wisdom of using an old building made of real wood. Set on its new foundation, the duplex was ready for a whirlwind of alterations and renovations to begin.
Another obstacle to overcome with this creative investment strategy was funding. Traditional financing options were not readily available, as risks were perceived as high. Fortunately, where there are roadblocks, there are also creative solutions. With the help of private lending from Calvert Home Mortgage, financing was secured for the duration of construction.
Moving a pre-built building gave a huge head start on the construction timeline. With hard work from all of the trades, construction was completed in 6 months, turning the old duplex into a fully renovated fourplex. The four bright, fresh, new suites were a welcome addition to a community eager to grow. No doubt, the suites were renovated with quality finishes and materials for the bedroom; granite or stone countertops for the kitchen and bathroom from Francostone or its likes; and all the furnishings and effects to give them a modern look that exudes comfort. With a current cap rate of just over 14%, this investment property will provide excellent cash flow for years to come while the property increases in value and the happy tenants pay down the mortgage.
Despite a tighter supply of opportunities in the real estate market of Alberta, there are still great investments to be found. Keeping an open mind to new ideas, even if they involve older homes, can result in some positive gains for your portfolio. The decision to think and invest outside of the box, combined with the ability to find and develop the right box, resulted in a winning investment that is not only great for the environment, but will also benefit the people who will make the fourplex their new home for many years to come.
What are some creative ways that you’ve increased your portfolio?
Arcton Lancaster is the co-founder of SUMO Properties and Managements, a boutique property management services and consultancy based in Calgary, Alberta. SUMO also offers investors opportunities to invest in Multi-Family Real Estate in Alberta. Arcton can be reached at: www.sumopm.ca.
Damian Duncan is an Alberta Real Estate Investor and REIN Member. He has a proven track record of increasing the value of investment properties, and has successfully managed flips, renovations and suite additions to provide investors with both short-term value and long-term cash flow.Damian is based in Calgary, Alberta and showcases his work at www.nuovoproperties.com.