Purchasing a piece of real estate that provides a ‘home’ to your future practice is not as affordable as it was in previous years. I do not need to write nor speak to the Canadian real estate phenomenon. However, if you can find a practice for sale that is also packaged with the property my advice is simple:

Buy the package. Pay a premium if you must. Do not hesitate. 

The long-run Return on Investment (ROI) in this scenario outweighs other investment alternatives available to small, closely held Canadian corporations. Ask your banker or accountant who the wealthy doctors are. They’ll tell you that most own real estate in addition to a successful practice. Very few will reveal that their riches came from stock markets, brilliant schemes, or inventions. 

We are selling a number of professional practices that include commercial real estate. Buyers; why not focus your search on an income-producing property along with an income-producing practice? Yes, you will be much deeper in debt at the beginning, as owning a property is another responsibility. Yes, it may add to the psychological burden for some, but in 20 years (a typical payback for investments in real estate) you will own an asset! Compare that to paying rent to a landlord for 20 years. 

The NEW NORM for real estate acquisitions 

When recently purchasing a property for my own portfolio, I learned a number of things about the Canadian banks that did not exist pre-COVID-19. 

This is now essential, need-to-know stuff.

The first being that banks are moving substantially slower to approve new loan and mortgage applications - no surprise there. The second is that they now require better documentation packages than were required in the past. So, who does the burden of responsibility rest upon to make sure these documentation packages are ready to satisfy the insatiable scrutiny and requirements of the loan officers, accountants, lawyers, title companies, property inspectors and the ever-suspicious purchaser?

As the property owner - what you must do: 

1. When planning to divest an investment property, the seller should arrange for a pre-inspection from a certified home inspector at his/her own expense. 
2. Arrange for an appraisal from an AACI certified appraiser who is independent, arm’s length and not influenced to publish an appraisal at an inflated value. AACI appraisers are professionally credentialed individuals, and they are immune to the wishes of property owners or purchasers to conclude higher or lower than they will ethically publish. Believe me, I know the pressures that I, as an appraiser, have seen over the years. 
3. Be prepared for Environmental Assessment requests. 

The most shocking, costly and new criteria that delayed one of my recent transactions was the necessity for a complete Phase 2 environmental assessment. From my research, lenders are now insistent upon these assessments as part of their due diligence. With this in mind, not unlike my property appraisal rationale, property owners should invest in these valuable and essential pre-sale documents as well as in laying the appropriate groundwork to facilitate a seamless transaction. 

The costs associated with the Phase 2 assessment range from $15,000 to $25,000. They will vary dependent upon the type and size of the property; however, they can be factored into the asking price. This kind of preparatory work will be appreciated by a shrewd purchaser. These expenses are accounted for as “costs of disposition” and are tax deductible. As a savvy seller, and in order to impress the bank, advisors and the purchaser, you need to take these actions well in advance to demonstrate that there is categorical confidence and knowledge to support the property’s integrity, fair market value and its status of improvement or condition. 

Similarly, a health care professional will deploy this strategy and groom their professional practice for a profitable sale. Waiting for a buyer to source out and retain 3rd party professionals in order to obtain the blessing of their lawyer, accountant or banker will only delay or prevent the closing of the sale. You do not want to be affected by continuous extensions to the numerous conditions that are often agreed upon at the Offer to Purchase stage. The failure rates of transactions can be directly attributed to a vendor and a broker who didn’t do their pre-transaction homework. 

Laying the correct groundwork highlights the credibility of the vendor and your broker. Identifying potential roadblocks before you take an asset to market will only serve to promote confidence in buyers and add credibility to all the positive qualities that the opportunity of purchase offers. 

Advanced due diligence is a must in today’s environment. 

Contact RLCI @ 705-743-1220 to schedule your free 30-minute consultation. 

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