• Is That a Duplex in Your Pocket?

  • A real-estate investor client recently was looking to invest in another property to add to his growing portfolio. He had found his target market and was searching MLS, Kijiji and other relevant sites.

    After months of looking he found what he thought was a great property – a duplex, which was a pocket listing! Realtor’s sometimes have pocket listings – listings that are not open to the public before going out to their top clients. This was one of those listings. The client thought that since it was a pocket listing, the details in the listing were all verified and he did not have to do any further due-diligence. Nothing can be further than doing your own due diligence as an investor – always!

    When he sent me the listing, it read that it was a multifamily property and specifically a duplex. In this specific market, I warranted to the client that it would be worth his time to do his homework to verify that the property was actually a legal duplex.
    Duplex in Your Pocket
    I ordered a Purview report to see what the value was. Purview reports are a specific tool a broker can use that is directly derived from the Ontario Land Registry office and thus, we were able to see that the listing was for $239,000 but the Purview value came in at $217,000 and recent sales in the area indicated sales between $200,000 – $225,000. This is not a huge difference but the property was still not selling after 74 days on the market, so I asked my client to do some further research. Initially, we thought he could get the property for much less than what it was listed for as he would be motivated after it sitting on the market for 74 days.

    I asked him to verify that the property was actually a duplex, as I could not see what else might be prohibiting the property from selling. It was in a terrific market area, great market rents, fully rented with good tenants, although they were not paying market rent. I did not want any surprises when we went to get it financed.

    The property was listed as a duplex in an area where there are many duplex’s for sale but just because it was listed as so, did not mean it was actually a legal duplex. so I asked my client to inquire with the selling realtor as well as his own realtor to ensure it was in fact a legal duplex. His realtor was actually able to find that it was in fact not a legal duplex but registered as single family.

    In this specific area, many investors have bought single-family homes and then converted them after close to a duplex. This works great for that investor but not for the next investor, who buys that property unbeknownst to them that it was not infact a legal conversion, as it is still listed on the title as a single family home.

    My client knew that purchasing this property it needed some work to bring the rents up to market, so he was willing to pay to have it renovated but he was not sure how much it would actually cost to have it licensed as a legal duplex. If we had gone to financing without knowing this, it could have resulted in being declined, as that is one area that the lender will want to verify about the property.

    In the end he passed on this property – but all is not lost! He now knows what to look for when researching future duplex properties.