Real Estate Development 101
Did you know that between Downtown Vancouver and Langley there are just over 2,000 total units available for sale – and only about four dozen of those are move-in ready right now? With so many towers going up throughout Metro Vancouver, it may seem surprising that there is so little supply. But, the truth is that almost everything that’s being built today is nearly sold out before it’s even built.
But, that isn’t stopping those presale lineups. The math is simple: we have a finite amount of land in the region and a growing population that’s leading to increased housing demand.
This is particularly apparent in the City of Surrey, where the population is expected to grow by another 300,000 people by 2030. There are approximately 150 new towers in the cue for development in Surrey, and exciting new amenities and transportation for the city’s five neighbourhoods make this community an appealing focus for real estate investment. In particular, Surrey City Centre is set for massive growth with a new LRT, expanded amenities and emerging businesses.
Despite the looming growth, Surrey is still very affordable market to invest in real estate. Earlier this year, condo units were selling for around $750 per square foot. In contrast, the average new concrete condo in Vancouver sells for between $1,200 – $1,500 per sq. ft.
For most investors, the prices don’t make sense unless you get in on the ground floor and partner with other investors to fund the purchase or re-development of a real estate project in a top market like the City of Surrey.
With mortgage rates creeping up and a more strict stress test for qualifying for a mortgage, many investors are opting for the partnership model. Our team at Investment Revenue Realty has developed the RealSimple investment strategy – a proven approach that often nets our investors’ double digit annual returns from their first year.
So, how does it all work?
1. Market Research and Discovery
As an investor, you’ll want to learn as much about the market and the real estate opportunities as possible. Investors can sign up for online webinars, walking tours, discovery trips, and real estate investment events to learn more about the process, the top markets, and the specific properties we have on offer. Our team is also on hand throughout the process to help answer any questions you might have along the way.
We create a Limited Partnership (LP) for each property. One of the benefits of the LP is that investors don’t need to sign for the financing or qualify for a mortgage. We take care of the paperwork and secure financing from lenders. All you have to do is make the commitment, and let our team take care of the heavy lifting.
We also structure returns so that the investor receives 85% of the profit for returns up to 18%. Once we achieve this milestone, the investor will then receive 15% of the profits going forward. This is the second layer of protection for the investor to ensure they’re receiving sound returns should there be cost overruns.
3. Refreshing The Property
When we acquire an existing apartment unit, one of the benefits is that it is already cash flow positive. This means that the units are already tenanted and their rent is generating income for investors from Day 1.
We’re often able to increase that rental income shortly after acquiring the building by improving the units with small updates, such as a fresh coat of paint, flooring or new appliances. This means profits will increase right out of the gate.
When we purchase a property, there may be potential to rezone it for redevelopment.
These days, buildings are designed to be efficient and sustainable, so we can add more units to the existing land. For example: a six-story building with 200 units has the potential to become a 26 story building with 350 units, which will ultimately increase the amount of returns we can yield throughout the process.
Junior one bedroom units are common, offering comfortable living space at reasonable prices. At today’s going rates in Surrey, a 450 sq. ft. would only cost under $350,000, which is a fraction of the cost of a Vancouver condo. New buyers will be lining up to buy in no time!
It’s important to note that the building remains tenanted while we are going through the rezoning and permitting process, ensuring that our investors are protected against unexpected delays and we aren’t sitting on vacant land.
Developers are required to pre-sell a property by between 75-95% before breaking ground. Once we’ve received approval to rezone an acquired property, we can then create a marketing plan to promote the new vision. We partner with British Columbia’s top firms, who specialize in pre-sales to ensure we are selling out as quickly and efficiently as possible.
Once we’ve achieved our pre-sale threshold, we will then go through the process of notifying tenants, demolishing the building and bringing to life the new vision for the tower. Depending on the building design, construction may take between 18-24 months.
7. New Owners Move In
Once the building is completed, the new homeowners move in and the investment term has completed. It’s then time to move on to the next opportunity!
So, there you have it, our RealSimple investment strategy. Want to learn more? Get in touch with one of our experts.