Well, the equity markets may have been volatile over the past couple days, but the real estate market just keeps chugging along!

Today, two identical houses came onto the market priced at $1,395,000 each.

The catch?

This used to be one house, priced at $979,000… 

I admire people who are willing to take risks.

In the world we live in today, is it enough to just “work hard” and “tow the company line” in order to get ahead?

Take a random survey of self-made, multi-millionaires, and ask them if they were able to do it without leveraging themselves and taking on debt, and the assumed risk that comes with it.

I honestly believe that you have to be willing to lose it all, in order too make it all, and well, I guess that’s why when all my friends were mapping out their futures in 4th year university (she became a CFA, he went into accounting, etc.), I just told myself “I’ll find my own way.”

Take the owners of 277 Hillsdale Avenue, for example.

The former house, which sat upon a sprawling 50 x 143 foot lot on a popular street just steps from trendy Mount Pleasant Avenue, was purchased in 1991 as an investment property. 

The cost: $400,000.

Now I don’t know much about the market in the early 1990’s, seeing as I was still in grade school, but the house was offered for sale twice in 1990 for $749,000, and finally sold in 1991 for $400,000, asking $459,000.  We haven’t seen anything like this….well…..since the early 1990’s!

The owners kept this house, which was a duplex containing two units each of 2-bedrooms and 2-bathrooms, for fifteen years as it was.  The property generated considerable income over the course of that fifteen years, and by the time they were ready to sell the property in 2006, it had more than doubled in value.

Here is a photo of the house at 277 Hillsdale Avenue in 2006:

By 2006, the two units in this duplex at 277 Hillsdale Ave were each renting for $1900/month, and there were four additional parking spaces each renting for $75/month.  Total annual income on the property was $49,200 per year, which was $43,000 total net of operating expenses.

The house was offered for sale in March of 2006 for $979,000, and sat on the market for 116 days with no price reduction, and no sale.

So what did the owners do?

Well, the house didn’t “owe them” any money, since it had been fifteen years since their initial purchase, and surely they had recouped about triple their initial investment by now.  But that still wasn’t enough.

Rather than let this house sell for less than their own perceived value, they decided to invest even further in 277 Hillsdale.

So they tore down the house, sub-divided the lot, and built TWO houses in its place.

Each of 277 and 279 Hillsdale Avenue are 3-bedroom, 4-bathroom houses of 2450 square feet built on 25 x 143 foot lots.

Designed by Peter Higgins Architects, these homes are of uncompromised standards and quality.

These are not your “cookie-cutter” houses you find throughout Leaside, Davisville Village, Lawrence Park, and the like.  These are not stucco-marshmallow homes, but rather tasteful red brick and stone houses with functional interior layouts, and upgraded finishes throughout.

Ten-foot ceilings, hardwood floors, wainscoting, crown-mouldings, vaulted ceilings, french doors, bay windows, and the list goes on…

There is a large patio off the main floor family room and kitchen, and a walkout from the basement to a large backyard.

$1,395,000 is an accurate price, and with the lack of product currently available in Davisville Village and neighboring Leaside, there’s no reason why these houses couldn’t sell for the asking price.

So what does this mean for the owners, turned investors, turned speculators, turned builders?

Well, since nobody wanted to pay the $979,000 asking price in 2006 (after a whopping 116 days!), we can only assume the property was worth significantly less.  Perhaps $900,000 or even worse?

Having paid $400,000 for the property in 1991, a sale of $900,000 in 2006 would net a $500,000 profit.

Selling the two end products for $1,395,000 each, would net $2,790,000. 

Assume they were able to cut construction costs slightly since the houses were built together, and use $190/sqft as your measure.  So they spent roughly $465,500 to construct each house, and will pay $70,000 per house in GST with another $56,000 per house in real estate commissions.

So after spending roughly $1,200,000 to build these two houses, and selling them for roughly $2,800,000, the owners are left with $1,200,000, minus the original house (with a saleable value of $900,000 that we established).

This nets them a $700,000 profit, instead of the $500,000 profit they would have netted, had they sold the house for $900,000 in 2006 rather than electing to build these two new homes.

After all their hard work, they have $200,000 extra to show for their efforts.

Is it worth it?

Is it worth the risk?

Does the downside (economy, housing market) outweigh the upside ($200,000)?

It all depends on your tolerance to risk, and the owners of 277 Hillsdale Avenue took a risk and will be rewarded for their efforts.

So what would YOU do in their situation?

Me personally, well, I would have done the exact same thing…

But then I DID put all my money into Nortel when I was 19 years old.

You have to be willing to lose it all to win it all…..don’t you?

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