'A Leslieville Home Rebuilt and Reborn'
The Globe and Mail 'Home of the Week' section on Toronto Real Estate, (Aug 18, 2011) described in great detail, how this Seller spent 7 months and $350,000 - on top of the initial Purchase price - creating a lovely, energy efficient Toronto home, which he is now selling for $769,900!
While this house is no doubt a showpiece and a welcome addition to our Toronto Real Estate market, the author, Dierdre Kelly, failed to mention that the Seller will end up with a loss - even if he gets his record-breaking asking price! As a Toronto Real Estate agent with lots of experience in Leslieville, I think this is the real story!
Apparently the Seller, Mr. Nasrin bought a small 3 bedroom semi on Ashdale Ave. (a great street by the way), just north of Queen, for $394,000 in November 2010 as a home for himself and his young family. That was pretty much the going rate for Leslieville homes like his, even in 2010. According to Mr. Nasrin “It was in extremely poor condition and required immediate attention and vision”.
How did the Seller lose money in one of the fastest rising markets in Toronto?
He decided to renovate. The objective: "taking a two-storey semi with three small bedrooms and one minuscule bathroom and converting it into an energy efficient and stylish 2+1 bedroom home outfitted with all the latest modern conveniences." It would be easy to say that he simply overspent on his renos. But I believe the problem started when he went from providing good, decent housing for his family, to creating 'a home outfitted with all the latest modern conveniences.'
Doing the Math
The purchase price for this Leslieville home was $394,000, renovation costs, $350,000. Selling costs estimated at about 5% would be $38,500. So total acquisition and sale costs would be $782,500. Asking price $769,900. That looks to me like a loss of $12,600 - after spending all that time and money. What a shame!
How can you prevent this from happening to you?
Pick the right home in the first place. If you choose a home with '3 tiny bedrooms and 1 miniscule bathroom' your development choices are going to be limited. And zoning laws determine how how large a home you can build on a certain piece of land. Lot size is an important consideration if you want an addition.
Have a clear objective - and stick to it. It's easy to become swept up in the momentum of a beautiful project, especially if you're a First Time Buyer. 'Doing things right' can easily become 'doing things to the highest standard to make a statement', which has an entirely different price point. Before you start, ask yourself, are you building a home, an investment, or an artistic creation?
Don't over-invest or over-develop. A good rule of thumb is that when you're finished your reno, your home should be worth more than what it cost to create it. Know the average asking prices for your neighbourhood and your street. If you're setting a new record for most-expensive house on the street, you're probably over-improving for the neighbourhood.
Don't do it for someone else. If you're going to spend all that time and money, at least live in your lovely new home for 5 or 10 years to enjoy the fruits of your labour.