UBC Theses and Dissertations

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UBC Theses and Dissertations

Returns on apartment properties for the period 1960 to 1970 in the greater Vancouver area Dale-Johnson, Frank Roderick Arthur 1972

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RETURNS ON APARTMENT PROPERTIES FOR THE PERIOD 1960 TO 1970 IN THE GREATER VANCOUVER AREA by FRANK RODERICK ARTHUR DALE-JOHNSON B.Comm., U n i v e r s i t y of B r i t i s h Columbia, 1969 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION i n the F a c u l t y of COMMERCE AND BUSINESS ADMINISTRATION We accept t h i s t h e s i s as conforming t o the r e q u i r e d standard THE UNIVERSITY OF BRITISH COLUMBIA May, 1972 I n p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f t h e r e q u i r e m e n t s f o r an advanced degree a t t h e U n i v e r s i t y o f B r i t i s h C o lumbia, I a g r e e t h a t t h e L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s t u d y . I f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y purposes may be g r a n t e d by t h e Head o f my Department o r by h i s r e p r e s e n t a t i v e s . I t i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n of t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . Department o f Commerce and B u s i n e s s A d m i n i s t r a t i o n The U n i v e r s i t y o f B r i t i s h Columbia Vancouver 8, Canada Date May, 1972 AC KNOW LEDGEMENTS The w r i t e r w i s h e s t o e x p r e s s h i s g r a t i t u d e t o t h e l a r g e and s m a l l i n v e s t o r s , t o t h e management f i r m s and t o t h e a c c o u n t i n g f i r m s who p r o v i d e d t h e f a c t u a l m a t e r i a l on wh i c h t h i s s t u d y i s based. Because o f re a s o n s t h a t w i l l become o b v i o u s , t h e s o u r c e o f t h i s m a t e r i a l must remai n anonymous. The w r i t e r a l s o w i s h e s t o e x p r e s s h i s g r a t i t u d e t o P r o f e s s o r S.W. H a m i l t o n of t h e U n i v e r s i t y o f B r i t i s h • Columbia who a r r a n g e d f o r t h e computer programming t o handle t h e c o m p i l a t i o n o f t h e d a t a and who p r o v i d e d many p e r c e p t i v e comments d u r i n g t h e c o u r s e o f t h i s s t u d y . ABSTRACT The Vancouver apartment market i n the a n a l y s i s p e r i o d of 1960 t o 1970 has been e v o l u t i o n a r y and c h a r a c -t e r i z e d by fundamental and massive change. The mix of housing s t a r t s has moved away from s i n g l e f a m i l y predomi nance t o m u l t i - f a m i l y predominance. Land c o s t s have i n c r e a s e d a t an a c c e l e r a t e d pace as compared t o the g e n e r a l economy or as compared t o the t o t a l c o s t of housing. Rents have i n c r e a s e d at a r a t e i n excess of the c o s t of l i v i n g . Tenants have formed o r g a n i z a t i o n f r o n t s t o oppose l a n d l o r d s . I n t e r e s t r a t e s have i n c r e a s e d r a p i d l y , thus u p s e t t i n g a balance between y i e l d and debt c o s t s . Housing p r e f e r e n c e s have changed. Government r e g u l a t i o n s and f e d e r a l taxes have a l t e r e d and thus changed the r u l e s of the game and the net r e t u r n s t o i n v e s t o r s . The l a n d l o r d and tenant a c t has weakened the p o s i t i o n of the l a n d l o r d , and government i n t e r v e n t i o n , e i t h e r d i r e c t or i n d i r e c t , has become a v e r y r e a l and i n c r e a s i n g i n f l u e n c e on the housing market The r e s u l t has been r e f l e c t e d i n changes i n the a t t i t u d e s of i n v e s t o r s f i r s t towards the i n c r e a s i n g l y s p e c u l a t i v e and sometimes i r r a t i o n a l b u l l market t h a t peaked i n 1970 and l a t e l y t o an e q u a l l y massive and c o r r e c t i v e bear market t h a t has y e t t o run i t s f u l l c o u rse. T h i s study i s an a n a l y s i s of 69 p r o p e r t i e s l o c a t e d i n the lower mainland area. The sample i s comprised of both c o n c r e t e and frame s t r u c t u r e s r a n g i n g i n age from one year t o s i x t y years and i n s i z e from 11 s u i t e s and a $15,000 annual income t o 311 s u i t e s and a $615,000 annual income. The p e r i o d under a n a l y s i s i s p r i m a r i l y the years 1960 to 1970 and the area a n a l y s e d i s e s s e n t i a l l y Vancouver, Burnaby and Mew Westminster. The purpose of the study i s t o a n a l y s e a r e p r e s e n t a t i v e sampling of p r o p e r t i e s with r e s p e c t t o t h e i r o p e r a t i o n a l c o s t s over a p e r i o d of time and w i t h r e s p e c t t o the y i e l d s t h a t i n v e s t o r s have obtained on these p r o p e r t i e s . The study i s u s e f u l i n t h a t data of t h i s magnitude have not been c o l l a t e d o u t s i d e of the a s s e s s o r s ' o f f i c e s o f v a r i o u s m u n i c i p a l i t i e s and such d a t a t h a t have been a v a i l a b l e t o the a s s e s s o r s have not been a n a l y s e d i n t h i s manner. The r e s u l t s of the study have shown t h a t a number of rules-of-thumb c u r r e n t l y i n use i n the a n a l y s i s of apartment p r o p e r t i e s a re misconceptions t h a t o f t e n l e a d t o erroneous c o n c l u s i o n s . I t has a l s o been shown t h a t the entrance of many u n s o p h i s t i c a t e d i n v e s t o r s i n t o the market f o r the primary purpose of t a x avoidance ha r e s u l t e d i n a v e r y great b u l l market t h a t was c o r r e c t e d and i s s t i l l b eing c o r r e c t e d by the combination of fo u r b a s i c f a c t o r s ; the economic slowdown, the White Paper, h i g h i n t e r e s t r a t e s , and the change i n the types of a l t e r n a t i v e housing a v a i l a b l e t o the tenant, The study a l s o g i v e s i n s i g h t s i n t o f o r m a t i v e f a c t o r s , such as i n d i r e c t and d i r e c t government i n t e r v e n t i o n i n t o housing, t h a t w i l l shape the apartment market of the 1970's, A l i m i t i n g f a c t o r i n the study i s the f a c t t h a t the i n f o r m a t i o n r e q u i r e d i s of a p e r s o n a l and h i g h l y s e c r e t i v e n a t u r e and thus d i f f i c u l t t o o b t a i n . The r e s u l t has been t h a t the sample i s not l a r g e enough and i t has been drawn from sources which were c o - o p e r a t i v e and does not n e c e s s a r i l y r e p r e s e n t a random sample of the e x i s t i n g apartment p r o p e r t y stock.''" However, any b i a s does not i n v a l i d a t e the g e n e r a l c o n c l u s i o n s o b t a i n e d but o n l y r e s u l t s i n o v e r r e p r e s e n t a t i o n i n some areas. In g e n e r a l , the i n f o r m a t i o n obtained was taken d i r e c t l y from a u d i t e d o p e r a t i n g statements thus a l l e v i a t i n g most i n c o n s i s t e n c i e s t h a t may r e s u l t from a d e l i b e r a t e mis-r e p r e s e n t a t i o n of the f a c t s . 37 of the 69 p r o p e r t i e s i n t h i s study are owned by d o c t o r s . The remaining p r o p e r t i e s are owned by c o n t r a c t o r s , f i n a n c i a l i n s t i t u t i o n s , owner-managers, f u l l time p r o p e r t y i n v e s t o r s , i n d i v i d u a l s or c o r p o r a t i o n s who d e r i v e a s u b s t a n t i a l p r o p o r t i o n of t h e i r income from p r o p e r t y , and other p r o f e s s i o n a l s such as lawyers. i v The b a s i c c o n c l u s i o n s a r r i v e d a t a r e t h a t those i n d i v i d u a l i n v e s t o r s who purchase p r o p e r t y on a sound economic b a s i s and operate on a sound b a s i s w i l l make money w h i l e those i n v e s t o r s who purchase on the s o l e b a s i s of tax. s h e l t e r and who operate haphazardly o f t e n s u f f e r heavy c a p i t a l l o s s e s . TABLE OF CONTENTS CHAPTER PAGE I. INTRODUCTION 1 I I . AN OVERVIEW OF THE APARTMENT MARKET 15 I I I . SAMPLING TECHNIQUES 24 IV. OPERATIONAL COSTS 30 V. PROPERTY TAXES 50 VI. YIELDS 65 V I I . SUMMATION OF FINDINGS AND CONCLUSIONS 79 V I I I . ' APPENDIX: See Volume 2 . LIST OF TABLES AND GRAPHS TABLE PAGE 1. M e t r o p o l i t a n Vancouver Apartment Completions 12 2. C i t y of Vancouver Housing Completions 13 3. O u t l y i n g Area Housing Completions 14 4. U t i l i t i e s and S a l a r i e s to Number of S u i t e s 35 5. T o t a l Costs and Re p a i r s t o P r o p e r t y Age 40 6. O p e r a t i o n a l Costs t o Number of S u i t e s 48 7. O p e r a t i o n a l Costs t o S u i t e Income 49 8. • B u i l d i n g Age to P r o p e r t y Taxes 52 9. Number of S u i t e s t o Pr o p e r t y Taxes 56 10. S u i t e Income to P r o p e r t y Taxes 57 11. L o c a t i o n t o P r o p e r t y Taxes 59 12. Tax as a Percentage of Value 60 13. Increases i n P r o p e r t y Taxes 62 14. Purchase/Sale Data 66 15. P r o p e r t i e s w i t h an Expected C a p i t a l Gain 74 16. P r o p e r t i e s w i t h an Expected C a p i t a l Loss 77 17. Gross Rent M u l t i p l i e r 84 18. Gross Rent M u l t i p l i e r 86 19. "$X Per S u i t e Syndrome" 88 20. "$X Per S u i t e Syndrome" '89 21. "$X Per S u i t e Syndrome" 90 GRAPH 1. T o t a l Costs and Repairs, t o Property Age 41 i" CHAPTER I INTRODUCTION During the p e r i o d under study, the number of m u l t i p l e f a m i l y s t a r t s i n the m e t r o p o l i t a n Vancouver area i n c r e a s e d s i x f o l d from 1700 i n 1960 t o 9700 i n 1 1971. T h i s r a p i d expansion of the market brought about a new type of i n v e s t o r — t y p i c a l l y the p r o f e s s i o n a l w i t h a v e r y h i g h income and a high marginal t a x r a t e — who was more concerned w i t h h i s p e r s o n a l a f t e r - t a x cash p o s i t i o n than about the b e f o r e t a x p r o f i t a b i l i t y of the investment and who was w i l l i n g t o t r a d e o f f a r e d u c t i o n i n the r e t u r n on h i s investment f o r a ve r y l a r g e tax s a v i n g . In t u r n , t h i s new type of i n v e s t o r brought about an i n c r e a s e d expansion of the market because he was w i l l i n g t o accept a lower r e t u r n and lower r e n t s which, consequently, r e s u l t e d i n a m i s a l l o c a t i o n of r e s o u r c e s towards apartments and away from other types of housing. Thus, a s e l f -g e n e r a t i n g market o c c u r r e d . The purpose of the g r e a t m i g r a t i o n by d o c t o r s i n t o apartment investment was t o a v o i d t a x e s . However, as i l l u s t r a t e d i n the examples f o l l o w i n g t h i s c h apter, the tax sav i n g s obtained are v e r y q u i c k l y eaten up by any major r e a l v a l u e l o s s and, u n l e s s the ma r g i n a l t a x r a t e was 100%, the i n v e s t o r c o u l d o n l y l o s e . N a t u r a l l y , i t was not expected t h a t any r e a l l o s s e s would See Tables 1, 2 and 3 f o l l o w i n g . occur and, on t h i s presumption, the a c t i o n s taken by the d o c t o r s and other seekers of tax s h e l t e r s c o u l d h a r d l y be f a u l t e d . T h i s phenomena r e s u l t e d i n a v e r y q u i c k l y r i s i n g b u l l market t h a t culminated i n November and December of 1969 and 1970 when the problem a b u i l d e r f a c e d was not i f he was going to get h i s p r i c e but t o whom he would condescend to s e l l h i s b u i l d i n g . The r e s u l t s of some of these misadventures i n t o apartment "investment" can be seen i n Chapter VI. An e f f e c t of the income t a x changes has been a r e a l l o c a t i o n of r e s o u r c e s away from apartment investment and back towards other types of r e a l p r o p e r t y investment. For owners of apartment p r o p e r t y t h i s has r e s u l t e d i n d e c l i n i n g p r i c e s and higher e x p e c t a t i o n s of y i e l d . The study i s an attempt t o c a t e g o r i z e the investments, c o l l e c t a c c u r a t e data and numerate the o p e r a t i o n a l q u a l i t i e s of a number of p r o p e r t i e s i n order t o a r r i v e a t a norm and t o check f o r a c o n s i s t e n c y and a u n i f o r m i t y among p r o p e r t i e s . T h i s l e v e l of c o n s i s t e n c y or "norm" can then be expected to r e p e a t i t s e l f i n e q u a l l y r e p r e s e n t a t i v e p r o p e r t i e s and, as such, can be used t o compare other data w i t h . In t h i s r e s p e c t the study i s a success i n t h a t the data r e i n f o r c e the "norms" t h a t were expected and so p r o v i d e s more c o n c r e t e goals a g a i n s t which the performance of other s i m i l a r investments can be measured. D i s a p p o i n t i n g , however, was the l a c k of s t a t i s t i c a l evidence t o e x p l a i n the obs e r v a b l e g r e a t extremes from the expected or t o e x p l a i n the l a c k of d i f f e r e n t i a t i o n t h a t should e x i s t a c c o r d i n g t o o b s e r v a t i o n or a c c o r d i n g t o "gut" f e e l . Thus, alt h o u g h t h e r e i s a c e n t r a l u n i f o r m i t y or c o n s i s t e n c y , the i n d i v i d u a l p r o p e r t y being compared t o the "norms" ob t a i n e d must i t s e l f be normal or c o n s i s t e n t and must be from the same time p e r i o d . The reason f o r t h i s l a s t requirement i s t h a t i t appears as i f the r a t i o of v a r i o u s expenses t o income and the r a t i o of t o t a l expenses t o income may be a l t e r i n g and so the r e s u l t s o b t a i n e d may not have an a c c u r a t e c o n s i s t e n c y over time. The study i s u s e f u l i n t h a t , a t present, data such as presented here e x i s t o n l y i n a s s e s s o r s ' o f f i c e s or, i n l i m i t e d amounts, t o o r g a n i z a t i o n s such as the Vancouver R e a l E s t a t e Board. The c o n c l u s i o n s a r r i v e d i n the study are not as d e f i n i t i v e as t h a t which was expected or hoped f o r . T h i s i s not n e c e s s a r i l y a f a u l t of the data but more of a f a u l t i n not being a b l e t o convey i d e a s , o p i n i o n s or f e e l i n g s through nu m e r i c a l f i g u r e s . Where b r i e f r e f e r e n c e s can be made t o c l a r i f y or expand, on s t a t i s t i c a l data they w i l l be made but where longer e x p l a n a t i o n s would be r e q u i r e d 4 the reader i s asked t o make use of the appendix which c o n t a i n s e x t e n s i v e data on each p r o p e r t y along w i t h a commentary t h a t attempts t o convey the reasons f o r some of the c o n c l u s i o n s a r r i v e d a t . Chapter I I i s a d i s c u s s i o n on the apartment market d u r i n g the p e r i o d under a n a l y s i s . The main purpose of t h i s chapter i s twof o l d ; t o s t a t e the time sequence of events t h a t o c c u r r e d t h a t a f f e c t e d the market and t o conve f e e l i n g s which w i l l h e l p the reader t o a p p r e c i a t e more f u l l y the data c o n t r i b u t i n g t o the study. Chapter I I I i s concerned with the sampling techniques used; where were the data obtained from and what were t h e i r shortcomings, what were the mathematical methods used and what i s the s i g n i f i c a n c e of the r e s u l t s o b t a i n e d . Chapter IV i s a d i s c u s s i o n and a n a l y s i s of the v a r i o u s o p e r a t i o n a l c o s t s ( e x c l u d i n g p r o p e r t y taxes) of an apartment p r o p e r t y . Minor or n o n - a n a l y t i c items such as c a b l e v i s i o n or a d v e r t i s i n g are on l y d i s c u s s e d whereas major v a r i a b l e items such as s a l a r i e s , u t i l i t i e s and r e p a i r s are both d i s c u s s e d and analysed f o r s t a t i s t i c a l s i g n i f i c a n c e . A l s o d i s c u s s e d i n t h i s c h apter are methods and procedures which c o u l d and should be used t o improve the e f f i c i e n c y of o p e r a t i o n , D i f f e r e n t types of i n v e s t o r s and modes of o p e r a t i o n w i l l a l s o be looked a t . An a n a l y s i s i s made of v a r i o u s f a c t o r s such as age, s i z e , c o n s t r u c t i o n type and l o c a t i o n to determine i f t h e r e i s a r e l a t i o n s h i p to t o t a l o p e r a t i n g c o s t s . Chapter V i s concerned w i t h the a n a l y s i s of the s i n g l e most important o p e r a t i n g expense -- p r o p e r t y taxes by area, age of p r o p e r t y , type of c o n s t r u c t i o n , s i z e and v a l u e . Increases i n taxes w i l l be looked a t and compared between m u n i c i p a l i t i e s . A l s o d i s c u s s e d w i l l be a l t e r n a t i v e methods of assessment t h a t would r e s u l t i n a more e q u i t a b l e system of a s s e t t a x a t i o n . Chapter VI i s concerned w i t h the y i e l d s obtained by p u r c h a s e / s a l e data and by o p e r a t i o n a l c o s t s . S a l e p r i c e s are a l s o hypothesized on a number of p r o p e r t i e s and these are a n a l y s e d on the b a s i s of expected gains and l o s s e s t o a r r i v e a t an e s timate of the r e t u r n o b t a i n e d . Non-arms-l e n g t h t r a n s a c t i o n s , data weaknesses and the presumptions on which expected s a l e s p r i c e s are e s timated w i l l a l s o be d i s c u s s e d . Chapter VIIA i s a summation of the f i n d i n g s obtained and a d i s c u s s i o n of the weaknesses and the s t r o n g p o i n t s of the paper. Chapter VIIB i s concerned w i t h d i s -c u s s i o n s on: 1) The many misconceptions and rules-of-thumb t h a t permeate and c l o u d the apartment investment market. 6 2) The probable outcome of the market. 3) Ways i n which to c o r r e c t d e f i c i e n c i e s i n the market and i n the housing provided (or t o be b u i l t ) (such as the s o c i a l problems of over-crowding) through the land use c o n t r a c t , p r o j e c t zoning, taxes, b u i l d i n g codes and d i r e c t govern-ment i n t e r v e n t i o n . The appendices are concerned w i t h the p r e s e n t a -t i o n of the. raw data on each of the p r o p e r t i e s . Each b l o c k has a minimum of t h r e e pages of data which summarize most of the p e r t i n e n t p a r t i c u l a r s on the p r o p e r t y . Page one g i v e s the type of c o n s t r u c t i o n , the a n a l y s i s p e r i o d , the age of the p r o p e r t y , the l o c a t i o n , the s i z e , s u i t e d i s t r i b u t i o n and r e n t a l r a t e s , g e n e r a l i n f o r m a t i o n on the c o n s t r u c t i o n , the amenities o f f e r e d and the type of tenant, the f i n a n c i n g arrangements and any purchase or s a l e d ata. Page two i s concerned w i t h a t a b u l a t i o n of the o p e r a t i o n a l c o s t s of the p r o p e r t y f o r as many years as data a r e a v a i l -a b l e . D e t a i l e d a n a l y s e s of p r o p e r t y taxes t o gross income, net income and t o t a l expenses are a l s o i n c l u d e d . Page t h r e e i s concerned w i t h the y i e l d s o b t a i n e d throughout the h o l d i n g p e r i o d of the p r o p e r t y . Y i e l d s are broken down i n t o cash flow, mortgage p r i n c i p a l r e d u c t i o n and c a p i t a l g a i n or l o s s . Where s a l e data a r e not a v a i l a b l e t h e r e i s a summary s e t t i n g out reasons f o r an expected s a l e p r i c e and c a p i t a l i z a t i o n r a t e . The p r o p e r t i e s w i t h i n the appendices a r e grouped a c c o r d i n g to l o c a t i o n and type of c o n s t r u c t i o n . The appendices themselves c o n t a i n a l l the e s s e n t i a l data r e -l a t i n g t o the study and, i n f a c t , g i v e a much more p r e c i s e and t r u e p i c t u r e of the investment outcomes and o p e r a t i o n a l c o s t s r e l a t i n g t o apartment investment as a whole. The a n a l y s i s of the data r e s u l t s i n s t a t i s t i c a l l y a c c e p t a b l e norms which m u f f l e the r e s u l t s and which remove the extremes from c o n s i d e r a t i o n but, u n f o r t u n a t e l y , i t i s the extremes which p r o v i d e the most i n t e r e s t i n g o b s e r v a t i o n s and which p r o v i d e the reasons f o r e x p l a i n i n g the v a r i e d and i r r a t i o n a l n a ture of t h i s p a r t i c u l a r segment of the r e a l e s t a t e market. 8 TRADE-OFF 35TWEN TAX SHELTER AND YIELD On h i n d s i g h t , many of the investments made by p r o f e s s i o n a l people i n hig h t a x b r a c k e t s ( e s p e c i a l l y d o c t o r s ) have not been w e l l - a d v i s e d . Too much emphasis appears t o have been p l a c e d upon the s a v i n g of income tax and too l i t t l e e f f o r t appears t o have been spent on a c q u i r i n g a reasonable investment. The f o l l o w i n g examples should help c l a r i f y t h i s p o i n t . Example 1: Pr o p e r t y X Pr o p e r t y Y P r i c e : $500,000 $550,000 D e p r e c i a b l e a s s e t s a t 10%: $400,000 $450,000 T o t a l t a x s a v i n g at 50% tax: $ 20,000 $ 22,500 Y i e l d on e q u i t y : 10.0% 7.5% I f i t i s assumed t h a t the p r o p e r t i e s have been h e l d f o r 3 y e a r s , i t can be seen t h a t the t o t a l a d d i t i o n a l t a x s a v i n g f o r p r o p e r t y Y i s something l e s s than $7,500 (because of the d e c l i n i n g d e p r e c i a b l e base). I f i t i s ag a i n assumed t h a t the t a x s a v i n g i s r e i n v e s t e d at a compound r a t e of r e t u r n of 20% (10% a f t e r t a x ) , then the t o t a l advantage"-of p r o p e r t y Y over p r o p e r t y X has been l e s s than $10,000. A g a i n s t t h i s must be charged the c o r t of the l o s t r e t u r n on the a d d i t i o n a l $50,000 spent (on.property Y) f o r a p e r i o d of 3 y e a r s . T h i s amounts t o $16,550. T h e r e f o r e , i t appears 9 obvious t h a t paying a higher p r i c e f o r the p r i v i l e g e of a d d i t i o n a l t a x s h e l t e r i s uneconomical and f o o l h a r d y . However, the p r e c e d i n g argument n e g l e c t s one b a s i c p o i n t ; the c h o i c e i s o f t e n not between a c q u i r i n g a pro p e r t y with a 7.5% r e t u r n and a 10% r e t u r n but between a c q u i r i n g a pr o p e r t y or paying the tax. Example 2 shows t h a t the premium t h a t can be p a i d f o r a p r o p e r t y j u s t t o o b t a i n a tax s h e l t e r f o r one year i s s m a l l . Example 2: I f i t i s assumed t h a t Dr. Y a c q u i r e s a t ax s h e l t e r merely f o r the purpose of postponing t a x f o r one year and t h a t he i s i n the 50% tax bracket and t h a t he o b t a i n s a 10% a f t e r t a x r e t u r n on h i s t a x s a v i n g s , then the t o t a l amount t h a t he can l o s e on h i s i n v e s t -ment i s 1% of the d e p r e c i a b l e amount. a) D e p r e c i a b l e amount = $500,000 b) D e p r e c i a t i o n at 10% = $ 50,000 c) Tax s a v i n g a t a r a t e of 50% = $ 25,000 d) Met a d d i t i o n to income on tax savings = ? 2,500 e) Resale v a l u e of a s s e t = $495,000 f ) Tax on r e c a p t u r e of $45,000 at 50% " = $ 22,500 g) T o t a l b e n e f i t of (c) and (d) = $ 27,500 h) T o t a l l o s s of ( f ) and (a) minus (e)= $ 27,500 T o t a l net g a i n = n i l T h e r e f o r e , i t becomes e q u a l l y apparent t h a t any l o s s taken t o a v o i d t a x f o r one year must be v e r y s m a l l . 10 Example 3: A t h i r d example, which i s probably the c l o s e s t to r e a l i t y , should a l s o be u t i l i z e d t o cover those cases where a s m a l l expected l o s s i s i n c u r r e d . Assume t h a t Dr. Y a c q u i r e d a p r o p e r t y i n 1969 a t $500,000 and s o l d i t i n 1971 f o r a t o t a l l o s s of $40,000. However, to cover any r e c a p t u r e of d e p r e c i a t i o n , t h i s • i n v e s t o r a c q u i r e d a s i m i l a r type p r o p e r t y v a l u e d at l e s s than $50,000 which • means that i t can be "pooled" w i t h the o l d a s s e t and so r e c a p t u r e i s avoided. D e p r e c i a b l e a s s e t : $400,000 D e p r e c i a t i o n year 1: $ 40,000 Tax s a v i n g year 1: $ 20,000 D e p r e c i a t i o n year 2: $ 36,000 Tax s a v i n g year 2: $ 18,000 T o t a l , t a x s a v i n g : $ 38,000 T o t a l v a l u e a t the end of two years i f the tax s a v i n g i s r e i n v e s t e d at 10% net of taxes = $40,000 S i n c e the t o t a l d e p r e c i a t i o n claimed i s $76,500 and s i n c e the l o s s on the p r o p e r t y i s $40,000 then $36,500 of the d e p r e c i a t i o n must be " b u r i e d " i n the new a s s e t . The net r e s u l t of the t r a n s a c t i o n i s t h a t $40,000 has been "saved" and $40,000 has been l o s t on the s a l e of the b u i l d i n g . In a d d i t i o n , the i n v e s t o r 11 has c a p i t a l t i e d up i n h i s " b u r i e d " d e p r e c i a t i o n and, u n l e s s he allows the b u i l d i n g a s s e t t o r o t , he always has the t h r e a t of r e c a p t u r e hanging over him. On top of t h i s i s the l o s t income, or d i f f e r e n t i a l i n income, th a t has not been obtained from the c a p i t a l i n v e s t e d i n e i t h e r the o r i g i n a l a s s e t or i n the a s s e t a c q u i r e d t o "bury" the d e p r e c i a t i o n . The t h r e e examples i l l u s t r a t e t h a t i t i s not economical to a c q u i r e a tax s h e l t e r i f the p o s s i b i l i t y of more than a s m a l l l o s s e x i s t s because i t i s always more economical t o pay 50 cent d o l l a r s t o the government than to take 100 cent l o s s e s . TABLE 1 METROPOLITAN VANCOUVER MULTIPLE FAMILY COMPLETIONS 1959 TO 1971 Year Completions 1959 3,700 1960 1,700 1961 1,600 1962 2,600 1963 4,300 1964 5,500 1965 6,900 1966 7,500 1967 5,600 1968 8,400 1969 8,900 1970 9,200 1971 9,700 Source: C e n t r a l Mortgage and Housing C o r p o r a t i o n s t a f f . 13 TABLE 2 HOUSING COMPLETIONS IN THE CITY OF VANCOUVER 1960 TO 1971 S i n g l e Family Year and Duplex Row and M u l t i p l e T o t a l 1960 514 1,151 1,665 1961 554 1,033 1, 587 1962 771 1,566 2,337 1963 770 2, 801 3,571 1964 712 3,432 4,144 1965 720 5,220 5,940 1966 929 4,808 5,737 1967 600 3,017 3,617 1968 572 3,182 3,754 1969 424 3,548 3,972 1970 345 4,192 4,537 1971 507 2,969 3,476 TABLE 3 HOUSING COMPLETIONS 1965 TO 1971 FOR BURNABY, NEW WESTMINSTER AND SURREY L o c a t i o n Year S i n g l e M u l t i p l e T o t a l Surrey* 1965 1966' 1967 1968 1969 1970 1971 488 686 708 961 789 620 715 178 98 91 46 680 95 1,076 666 784 799 1,007 1,469 715 1,791 Burnaby 1965 1966 1967 1968 1969 1970 1971 386 520 476 502 555 370 410 520 547 1,035 1,248 1,602 1,200 1,470 906 1,067 1,511 1,750 2,157 1,570 1, 880 New Westminster 1965 1966 1967 1968 1969 1970 1971 34 49 68 26 7 8 17 352 725 774 1,122 634 444 471 386 774 842 1,148 641 452 488 *Note: In 1958 Surrey had 2,000 s i n g l e f a m i l y completions the l a r g e s t recorded i n t h a t m u n i c i p a l i t y . AN OVERVIEW OF THE APARTMENT MARKET 1960 TO 1970 In Chapter I, th e r e are t h r e e Tables showing the m u l t i p l e f a m i l y completions f o r v a r i o u s areas i n the lower mainland f o r the p e r i o d 1960 to 1970. At the begi n n i n g of the decade the s t a n d i n g s t o c k of apartment p r o p e r t i e s was held mainly by those i n v e s t o r s i n the market f o r a long-term s i t u a t i o n . Small p r o p e r t i e s were t y p i c a l l y h e l d .by the owner-manager who l i v e d on the premises and depended upon the property to provide h i s s o l e income. G e n e r a l l y , these o l d e r , s m a l l e r blocks were purchased on the b a s i s of a reasonable economic r e t u r n and were run i n a manner t h a t maximized long-run b e n e f i t s . Tenants were t y p i c a l l y long-term and c o n s i s t e d mainly of s i n g l e people and couples or f a m i l i e s who wished t o l i v e i n apartment b l o c k s . The l a r g e r frame b l o c k or the high r i s e (of which the r e were few) was owned by the more w e l l - t o - d o i n d i v i d u a l owner/manager or by l a r g e - s c a l e i n v e s t o r s who he l d these p r o p e r t i e s f o r income and f o r long-run investment. Again, these p r o p e r t i e s were g e n e r a l l y purchased and operated on a ver y b u s i n e s s l i k e manner. A n ' i n s p e c t i o n today of frame and c o n c r e t e p r o p e r t i e s 10 t o 20 years o l d g i v e s the impression that 16 the q u a l i t y of the m a t e r i a l s and l a b o r t h a t was used was g e n e r a l l y good and, i n some cases, extravagant. The r e s u l t has been t h a t , a l t h o u g h the b u i l d i n g s appear t o be l e s s than modern, they have aged g r a c e f u l l y and t h e i r b a s i c s t r u c t u r e i s v e r y sound. The reason f o r t h i s would seem t o be t h a t the purchaser i n 1960 was l o o k i n g more at the q u a l i t y of h i s proposed investment than at the t a x s a v i n g s he would reap by having a l a r g e c a p i t a l c o s t allowance t o apply t o h i s other income. The mortgage market at t h i s time was r e a s o n a b l y steady w i t h a c o n t i n u i n g supply of funds at i n t e r e s t r a t e s of 6% t o 1%. In a d d i t i o n , i t would appear t h a t vendor f i n a n c i n g was more p r e v a l e n t a t t h a t time than i t i s today. Rents and most o p e r a t i v e c o s t s were r e a d i l y p r e d i c t a b l e and steady. The o v e r a l l r e s u l t was a r e a s o n a b l y s t a b l e market t y p i f i e d by r e l a t i v e l y c o n s t a n t tenants, r e n t s and o p e r a t i n g c o s t s w i t h few o u t s i d e i n f l u e n c e s such as wide swings i n supply/demand or government r e g u l a t i o n . The 1960's r e s u l t e d i n a number of changes t h a t were g r a d u a l at the b e g i n n i n g but \^hich gained more and more momentum as the decade went by. F i r s t , t h e r e was a r a p i d i n c r e a s e i n the number of apartments c o n s t r u c t e d both i n the o l d s t r o n g h o l d s such as the West End, K i t s i l a n o and South G r a n v i l l e and a l s o i n areas unused to m u l t i p l e f a m i l y housing such as New Westminster and 17 Burnaby. T h i s r a p i d i n c r e a s e i n c o n s t r u c t i o n was brought about not o n l y by more demand because t h e r e were more people coming i n t o the c i t y but a l s o because house p r i c e s were beginn i n g t o move up ve r y r a p i d l y and fewer people c o u l d a f f o r d t o buy houses w i t h i n the c i t y and so e i t h e r moved i n t o the suburbs or ren t e d apartments. T h i s r e s u l t e d i n a more r a p i d i n c r e a s e i n land v a l u e s f o r apartment p r o j e c t s and i n r a p i d l y r i s i n g r e n t s . Second, t h e r e was ei grad u a l i n c r e a s e i n i n t e r e s t r a t e s from about 7% i n 1963 t o 8% i n 1967 and then a r a p i d i n c r e a s e i n r a t e s t o as hig h as 11% i n 1970. T h i r d , t h e r e was the problem of f a m i l i e s , couples and i n d i v i d u a l s who l i v e d i n apartment b l o c k s not through c h o i c e but through economic n e c e s s i t y . As t h i s group of tenants became more and more p r e v a l e n t , the problems and c o s t s a s s o c i a t e d w i t h o p e r a t i n g apartment p r o p e r t i e s r o s e . Fourth, and probably most important, t h e r e was a v e r y r a p i d s h i f t i n the type of i n v e s t o r purchasing apartment p r o p e r t i e s . I n c i d e n t a l t o the f i r s t p o i n t s (or because of i t ) t h e r e was a l s o a v e r y marked decrease i n the q u a l i t y of most frame b u i l d i n g s and of some c o n c r e t e b u i l d i n g s . Although the data do not show i t , t h e r e i s evidence t o suggest t h a t the long-run o p e r a t i o n a l c o s t s of t h i s new group of p r o p e r t i e s w i l l be s i g n i f i c a n t l y h i g h e r than the c o s t s of o p e r a t i n g s i m i l a r types of b u i l d i n g s which were b u i l t i n e a r l i e r y e ars and which were c o n s t r u c t e d of b e t t e r m a t e r i a l s . 18 The economic peak of apartment investment was p robably reached i n 1967/1968. A f t e r t h i s p o i n t i n time t h e r e were a number of f a c t o r s which o c c u r r e d which, on h i n d s i g h t , show the impending c o l l a p s e of the s p e c u l a t i v e boom. These f a c t o r s are: a) The r a p i d l y d e t e r i o r a t i n g q u a l i t y of c o n s t r u c -t i o n . Some b u i l d i n g s were b u i l t o n l y t o show a h i g h gross r e t u r n which, based upon the gross r e n t m u l t i p l i e r , would y i e l d a v e r y handsome p r i c e and a l u c r a t i v e p r o f i t . b) The s o f t e n i n g of demand i n some o u t l y i n g areas which r e s u l t e d i n weakened r e n t a l r a t e s . c) The v e r y h i g h i n f l a t i o n r a t e which r e s u l t e d i n r a p i d l y i n c r e a s i n g o p e r a t i n g c o s t s ( e s p e c i a l l y p r o p e r t y t a x e s ) . d) The r a p i d i n c r e a s e i n i n t e r e s t c o s t s which, because of the l a r g e s t a n d i n g s t o c k of e x i s t i n g housing, c o u l d not be c o m p l e t e l y passed on t o the tenant and which r e s u l t e d i n the e r o s i o n of the r e t u r n t o the i n v e s t o r . e) The change i n government r e g u l a t i o n s governing . l a n d l o r d / t e n a n t r e l a t i o n s and the r i s e of tenant r i g h t s and tenant o r g a n i z a t i o n s . f ) The proposed changes i n the income tax a c t which would remove the major i n c e n t i v e f o r the specula-' 1 t i v e or " n o n - p r o f e s s i o n a l " i n v e s t o r b e i n g i n the market. These changes were implemented i n January of t h i s year. g) The change i n the market from one of h i g h demand f o r p r o p e r t i e s by " n o n - p r o f e s s i o n a l s " to one of n e g a t i v e demand'by these same " n o n - p r o f e s s i o n a l s . " h) Governmental i n f l u e n c e on the f a m i l y housing market through l i m i t e d d i v i d e n d and low income housing p r o j e c t s . i ) The i n t r o d u c t i o n of the condominium and other low c o s t housing u n i t s which decreased the demand f o r r e n t a l accommodation through c o n v e n t i o n a l sources. I t should be noted here t h a t the same apartment s u i t e owned by the r e s i d e n t i s auto-m a t i c a l l y $15 per month cheaper because of the 2 p r o v i n c i a l home-owner grant. 1 " N o n - p r o f e s s i o n a l " meaning t h a t the purpose of ownership i s other than s o l e l y f o r income and t h a t the owner does not make p r o p e r t y ownership h i s s o l e l i v e l i h o o d but r a t h e r uses the investment t o c r e a t e l o s s e s t o o f f s e t h i s other income. 2 The c u r r e n t home-owner grant i s $185 per year or approximately $15 per month. T h i s grant has not been a t t h i l e v e l a l l along but has i n c r e a s e d y e a r l y s i n c e i t s i n c e p t i o n 20 j ) The v e r y s p e c u l a t i v e nature of the market which d i d not purchase on the b a s i s of net e a r n i n g s but on the b a s i s of a statement not supported by evidence and on the b a s i s of rules-of-thumb such as "$x per s u i t e " and "seven times g r o s s . " These f a c t o r s which s t a r t e d to a c t upon the s p e c u l a t i v e a s p e c t s of the apartment investment market i n 1968 have not y e t run t h e i r f u l l course. The reason f o r t h i s i s t h a t many i n d i v i d u a l i n v e s t o r s have not or w i l l not r e c o g n i z e the f a c t t h a t they overpurchased and many i n v e s t o r s have not had to s e l l t h e i r p r o p e r t i e s as yet. However, t h i s i s the f i r s t year where i n d i v i d u a l s w i l l , not be a b l e to w r i t e c a p i t a l c o s t allowance c r e a t e d " l o s s e s " o f f a g a i n s t other income. The l a r g e s t group of i n v e s t o r s caught i n t h i s s p e c u l a t i v e b i n d have been the d o c t o r s . T y p i c a l l y , t h i s group mortgaged the p r o p e r t y through c o n v e n t i o n a l means to the g r e a t e s t e x t e n t p o s s i b l e , even i f t h i s meant 15^/q second mortgages. The p r o p e r t y was then purchased w i t h a downpayment ob t a i n e d from p r i v a t e sources or from the banks. T h i s downpayment loan was o f t e n o b t a i n e d on the b a s i s of the cash flow of the p r o p e r t y and on the massive t a x savings t h a t would r e s u l t from a r t i f i c i a l l y c r e a t e d p r o p e r t y " l o s s e s " a p p l i e d t o p r o f e s s i o n a l incomes. S i n c e purchase the i n v e s t o r has had t o f a c e the f o l l o w i n g : 21 a) The expense of o p e r a t i n g a p r o p e r t y i n c r e a s e s a f t e r one or two years of o p e r a t i o n as r e p a i r s and r e p a i n t i n g i n c r e a s e . Thus, the p r o p e r t y t h a t was operated on 32% of gross income i n the f i r s t year may r e q u i r e 35% or 36% i n the t h i r d year. b) The purchase statements' as presented by the b u i l d e r or vendor are o f t e n o v e r l y o p t i m i s t i c w i t h r e s p e c t t o both income and expenses. c) Vacancies are o f t e n shown as being n e g l i g i b l e , but a p e r i o d of h i g h v a c a n c i e s , such as i s o c c u r r i n g at the present time, w i l l reduce income and may i n c r e a s e the expenses of o p e r a t i n g the b u i l d i n g . d) I f management i s a h i t or miss s i t u a t i o n then c o s t s have a tendency to soar and incomes t o drop. e) Because of an excess supply, r e n t a l r a t e s have not been i n c r e a s i n g i n r e l a t i o n s h i p t o c o s t s and, i n some i n s t a n c e s , r e n t a l r a t e s have remained s t a t i c or may even have dropped. In the meantime c o s t s have gone up s i g n i f i c a n t l y . f ) The p o s i t i v e cash flow may have disappeared and, i n f a c t , the b l o c k may have t o be supported by t r a n s f u s i o n s of p e r s o n a l c a p i t a l . 22 g) The l a r g e t a x savings c r e a t e d by the a r t i f i c i a l p r o p e r t y l o s s e s have been e l i m i n a t e d by the change i n the t a x r e g u l a t i o n s . The p e r s o n a l loan taken out from the bank i n order t o buy the p r o p e r t y w i l l s t i l l have to be r e p a i d and t h i s w i l l have t o be done from a g r e a t l y reduced income. The r e s u l t s w i l l be t h a t t h i s group of p r o f e s -s i o n a l s , w i l l no longer be abl e t o a f f o r d t o keep any pro p e r t y t h a t i s not an ec o n o m i c a l l y sound investment and, i n e v i t a b l y , many s a l e s w i l l come about because the funds are simply not a v a i l a b l e t o meet the f i n a n c i a l commitment i n c u r r e d . The end r e s u l t i s t h a t , over the next few years, investment i n apartments should r e t u r n t o i t s s t a t u s of 1960 where p r o p e r t i e s were a c q u i r e d and h e l d f o r long-term investment and y i e l d . T h i s i n t u r n w i l l r e s u l t i n the f o l l o w i n g : a) Decreased s t a r t s of apartment s u i t e s u n t i l the area can support an economic r e n t . b) S t a b l e or d e c r e a s i n g land c o s t s because demand f o r s i t e s has d e c l i n e d . c) B e t t e r q u a l i t y c o n s t r u c t i o n t h a t emphasizes the long-run a s p e c t s of investment ownership. d) A probable d e c l i n e i n the r a t i o of frame b u i l d i n g s t o c o n c r e t e b u i l d i n g s . 23 e) The r e t u r n t o the more s t a b l e tenant market as low income f a m i l i e s f i n d low c o s t accommodation i n e i t h e r l i m i t e d d i v i d e n d developments or i n condominiums. f ) The r e t u r n of apartment investment t o a b u s i n e s s -l i k e f o o t i n g with l e s s turnover i n p r o p e r t i e s . T h i s . l a s t p o i n t w i l l be r e i n f o r c e d by the change i n the tax a c t which w i l l mean th a t t a x w i l l be a p p l i e d t o any r e c a p t u r e or ga i n a t the time of s a l e . T h i s should r e s u l t i n b e t t e r c o n s t r u c t i o n and b e t t e r maintenance i n order t o p r e s e r v e the long-run income, of the p r o p e r t y . The end r e s u l t should be a r a t i o n a l i z a t i o n of the market and the n e c e s s i t y of t h i s p a r t i c u l a r aspect of the r e a l e s t a t e market t o compete not onl y w i t h other areas of p r o p e r t y investment but a l s o with other modes of investment 24 CHAPTER I I I SAMPLING TECHNIQUES C o l l e c t i o n of Data The sampling techniques used i n the c o m p i l a t i o n of the raw data f o r t h i s paper do not correspond to the techniques t h a t would be a c c e p t a b l e to a t r a i n e d s t a t i s -t i c i a n s e e k i n g s t a t i s t i c a l l y a c c e p t a b l e r e s u l t s . Rather i t was simply a s e a r c h f o r raw data and whenever a donor was found the i n f o r m a t i o n was g r a t e f u l l y r e c e i v e d and o n l y d i s c a r d e d i f i t appeared completely unworkable. E x t e n s i v e use was made of the r e c o r d s of two a c c o u n t i n g f i r m s who were k i n d enough t o p r o v i d e the a u d i t e d statements of a number of p r o p e r t i e s . U n f o r t u -nately, t h i s data as a whole provided a b i a s i n t h a t a very h i g h percentage of the c l i e n t s of the f i r m s h e l d the p r o p e r t i e s f o r t a x s h e l t e r purposes o n l y and most of these c l i e n t s - had o n l y entered the market s i n c e 1967. However, f o r those c l i e n t s who had purchased p r o p e r t i e s on the b a s i s of investments, the i n f o r m a t i o n was v e r y good, a c c u r a t e and c o n s i s t e n t . The second most important source of data was from two management companies. U n f o r t u n a t e l y , one of these companies was unable t o p r o v i d e the mortgage data so i t was i m p o s s i b l e to determine the a c t u a l y i e l d s o b t a i n e d . However, the data were extremely u s e f u l i n t h a t they covered p r o p e r t i e s 25 i n the c i t y of Vancouver ranging i n age from 5 t o 30 years and f o r the p e r i o d 1966 t o 1970. Thus, the data o b t a i n e d were over a long enough p e r i o d of time t o e l i m i n a t e most s h o r t term consequences. Again, t h i s data may have a b u i l t -i n b i a s because the type of i n v e s t o r who uses a p r o p e r t y management f i r m probably has not purchased the p r o p e r t y s o l e l y f o r investment reasons and t h e r e o f t e n appears to be l i t t l e v a l u e f o r the money from the p r o p e r t y management f i r m . T h i s l a s t p o i n t may be a l i t t l e u n f a i r because p r o f e s s i o n a l management f i r m s are o f t e n g i v e n p r o p e r t i e s t h a t are problems and i f they merely reduce the expenses t o a normal amount or reduce v a c a n c i e s to an a c c e p t a b l e l e v e l then they have earned t h e i r f e e . Data were a l s o o b t a i n e d from i n d i v i d u a l i n v e s t o r s . In many cases i t was not p o s s i b l e t o o b t a i n f i n a n c i n g d e t a i l s . However, the o p e r a t i o n a l c o s t s were u s e f u l i n t h a t they gave a v e r y much l a r g e r sampling w i t h which t o determine r e s u l t s . When a l l the data were obtained arrangements were made t o v i s i t each b l o c k and see enough of i t t o form an o p i n i o n as t o the accuracy of the data, the f u t u r e expecta-t i o n s as t o o p e r a t i o n a l c o s t s , the types of tenants and the g e n e r a l c o n d i t i o n of the b u i l d i n g and the s u i t e s . I t was a l s o a t t h i s time t h a t some of the b l o c k s had t o be 26 d i s c a r d e d as not being u s e f u l t o the study. Based upon the data and the v i s i t t o the block, a c a p i t a l i z a t i o n r a t e and a v a l u e were then a r r i v e d a t . Data Weaknesses As was p r e v i o u s l y mentioned, there i s a weak-ness i n the data because they are not a random sample. However, the purpose of the paper was not n e c e s s a r i l y to a r r i v e at a s t a t i s t i c a l l y a c c u r a t e summation of c o s t s but more to see what o p e r a t i o n a l c o s t s a number of b l o c k s had and what r e t u r n s t h e i r owners had o b t a i n e d or were making. There i s a f u r t h e r weakness i n the data i n t h a t , f o r tax purposes anyway, as many c o s t s and expenses as p o s s i b l e are w r i t t e n o f f a g a i n s t the b l o c k . T h i s n a t u r a l l y has an e f f e c t upon the answers ob t a i n e d but s i n c e i t was impos-s i b l e t o c o r r e c t f o r o u t s i d e i n f l u e n c e s these p e r s o n a l expenses were i g n o r e d . I t should be s u f f i c i e n t t o say t h a t i t appeared as i f whole p r i v a t e households were o f t e n r e f u r b i s h e d and r e p a i r e d a t the expense of the b l o c k . A f u r t h e r weakness i n the data i s t h a t the m a j o r i t y of p r o p e r t i e s analysed were b u i l t i n the l a s t h a l f of the 1960's. Thus o l d e r b l o c k s a r e underrepresented. w h i l e newer b l o c k s are o v e r r e p r e s e n t e d . However, as i s i n d i c a t e d i n T a b l e s 1, 2 and 3, the number of b l o c k s b u i l t i n the l a t e 1960's i s a v e r y s u b s t a n t i a l p r o p o r t i o n and they have become so they are the major i n f l u e n c e i n the market. 27 The data are a l s o weak i n t h a t they cannot express f e e l i n g s as t o the f u t u r e p r o f i t a b i l i t y o f a p r o j e c t or express o p i n i o n s of v a l u e judgement. In t h i s r e s p e c t i t becomes v e r y important t o c o n s u l t the appendix t o look at the i n d i v i d u a l p r o p e r t i e s r a t h e r than j u s t t o form o p i n i o n s on the aggregate data as a whole. These f e e l i n g s , of course, a r e weighted i n t h a t they form the b a s i s f o r the c a p i t a l i z a t i o n r a t e chosen and so have a very l a r g e i n f l u e n c e on the v a l u a t i o n of the pr o p e r t y . P o s s i b l y the t o t a l data weakness can be summarized by s t a t i n g t h a t t o a c c u r a t e l y express market v a l u e the data o b t a i n e d must be m o d i f i e d by o p i n i o n and f e e l i n g s and o p i n i o n and judgement must be m o d i f i e d by f a c t . The Mathematical Methods Used The mathematical methods used were extremely simple. F i r s t the data were gathered on the b a s i s of annual incomes and annual expenses. A l l expense items were then c a t e g o r i z e d so as t o o b t a i n a c o n s i s t e n c y between p r o p e r t i e s . These data were then f e d i n t o a computer and the percentages and r a t i o s were c a l c u l a t e d . Each p r o p e r t y was then examined and any f i g u r e s t h a t d i f f e r e d from those expected were f i r s t a n a lysed then checked and i f t h e i r v a l i d i t y appeared doubt-f u l the p r o p e r t y was d i s c a r d e d or, i f the segment was not important, o n l y t h a t segment was d i s c a r d e d . A f t e r the raw data were broken down the f i g u r e s f o r each area under a n a l y s i s were arranged i n ascending 28 order and the median wi t h the two extremes or range were then enter e d . The reason why a median was u t i l i z e d and n o t - a n average i s t h a t i t was f e l t t h a t an average c o u l d be unduly i n f l u e n c e d by extremes and, s i n c e the sample was r e l a t i v e l y small, the median'would be a more a c c u r a t e f i g u r e . In a l l cases a l l raw and obtained data were screened and a l l data t h a t appeared as i f they c o u l d be i n -c o r r e c t were e l i m i n a t e d from the study. In the event t h a t some i n a c c u r a t e datum was unavoidably i n c l u d e d the use of the median i n s t e a d of the average would reduce i t s i n f l u e n c e . The S i g n i f i c a n c e of the R e s u l t s Obtained As was mentioned p r e v i o u s l y , a l l data and a l l f i n d i n g s were screened f o r accuracy by comparing the r e s u l t s w i t h the expected. I f ,a d e v i a t i o n was found the f a c t s were checked f u r t h e r and c o r r e c t e d i f necessary. I f t h e r e was no e x p l a n a t i o n f o r the d e v i a t i o n and i f the r e s u l t appeared i n -c o r r e c t , then the p r o p e r t y or the o f f e n d i n g p o r t i o n of the data was e l i m i n a t e d . The end r e s u l t i s t h a t the answers appear t o be s u f f i c i e n t l y a c c u r a t e i n order t o s e t norms w i t h which t o compare other s i m i l a r p r o p e r t i e s f o r l i k e time p e r i o d s . I t s h o u l d be c a u t i o n e d , however, t h a t t h e r e i s no way t h a t the r e s u l t s can be defended upon a s t a t i s t i c a l a n a l y s i s b a s i s . The f i n d i n g s are somewhat d i s a p p o i n t i n g i n t h a t they f a i l t o a c c u r a t e l y e x p l a i n major d e v i a t i o n s from the norm. I f 29 i t i s remembered t h a t these f i n d i n g s o b t a i n e d from the data are o n l y g u i d e l i n e s and i f i t i s a l s o remembered t h a t the market i s always i n a s t a t e of f l u x , then the r e s u l t s can be s a i d t o be u s e f u l i n t h a t they o f f e r a measuring t o o l f o r s i m i l a r p r o p e r t y over a s i m i l a r p o i n t i n time. 30 CHAPTER IV OPERATIONAL COSTS O p e r a t i o n a l c o s t s are the expenses i n c u r r e d i n the running of a p r o p e r t y and the expenses necessary t o r e t a i n the c a p i t a l or long-term e a r n i n g power of t h a t p r o p e r t y . There are many b a s i c f a c t o r s which a f f e c t the l e v e l o f expenses i n c u r r e d . These f a c t o r s a r e : 1) The l e v e l of r e n t a l income; i t c o s t s v e r y l i t t l e more to operate 25 s u i t e s a t $130 per s u i t e per month than 25 s u i t e s at $120 per s u i t e per month but the r a t i o of expenses to income d i f f e r s g r e a t l y . Thus i t becomes v e r y important f o r r e n t a l s t o be at the market r a t e . A h i g h r a t i o of expenses t o income may be an i n d i c a t i o n of low r e n t s . 2) The age of the p r o p e r t y ; p r o p e r t i e s which are one or two years o l d have v e r y low expenses because r e p a i r s and replacements should be at a minimum and r e p a i n t i n g should be unnecessary. A l s o , new b l o c k s t y p i c a l l y have premium r e n t s when compared t o s i m i l a r accommodation which i s o l d e r and so t h e i r expense r a t i o appears b e t t e r i n the s h o r t run. 3) The l o c a t i o n of a p r o p e r t y ; i d e n t i c a l b l o c k s i n K e r r i s d a l e or Surrey w i l l have wi d e l y d i f f e r e n t r e n t s because of the l o c a t i o n a l v a l u e a t t r i b u t a b l e t o one s i t e . However, the c o s t s of o p e r a t i o n should be b a s i c a l l y the same. The r e s u l t w i l l be a d i f f e r e n t r a t i o of expenses. 4) The type of i n v e s t o r and mode of o p e r a t i o n ; some i n v e s t o r s operate t h e i r b l o c k s as a s i d e l i n e w h ile some operate them as a b u s i n e s s and some are owner-o p e r a t o r s . The d o c t o r who i s not p a r t i c u l a r l y concerned about h i s p r o p e r t y income and who i s more concerned w i t h h i s p r a c t i c e and h i s t a x shelter-i s not going t o be as w a t c h f u l on income and c o s t s as the owner-operator. The owner-operator or the good c a r e t a k e r w i l l r e p a i r the broken l i g h t s w i t c h a t a c o s t of a few minutes and a d o l l a r w h i l e the d o c t o r i s more l i k e l y t o c a l l i n an e l e c t r i c i a n a t a c o s t of t e n d o l l a r s . Through the c h o i c e of tenants and the method of r e p a i r , a p r o p e r t y can be operated on the b a s i s of maximizing s h o r t - t e r m income or on the b a s i s of maximizing the c a p i t a l n ature of the a s s e t and the long-term e a r n i n g s . 5) The q u a l i t y of c o n s t r u c t i o n ; a 20 ounce n y l o n c a r p e t c o s t s approximately 30% more per yard than a 14 ounce c a r p e t and y e t the l i f e of the c a r p e t i s between two and t h r e e times as long. O b v i o u s l y such measures can be c a r r i e d t o extremes and a p r o p e r t y can be so o v e r b u i l t so as t o be uneconomical but t h e r e should be a balance between q u a l i t y , the c o s t of c a p i t a l and long-term income and r e p a i r c o s t s . The expenses of o p e r a t i n g a p r o p e r t y have been broken down i n t o f o u r main headings: o p e r a t i n g c o s t s , r e p a i r s , a d m i n i s t r a t i o n or f i x e d c o s t s and taxes. Three of these groups w i l l be d i s c u s s e d and analysed i n t h i s chapter w h i l e the f o u r t h , taxes, w i l l be d i s c u s s e d i n the next chapter. Minor expense items w i l l be d i s c u s s e d b r i e f l y w h i l e major items w i l l be ana l y s e d t o determine i f t h e r e a re any d i r e c t r e l a t i o n s h i p s t o supposedly c a u s a t i v e f a c t o r s . O perating Expenses A) U t i l i t i e s ; T h i s group c o n t a i n s such expenses as heat, power, garbage, c a b l e v i s i o n , telephone and e l e v a t o r i f the e l e v a t o r s e r v i c e i s on a c o n t r a c t . i ) Garbage: T h i s item i s u s u a l l y extremely minor i n n ature but the c o s t s do v a r y w i d e l y between p r o p e r t i e s . Many b l o c k s s t i l l burn garbage with the r e s u l t t h a t t h e i r c o l l e c t i o n c o s t s a re lov; wh i l e o t h e r b l o c k s have l a r g e b i n s , twice weekly pickup and c o s t s which can run t o $1 per s u i t e per month. However, by not burning garbage these b l o c k s may save on gas and on l a b o r . 33 i i ) C a b l e v i s i o n : T h i s c o s t i s u s u a l l y a f i x e d charge per s u i t e of $1.50 t o $1.75. T h i s would mean t h a t i t would absorb a lower percentage of income on hi g h v a l u e s u i t e s and a higher percentage of income on low v a l u e s u i t e s . T h i s would be s i m i l a r to a r e g r e s s i v e tax. i i i ) Telephone: Some b l o c k s have a telephone e n t e r i n g s e r v i c e as opposed t o an intercom. Few b l o c k s have t h i s because of the h i g h r e n t a l c o s t . How-ever, i t i s common f o r the manager t o have h i s or her telephone paid by the owner. T h i s n o r m a l l y amounts t o $6 or $7 per month and so i s not • s i g n i f i c a n t . i v ) E l e v a t o r : For a normal frame b l o c k , e l e v a t o r s e r -v i c e w i l l c o s t $25 to $40 per month and i t appears t o be an e x c e l l e n t investment because i t keeps the e l e v a t o r i n adjustment and normally covers p r e v e n t a t i v e maintenance. Some apartment b l o c k s only 3 or 4 year- o l d have had major problems and t h i s can be t r a c e d d i r e c t l y t o a l a c k of preventa-t i v e maintenance s e r v i c e . For a frame b l o c k the c o s t of t h i s s e r v i c e w i l l be q u i t e minor --prob a b l y r u n n i n g a t about .5% of income depending on the number of s u i t e s ; a r e l a t i v e l y minor charge to c a r e f o r a $15,000 a s s e t . 34 In a h i g h - r i s e b l o c k , the e l e v a t o r s e r v i c e i s very important and i t can be v e r y expensive because the type of machine u t i l i z e d i s v a s t l y more c o m p l i -cated than the simple h y d r a u l i c type used i n a low-r i s e b l o c k . I t i s not unusual f o r maintenance c o s t s t o be .5% to 1% of gross income f o r a l a r g e b l o c k --not out of l i n e f o r an a s s e t t h a t c o u l d be worth $100,000 ( f o r two) and 10% of a b u i l d i n g ' s c o s t , v) U t i l i t i e s : T h i s expense encompasses both heat and l i g h t . I t would be u s e f u l i f t h i s c o s t c o u l d be broken down i n t o the two components but s i n c e about 50% of the p r o p e r t i e s showed an aggregate amount i t was decided to a n a l y s e the two as a whole. As can be seen i n T a b l e 4 f o l l o w i n g , the expense of u t i l i t i e s i s very s i g n i f i c a n t . Since i t i s such an important aspect of the o p e r a t i n g expenses i t i s o f t e n p u z z l i n g to see how l i t t l e concern some owners and o p e r a t o r s have w i t h wasted heat and l i g h t . T a b l e 4 r e l a t e s the s i z e of the p r o p e r t y with the c o s t of u t i l i t i e s . I t would appear t h a t heat and l i g h t c o s t s are extremely v a r i e d i n frame b l o c k s A but r e l a t i v e l y c o n s t a n t i n c o n c r e t e b l o c k s . P a r t of t h i s can be e x p l a i n e d by the f a c t t h a t c o n c r e t e i s probably a b e t t e r i n s u l a t o r and c o n c r e t e b u i l d i n g s g e n e r a l l y c o n t a i n more s o p h i s t i c a t e d equipment which TABLE 4 THE RELATIONSHIP OF THE COST OF UTILITIES AND SALARIES TO NUMBER OF SUITES Sample Percentage of Gross Income Size of Property Median Type Year Size To U t i l i t i e s To Salaries 11 to 24 20 Frame 1970 9 5.5 (7.1) 11.6 3.9 (7.2) 10.6 1969 8 4.6 (7.2) 9.4 5.9 (6.8) 10.9 1968 4 7.5 (9.2) 11.0 5.7 (7.8) 9.3 25 to 35 29 Frame 1970 11 5.2 (7.4) 11.6 6.2 (6.9) 7.7 1969 9 6.5 (7.9) 9.9 5.2 (6.1) 7.3 38 to 57 42 Frame 1970 19 4.8 (8.1) 10.0 5.0 (6.4) 7.9 1969 16 5.9 (7.3) 9.4 3.5 (6.1) 7.8 1968 7 6.0 (7.1) 9.4 4.9 (6.4) 6.7 38 to 56 46 Concrete 1970 5 5.1 (5.7) 6.7 4.5 (5.7) 6.5 1969 4 5.0 (5.5) 5.8 4.4 (6.1) 6.3 1968 4 4.9 (5.3) 5.6 4.3 (6.2) 6.7 1967 4 5.3 (5.7) 6.1 4.3 (6.5) 8.9 60 to 89 62 Frame 1970 6 4.4 (7.5) 10.1 5.0 (5.6) 8.5 1969 5 5.0 (7.4) 8.0 5.5 (5.9) 10. 8 61 to 86 68 Concrete 1970 5 4.2 (5.3) 6.5 3.9 (5.3) 6.1 1969 4 4.6 (5.8) 8.7 4.5 (5.2) 7.1 1968 4 4.2 (6.2) 6.6 5.1 (5.4) 8.1 93 to 311 Concrete/Frame 1970 5 4.1 (4.4) 8.7 4.1 (5.7) 7.7 1969 3 5.4 (7.0) 7.1 4.5 (6.8) 7.7 r e s u l t s i n g r e a t e r e f f i c i e n c y . From the f i g u r e s , i t would appear t h a t some frame b l o c k s are completely l a c k i n g i n i n s u l a t i o n . I t was not expected t h a t the data would show t h a t s m a l l frame b u i l d i n g s were more economical than l a r g e r frame b u i l d i n g s . T h i s may be a f a u l t of the data and i t may be t r u e . There appears t o be a t r e n d upwards from the 11 t o 24 group t o the 25 t o 35 group t o the 38 to 57 group. The t r e n d appears to r e v e r s e i t s e l f i n the v e r y l a r g e frame group. A l s o of i n t e r e s t i s the extreme v a r i a t i o n t h a t occurs — over 100% i n groups 1, 2, 3 and 5 f o r 1970 and group 1 f o r 1969. Two groups, however, showed v e r y good c o n s i s t e n c y , a s m a l l range i n v a l u e s and a much lower average c o s t of u t i l i t i e s . T h i s phenomena can be p a r t i a l l y used t o e x p l a i n the i n c o n s i s t e n c i e s i n the r e s t of the d a t a . E l e c t r i c i t y : Most apartment b l o c k s have time c l o c k s t o c o n t r o l common area l i g h t i n g . An awareness of changing l i g h t c o n d i t i o n s w i l l r e s u l t i n the time c l o c k s e t t i n g s being changed f r e q u e n t l y so as to p r o v i d e the n e c e s s a r y l i g h t without wasting power. F l u o r e s c e n t l i g h t i n g i s a l s o cheaper than i n c a n -descent l i g h t i n g . 37 Heating: Most of the v i d e d i s c r e p a n c y i n u t i l i t i e s c o s t can be t r a c e d d i r e c t l y t o e f f i c i e n c i e s or i n e f f i c i e n c i e s i n h e a t i n g . Most apartment b l o c k s are heated by a hot water system f i r e d by e i t h e r gas or o i l . O i l i s l e s s expensive but the c o s t of r e p a i r and maintenance i s h i g h e r . The most e f f i c i e n t system i s a con-v e r s i o n system whereby gas i s used i n months of low demand and o i l i s used i n the months when gas i s i n short supply. T h i ^ type of s e r v i c e i s c a l l e d " i n t e r m i t t e n t " s e r v i c e and the r a t e i s .4 t o .6 of the normal r a t e . I t can be r e a d i l y seen t h a t t h i s method, a l t h o i i g h more expensive i n i t i a l l y , i s much cheaper — o f t e n by 30%. However, such a system i s o n l y economical i n a l a r g e p r o p e r t y . The h e a t i n g u n i t i t s e l f i s important f o r e f f i c i e n c y . A f i v e stage system i s i n h e r e n t l y more economical than one s i n g l e l a r g e burner because, as demand r i s e s , each s m a l l e r stage comes i n as r e q u i r e d . I t i s a l s o important t o have a s e p a r a t e b o i l e r f o r the domestic hot water i n s t e a d of u t i l i z i n g the h e a t i n g system t o heat tap water. The reason f o r t h i s i s t h a t i n the summer time the s t o c k temp-e r a t u r e of the h e a t i n g system can be reduced or 38 the whole h e a t i n g system can be shut down without a f f e c t i n g the hot water system. In any event, whether the system i s one stage, f i v e stages, separate or not, the temperature of the water should be reduced from i t s winter l e v e l of 190°+ t o 140° i n the summer. T h i s w i l l i n c r e a s e e f f i c i e n c y d r a m a t i c a l l y . Of v e r y g r e a t importance i s an o u t s i d e temperature c o n t r o l . T h i s d e v i c e r e g u l a t e s the water temper-a t u r e and thus the b o i l e r a c t i v i t y by s e n s i n g o u t s i d e temperatures. The c o n t r o l can be s e t at any l e v e l but g e n e r a l l y when the o u t s i d e temperature r i s e s above, say, 65° the system shuts down and a l l heat i s c u t o f f t o the s u i t e s . The i n t e r n a l heat generated by the b u i l d i n g w i l l g e n e r a l l y ensure t h a t the temperature i n the s u i t e s w i l l not f a l l ° o below 70 t o 72 . T h i s d e v i c e i s extremely import-ant i n the winter time i n t h a t i t l i m i t s the amount . of heat any one s u i t e can demand and so reduces the amount of l o s t heat through open p a t i o doors and open windows. Summation: Of a l l o p e r a t i n g expenses o n l y heat and l i g h t can be r e a d i l y c o n t r o l l e d but, s i n c e they are a v e r y important f a c t o r , any e f f i c i e n c i e s can have a v e r y pro-found e f f e c t on the o v e r a l l p r o f i t a b i l i t y of a b l o c k . For frame b l o c k s the low t o hig h was from 4.1% t o 11.6% of income f o r a d i f f e r e n c e of 7.5%. On some p r o p e r t i e s t h i s d i f f e r e n c e i s the t o t a l net r e t u r n a f t e r a l l c o s t s i n c l u d i n g debt s e r v i c e . R e p a i r s : Repair c o s t s have been analysed w i t h r e s p e c t t o age and type of c o n s t r u c t i o n . The d i f f i c u l t y w i t h the a n a l y s i s of t h i s s e c t o r i s t h a t r e p a i r s can be postponed f o r some time and the c o s t of r e p a i r s i s o f t e n not i n d i c a t i v e of the c o n d i t i o n of a p r o p e r t y . The range of r e p a i r c o s t s between b u i l d i n g s of l i k e age v a r i e s w i d e l y but a l s o v a r y i n g i s the q u a l i t y of the r e p a i r and the e f f i c i e n c y of the worker. U n f o r t u -n a t e l y , these l a s t two f a c t o r s cannot be measured so we must r e l y upon a l a r g e enough sample and a long enough time span i n order t o a r r i v e at a "norm." D e v i a t i o n s from the "norm" can be e x p l a i n e d by e f f i c i e n t or v e r y i n e f f i c i e n t r e p a i r work, by the postponement of r e q u i r e d work or, a l t e r n a t i v e l y , by the doing of many years* work or major work i n a s h o r t time. The i n i t i a l q u a l i t y of the investment a l s o has a g r e a t b e a r i n g on r e p a i r c o s t s . S u r p r i s i n g was the r e v e r s a l from the expected r e g a r d i n g the r e p a i r c o s t s o f frame and c o n c r e t e p r o p e r t i e s . As can be seen from the graph, the c o s t s of r e p a i r f o r both types of p r o p e r t i e s were s i m i l a r t o TABLE 5 THE RELATIONSHIP OF TOTAL COSTS AND REPAIRS TO PROPERTY AGE Age of P r o p e r t y Type Sample S i z e 1 Frame 17 Concrete 3 2 Frame 24 Concrete 7 3 Frame 18 Concrete 5 4 Frame 12 Concrete 4 5 Frame 6 Concrete 4 6 t o 8 Frame 5 Concrete ' 10 9 t o 12 Frame 6 Concrete 12 12 p l u s Frame 18 Concrete 8 T o t a l Costs Repairs 16. 3 (22.0) 26.9 1.3 (2.5) 6.4 15. 6 (17.1) 18.2 1.5 (2.4) 2.9 17. 6 (23.0) 30. 1 1. 1 (4.3) 7.8 16. 0 (18.9) 22.5 2.1 (4.2) 6.5 18. 9 (25.2) 33.3 2.4 (4.5) 9.7 17. 7 (18.8) 26.0 3.0 (4.6) 10.3 21. 2 (27.8) 34. 1 2.0 (5.3 ) 18.6 18. 2 (24.2) 31.8 2.4 (5.4) 8.4 23. 0 (25.6) 29.0 4.4 (5.3) 8.0 20. 2 (23.9) 29. 7 7.8 (8.5) 9.4 18. 1 (24.9) 28.9 1.2 (5.6) 8.3 19. 3 (21.3) 36.1 3.1 (7.0) 15.2 14. 5 (24.7) 31.9 2.0 (5.0) 7.5 17. 8 (27.9) 32.9 4.3 (8.5) 13.9 23. 0 (28.8) 37.2 2.8 (6.5) 13.8 26. 2 (29.3) 35.8 4.5 (9.5) 14. 2 4^ 42 the f o u r t h year. At t h i s time r e p a i r expenses f o r c o n c r e t e b u i l d i n g s r o s e above the l e v e l f o r frame b u i l d i n g s and remained t h e r e . P a r t of the reason may be the p a u c i t y of data t h a t were a v a i l a b l e f o r p r o p e r t i e s , e s p e c i a l l y c o n c r e t e b u i l d i n g s , over 5 years of age. Thus, the problem may be the data. G e n e r a l l y , most of the p r o p e r t i e s over 5 y ears of age have been kept i n r e a s o n a b l e r e p a i r so the problem does not appear t o be one of a g e n e r a l .downgrading of the frame p r o p e r t i e s . The s u s p i c i o n must l i e w i t h the p o s s i b i l i t y t h a t a b i a s e x i s t s which i s not r e c o g n i z e d . The c o l l e c t i o n of more data on those p r o p e r t i e s over 5 years of age would e i t h e r c o n f i r m or p l a c e under f u r t h e r s u s p i c i o n t h i s study's f i n d i n g s . In Chapter I I i t was mentioned t h a t newer frame b l o c k s appear t o be of i n f e r i o r q u a l i t y when compared to o l d e r b l o c k s . For t h i s reason i t would be dangerous t o assume t h a t the r e p a i r c o s t s on, say, a group of 2 year o l d b u i l d i n g s w i l l average 5.2% i n 3 y e a r s . I f the q u a l i t y of m a t e r i a l s i s , i n f a c t , l e s s then i t would be expected t h a t long-run r e p a i r c o s t s w i l l i n c r e a s e . A d m i n i s t r a t i v e ; T h i s c l a s s i f i c a t i o n c o n t a i n s a l l expenses on s a l a r i e s , management, a d v e r t i s i n g , i n s u r a n c e and other management c o s t s such as o f f i c e expenses, e t c . Insurance: Depending on the type of coverage and the type of c o n s t r u c t i o n , t h i s expense v a r i e s widely. Some owners c a r r y i n s u r a n c e o n l y f o r the v a l u e of the b u i l d i n g or the amount of the mortgage w h i l e others have coverage t h a t exceeds the r e -placement v a l u e of the b u i l d i n g . At one extreme t h e r e i s f i r e coverage alone and a t the other extreme t h e r e i s coverage encompassing t h e f t , earthquakes, water, h a i l , p u b l i c l i a b i l i t y , e t c . The r e s u l t i s t h a t t h e . c o s t can range from, roughly, $400 t o $1,000 per year f o r a 40 s u i t e b l o c k . A d v e r t i s i n g : In one p r o p e r t y analysed, the adver-t i s i n g expense was over 8% of gross income. T h i s i s bad enough but i s f u r t h e r compounded by the f a c t t h a t the p r o p e r t y was b e i n g managed by a l a r g e p r o f e s s i o n a l management company. Given the l o c a t i o n , q u a l i t y and r e n t a l s t r u c t u r e of the property, i t would be d i f f i c u l t t o j u s t i f y an expense of even .8%. In g e n e r a l , a d v e r t i s i n g c o s t s need o n l y be v e r y low. An e f f e c t i v e s i g n and a s m a l l w e l l - p l a c e d ad should have the d e s i r e d r e s u l t s i f the r e n t s are not above market. Unless a p r o p e r t y has 44 some not obvious a t t r i b u t e s or i s i n an u n t r a v e l l e d area or i s j u s t s t a r t i n g up t h e r e s h o u l d be l i t t l e money spent on newspaper a d v e r t i s i n g . A d v e r t i s i n g d u r i n g a p e r i o d of h i g h v a c a n c i e s i s a waste of money u n l e s s the p r o p e r t y i s o f f e r i n g something t h a t most other b u i l d i n g s are not. Although the c o r r e l a t i o n has not been made i t would appear t h a t t h e r e i s v e r y l i t t l e r e l a t i o n s h i p , except p o s s i b l y n e g a t i v e , between the l e v e l of v a c a n c i e s and the amount of money spent on a d v e r t i s i n g . The c h i e f b e n e f i c i a r y of the a d v e r t i s i n g d o l l a r i s the news-paper, c o n t r a r y to what the salesman would have you b e l i e v e . Very u s e f u l i s a r e n t a l s e r v i c e t h a t a d v e r t i s e s and promotes vacant s u i t e s on a f e e - f o r -s e r v i c e b a s i s . T h i s i s eminently f a i r because the owner r e c e i v e s something f o r h i s s u i t e when i t would l i k e l y have remained empty and the s e r v i c e r e c e i v e s a f e e based upon performance. A d v e r t i s i n g should be a v e r y low d o l l a r f i g u r e and an i n s i g n i f i c a n t percentage f i g u r e and where i t i s not an a n a l y s i s s h o u l d be made of p o s s i b l e c a u s i t i v e f a c t o r s f o r the v a c a n c i e s . i i i ) Management; P r o f e s s i o n a l management f i r m s operate a number of p r o p e r t i e s i n t h i s study. The f e e ranges from 2% t o 5% of gross income and the s e r -v i c e o f f e r e d i s g e n e r a l l y of the same l e v e l o f f e r e d 45 by a competent owner who i s not e s p e c i a l l y concerned w i t h o p e r a t i n g the p r o p e r t y a t i t s g r e a t e s t e f f i c i e n c y . The s e r v i c e i s u s u a l l y w e l l worthwhile f o r those i n v e s t o r s who would do a poor job i f l e f t t o handle t h e i r own a f f a i r s . However, th e r e appear t o be many i n s t a n c e s where the p r o p e r t y management fe e i s a waste o f money and the wise owner would be b e t t e r o f f t o f i n d a good, honest c a r e t a k e r t o operate the b u i l d i n g with o n l y g u i d e l i n e s 1 from the owner. i- v) S a l a r i e s : T a b l e 4 s e t s out the r e l a t i o n s h i p of the number of s u i t e s t o s a l a r y c o s t . G e n e r a l l y , the l a r g e r a p r o p e r t y i s the lower the p e r c e n t -age c o s t f o r c a r e t a k e r s . T h i s can be e x p l a i n e d by two b a s i c f a c t o r s : a) The p r o v i n c i a l government has a minimum wage T h i s wage i s based upon a minimum of $66 p l u $6 f o r every s u i t e managed, p l u s time o f f , p l u s h o l i d a y pay, p l u s b e n e f i t s . For exampl Management f i r m s o f t e n are a b l e t o a t t r a c t and hold good maintenance people who do e x c e l l e n t work at good p r i c e s . For example, the c o s t of p a i n t i n g a one bedroom s u i t e can range from $55 t o $140 f o r the same type of job and the same q u a l i t y . 46 see the comparison below between a 25 s u i t e and a 50 s u i t e b l o c k . S u i t e s 25 50 Base pay $6 per s u i t e managed H o l i d a y pay at 4% R e l i e f (minimum) B e n e f i t s $ 66 $ 66 144 8 28 20 294 14 28 30 $266 $432 Cost per s u i t e $10.64 $8.64 b) G e n e r a l l y , a l a r g e r b l o c k has a hig h e r average income per s u i t e . The c o s t of a c a r e t a k e r i s the same whether the s u i t e income i s $100 or $200 per month but on the h i g h e r v a l u e d s u i t e the percentage i s much l e s s . There becomes a l i m i t i n p r o j e c t s i z e s f o r one c a r e t a k e r . Thus the c o s t of a c a r e t a k e r per-suite-managed does not always d e c l i n e and may r i s e f o r a l a r g e r frame p r o j e c t . However, v e r y l a r g e complexes g e n e r a l l y can a f f o r d a v e r y e f f i c i e n t s t a f f set-up and o f t e n they have an o n - s i t e manager. Thus although a l l s a l a r y c o s t s may be a t t r i b u t a b l e t o " s a l a r i e s " t h e r e may be s i g n i f i c a n t c o s t s a v i n g s elsewhere. The l a r g e s t p r o j e c t i n the study, 311 s u i t e s and a $615,000' income, was extremely e f f i c i e n t . With a p r o j e c t of t h i s s i z e 47 i t becomes economical t o s p l i t up d u t i e s and to have s p e c i a l i z e d f u n c t i o n s . In t h i s p a r t i c u l a r p r o j e c t i t was a l s o economical to have a f u l l - t i m e repairman on s a l a r y t o do a l l but major r e p a i r s . From the study of the p r o p e r t i e s , i t became ve r y obvious t h a t a good manager was an a s s e t who can run a p r o p e r t y as w e l l or b e t t e r than most management f i r m s or absentee l a n d l o r d s and t h a t the e x t r a c o s t over and above the minimum wage s e t i s o f t e n r e p a i d many times by i n t e l l i g e n t , honest, handyman-type i n d i v i d u a l s who run a . p r o p e r t y as i f i t were t h e i r own. Summary The most important f a c t o r s i n the o p e r a t i o n of a p r o p e r t y a re heat, l i g h t , r e p a i r s and s a l a r i e s . The type of b u i l d i n g and the type of equipment w i l l have a gre a t d e a l t o do wi t h the c o s t of u t i l i t i e s but e f f i c i e n t o p e r a t i o n can have a g r e a t d e a l t o do w i t h r e d u c i n g t o t a l c o s t s . The c o s t of r e p a i r s and the c o s t of s a l a r i e s o f t e n go hand i n hand. Higher s a l a r y c o s t s can mean i n e f f i c i e n c i e s or i t can mean an investment i n keeping r e p a i r c o s t s down and the q u a l i t y of the investment up. 48 TABLE 6 THE RELATIONSHIP OF OPERATIONAL COSTS TO NUMBER OF SUITES S i z e o f P r o p e r t y Median Type Sample S i z e O p e r a t i o n a l C o s t s 11 t o 24 20 Frame 11 14.1 (23.0) 32.9 25 t o 35 29 Frame 13 18.3 (26.0) 29.3 38 t o 57 42 Frame 21 16.3 (24.5) 31.7 38 t o 56 46 C o n c r e t e 5 20.9 (25.0) 35.5 60 t o 89 62 Frame 6 18.8 (24.8) 30.7 61 t o 86 68' C o n c r e t e 6 15.6 (20.1) 31.1 93 t o 311 127 Frame 4 21.2 (24.5) 31.6 103 t o 157 130 C o n c r e t e 2 16.0 - 29.0 Note: O p e r a t i o n a l c o s t s as a p e r c e n t a g e o f g r o s s income. Taxes a r e n o t i n c l u d e d . TABLE 7 THE RELATIONSHIP OF OPERATIONAL COSTS TO LEVELS OF SUITE INCOME Suite Income . Median Type Sample Size Operational Costs $ 92 to $111 $103 Frame 7 18.1 (25.9) 34.6 $117 to $124 $121 Frame 15 16.0 (24.1) 31.5 $125 to $135 $130 Frame 22 16.3 (24.3) 28. 5 $136 to $184 $152 Frame 12 17.0 (21.5) 29'.0 $123 to $148 $140 Concrete 7 16.0 (27.4) 34.2 $155 to $191 $171 Concrete 6 15.6 (18.9) 28.5 Note: Operational costs as a percentage of gross income. Property taxes are not included. CHAPTER V PROPERTY TAXES Pr o p e r t y taxes are the s i n g l e most important expense, i n the o p e r a t i o n of an apartment b l o c k . G e n e r a l l y , between 35% and 45% of the t o t a l expenses are p a i d t o the m u n i c i p a l i t y i n taxes. In the l a s t few y e a r s , the percentage i n c r e a s e i n taxes has been at a much f a s t e r r a t e than the r a t e of i n c r e a s e of other expenses and of the r a t e of i n c r e a s e of r e n t a l s . The purpose of t h i s chapter i s t o analyse p r o p e r t y taxes with r e s p e c t t o the age of the property, i t s s i z e , i t s average s u i t e income, i t s type of c o n s t r u c t i o n and the l o c a t i o n of the p r o p e r t y t o determine i f d i r e c t c a u s a t i v e r e l a t i o n s can be e s t a b l i s h e d . In the appendix, each p r o p e r t y i s a n a l y s e d on the b a s i s of the t o t a l t a x as a percentage of gross income, the t o t a l t a x as a percentage of net income and the t o t a l t a x as a percentage of t o t a l expenses i n c l u d i n g taxes. The year by year r a t e of i n c r e a s e of taxes i s a l s o shown. The Tables i n c l u d e d i n t h i s chapter are e i t h e r a summation of these data or they are d e r i v e d from these data. I f p r o p e r t y taxes are to be f a i r they should a p p l y e q u a l l y t o p r o p e r t i e s of equal v a l u e . The data c o l l e c t e d show t h a t net o n l y does t h i s p r i n c i p l e not apply even w i t h i n m u n i c i p a l i t i e s but a l s o t h a t v e r y wide swings from the average are evidenced. The purpose of the a n a l y s i s i s to t r y to determine what causes t h i s divergence from a normal. A ) The R e l a t i o n s h i p of B u i l d i n g Age t o P r o p e r t y Taxes I t appears as i f p r o p e r t y taxes d e c l i n e as a percentage of gross income as a p r o p e r t y becomes o l d e r . T h i s i s l o g i c a l i n t h a t the p r o p e r t y ' s v a l u e a l s o decreases because of r i s i n g expenses. T h i s i s evidenced i n a number of areas but e s p e c i a l l y i n New Westminster where t h e r e i s a d e f i n i t e c o r r e l a t i o n of taxes t o age. The lowest v a l u e obtained, 7.9%, was on a 60 year o l d frame b u i l d i n g i n Vancouver which would have a c a p i t a l i z a t i o n r a t e of about 15%. The r e s u l t s of t h i s t e s t are v a l i d but i t should a l s o be noted t h a t a wide di v e r g e n c e i n t a x r a t e s a l s o a p p l i e s t o o l d e r b u i l d i n g s as w e l l as t o newer b u i l d i n g s . No d e f i n i t e c o r r e l a t i o n can be made between taxes as a percentage of net income and age. There appears as i f t h e r e might be a c o r r e l a t i o n but the 5 t o 7 year o l d group of p r o p e r t i e s goes a g a i n s t the t r e n d . There should be a t r e n d on the grounds of l o g i c because o l d e r b u i l d i n g s t y p i c a l l y s e l l f o r a h i g h e r c a p i t a l i z a t i o n r a t e and hence a lower v a l u e . However, t o prove t h i s p o i n t a l a r g e r sample w i l l be r e q u i r e d . TABLE 8 THE RELATIONSHIP OF BUILDING AGE TO PROPERTY TAXES Age of P r o p e r t y Sample 1970 or L a t e s t Year's Taxes i n Years Type S i z e To Gross Income To Net Income 1 t o 2 Frame 16 12.2 (14.7) 22.7 19.9 (23.8) 29.5 Concrete 3 14.1 (14.2) 15.2 20.4 (20.4) 22.1 3 t o 4 Frame 18 11.3 (14.3) 16.0 15.7 (22.8) 28.6 Concrete 1 17.2 26.4 5 t o 7 Frame 8 12.4 (13.9) 18.8 18.0 (24.7) 33.9 Concrete 3 13.4 (15.0) 15.8 20.1 (27.8) 28.1 8 t o 12 Frame .6 10.8 (12.6) 15. 7 16.0 (20.2) 23.7 Concrete 4 12.2 (14.5) 15.8 17.5 (23.0) 31.8 13 or over Frame 6 7.9 (12.5) 15.4 11. 9 (22.1) 28.9 Concrete 2 12 .8 - 14.4 21.4 - 26 • . 1 Note: Taxes t o gross income i s the r e l a t i o n s h i p of p r o p e r t y taxes t o the t o t a l income. Taxes t o net income i s the r e l a t i o n s h i p of p r o p e r t y taxes t o the net income; net income being t h a t amount remaining a f t e r the d e d u c t i o n of o p e r a t i n g c o s t s and p r o p e r t y t a x e s . 53 The R e l a t i o n s h i p of B u i l d i n g S i z e t o P r o p e r t y Taxes B u i l d i n g s i z e should have l i t t l e or no b e a r i n g on p r o p e r t y taxes but v a l u e should. S i n c e s m a l l e r b l o c k s are l e s s economical t o operate t h e i r taxes, as a per-centage of gross income, should be l e s s than l a r g e r b l o c k s . The exact o p p o s i t e t r e n d appears t o be evidenced by the data. The p r o p e r t i e s having s u i t e s i n the 11 t o 24 range have a mean gross tax r a t i o of 14.7% while those i n the 93 t o 311 range have a mean gross tax r a t i o of 11.3%. With the net tax. r a t i o s the t r e n d , i f t h e r e i s one, i s not as c l e a r but i t would s t i l l appear as i f t h e r e i s a d e f i n i t e b i a s a g a i n s t the s m a l l b l o c k when t h e r e should be a. s l i g h t b i a s towards i t . Part of t h i s phenomenon can be e x p l a i n e d by the f a c t t h a t , because of s i d e yard requirements, a s m a l l e r b l o c k makes l e s s e f f i c i e n t use of a g i v e n amount of land than does a l a r g e r b l o c k . Thus, more of i t s t o t a l v a l u e w i l l be a t t r i b u t a b l e t o land which i s assessed at a higher r a t e and so should r e s u l t i n h i g h e r taxes. However, t h i s a n a l y s i s ignores the e f f e c t s of the market which v a l u e s the p r o p e r t y on the b a s i s of how many s u i t e s i t w i l l take and not on land area. Thus, t h e r e i s and s h o u l d be an automatic 54 c o r r e c t i o n made, but i t appears as i f t h i s c o r r e c t i o n i s not made by the a s s e s s o r who a c t s as i f he may v a l u e p r o p e r t y on the b a s i s of so much per square f o o t as opposed to so much per s u i t e . The example f o l l o w i n g s hould help c l a r i f y the s i t u a t i o n : P r o p e r t y X P r o p e r t y Y Dimension: 66• x 122' 132' x 132' Number of s u i t e s : 14 32 Value a t $2,500 per s u i t e : $35,000 $80,000 Value per square f o o t : $4.35 $4.97 In the above example, t h e r e are economies of s c a l e a t t r i b u t a b l e t o the l a r g e r s i t e which make i t worth more than the sum of i t s p a r t s . On t h i s b a s i s , i t i s l o g i c a l that the taxes on the land should be g r e a t e r than twice the taxes on the s m a l l e r p a r c e l and e q u a l l y i l l o g i c a l f o r the taxes on the s m a l l e r p a r c e l t o be one - h a l f the taxes on the l a r g e r p a r c e l . However, t h i s argument a l s o has i t s f a u l t s , t h i s time on t h e o r e t i c a l grounds, i n t h a t t a x i n g a p r o p e r t y on a per s u i t e b a s i s (assuming t h a t a l l s u i t e s a re homo-geneous) di s c o u r a g e s economies of s c a l e and so helps encourage the formation of s m a l l e r l e s s m o n e t a r i l y 55 e f f i c i e n t p r o p e r t i e s . The same argument can be a p p l i e d t o the p r o p e r t y as a whole -- perhaps l e s s e f f i c i e n t p r o p e r t i e s should be taxed a t a h i g h e r r a t e so as t o encourage more e f f i c i e n t u n i t s . How-ever, the b a s i s of the p r o p e r t y t a x i s s a i d t o be v a l u e and on t h i s b a s i s t h e r e can be no j u s t i f i c a t i o n f o r a higher percentage tax on s m a l l e r p r o p e r t i e s . • The R e l a t i o n s h i p of Average S u i t e Income t o P r o p e r t y  Taxes P r o p e r t i e s with lower average s u i t e incomes a r e u s u a l l y l e s s e f f i c i e n t and so the v a l u e of the p r o p e r t y i s u s u a l l y l e s s . I t should f o l l o w t h a t p r o p e r t y taxes are lower f o r those b u i l d i n g s with lower incomes. T h i s appears t o be evidenced i n the r a t i o of taxes t o net incomes. However, t h i s i s as expected because the c o r r e c t i v e nature of the i n e f f i c i e n c y should even out any d i s c r e p a n c i e s . A l l s u i t e income l e v e l s s hould have approximately the same r a t i o of taxes to net income as long as the c a p i t a l i z a t i o n r a t e used t o v a l u e the p r o p e r t i e s i s the same. TABLE 9 THE RELATIONSHIP OF NUMBER OF SUITES TO PROPERTY TAXES AS A PERCENTAGE OF GROSS AND NET INCOMES S i z e o f P r o p e r t y Median Type Sample S i z e 1970 or L a t e s t To Gross Income Year's Taxes To Net Income ' 11 t o 24 20 Frame 11 10. 8 (14.7) 17.9 15.7 (23.6) 29.5 25 t o 35 29 Frame 13 7.9 (14.4) 22.7 11.9 (24.1) 39.1 38 t o 57 42 Frame 21 11.1 (13.2) 15.4 18.3 (22.3) 28.6 38 t o 56 46 Concrete 5 12.6 (14.3) 15.6 17.7 (26.1) 31.8 60 t o 89 62 Frame 6 13.6 (14.3) 18.3 20.6 (23.2) 33.9 61 t o 86 68 Concrete 6 11.9 (14.1) 16.8 20.1 (22.1) 26.4 93 t o 311 127 Frame 4 10. 8 (11.3) 16.1 16.0 (16.8) 30.0 103 t o 157 130 Concrete 2 13 .2 - 14.2 20 .4 - 21 .4 cn TABLE 10 THE RELATIONSHIP OF SUITS INCOME TO PROPERTY TAXES AS A PERCENTAGE OF GROSS AND NET INCOMES Monthly R e n t a l Rate Sample S i z e 1970 or L a t e s t Year's Taxes Tyoe To Gross Income To Net Income Less than $125 $125 t o $135 More than $135 21 Frame 7.9 (13.9) 16.5 1 Concrete 15.8 21 Frame 12.2 (14.3) 20.5 1 Concrete 15.0 11 Frame 10.8 (14.8) 18.8 11 Concrete 12.2 (14.2) 17.2 11.9 (23.4) 28.9 23.8 19.4 (22.6) 27.4 28.0 15.7 (23.9) 33.9 17.7 (22.1) 31.8 58 The R e l a t i o n s h i p of L o c a t i o n t o P r o p e r t y Taxes Because d i f f e r e n t l o c a t i o n s have d i f f e r e n t m i l l r a t e s and d i f f e r e n t t a x a s s e s s o r s i t can be expected t h a t the tax r a t e s may va r y widely between m u n i c i p a l i t i e s . S ince tenants do not c o n s i d e r p r o p e r t y taxes an expense and s i n c e tenants are f r e e t o s e a r c h f o r b e t t e r accommoda-t i o n a t the same p r i c e or the same accommodation a t a lower p r i c e then i t would appear as i f the burden of the tax d i f f e r e n t i a l w i l l f a l l on the l a n d l o r d and, i f the market i s p e r f e c t , a f f e c t the s a l e p r i c e s of improved p r o p e r t i e s and raw land. From the data gathered i t would appear that, on the b a s i s of taxes as a percentage of gross income, Burnaby has taxes s l i g h t l y above the mean wh i l e Surrey has ve r y h i g h taxes and West Vancouver has taxes lower than the mean. The same c o n c l u s i o n s would appear t o be as c o r r e c t f o r the r a t i o of taxes t o net income. However, the sample i s f a i r l y s m a l l so no d e f i n i t e c o n c l u s i o n can be a r r i v e d a t f o r Burnaby. The f a c t t h a t Surrey has taxes much higher than the average i s r e i n f o r c e d by data from other types of r e a l e s t a t e . The R e l a t i o n s h i p of Property Taxes t o Value P r o p e r t y taxes are o s t e n s i b l y a t a x on v a l u e . The purpose of t h i s paper i s not t o d e l v e i n t o the e t h i c s of taxes on p r o p e r t y t o support s e r v i c e s not going t o TABLE 11 THE RELATIONSHIP OF LOCATION TO PROPERTY TAXES AS A PERCENTAGE OF GROSS AND NET INCOMES L o c a t i o n Sample S i z e 1970 or L a t e s t To Gross Income Year's Taxes To Net Income Average Rate of Expenses Vancouver 21 7.9 (14.2) 16.5 11.9 (22.3) 31. 8 36.3 Burnaby 8 13.9 (15.0) 15.9 20.4 (23,5) 27. 4 36.2 New Westminster 26 11.2 (13.9) 17.2 17.8 (22.6) 28. 6 38.5 Aggregate* 9 10.8 (14.9) 18.8 15.7 (22.4) 33. 9 34.3* *North Vancouver 3 13.6 20.4 * *Surrey 2 17.6 31.9 * *Coquitlam 2 13.5 20.3 * *West Vancouver 1 13.4 20.1 * • M i s s i o n 1 14.9 22.4 * TABLE 12 PROPERTY TAX AS A PERCENTAGE OF VALUE L o c a t i o n C o n s t r u c t i o n Sample S i z e Low Median Hiqh Spread Percentage D e v i a t i o n from the Mean Vancouver Frame Concrete 9 5 1.75 1 1.63 1.97 2.01 2.46 2.36 35.0% 36.3% -11. 2 -18.9 t o t o +24.9 +17.4 Burnaby Frame 8 1.99 2.25 2.63 28. 5% -11.6 to +16. 9 2 New Westminster Frame Concrete 19 2 1.65 2.09 2.09 2.49 2. 28 40. 2% -21.1 t o + 19.1 Sur r e y Frame 3 2.48 2.61 3.04 21. 5% - 5.0 to +16. 5 Coquitlam Frame 2 1.98 - 2.33 North Vancouver Frame 3 1.69 1.93 2.78 56.4% -12.4 t o +44.0 M i s s i o n Frame 1 2.06 West Vancouver Concrete 1 1.72 One p r o p e r t y has a p r o p e r t y t a x t o v a l u e r a t i o of 1.24% but i t i s not a r e p r e s e n t a t i v e example because of i t s age and c o n d i t i o n . In New Westminster the lower v a l u e s are a l l o l d e r b l o cks which would i n d i c a t e t h a t the a s s e s s o r v a l u e s these p r o p e r t i e s a t a l e s s e r amount than shown i n the study. 61 the p r o p e r t y but t o t r y t o f i n d the b a s i s on which taxes are determined. However, i f p r o p e r t y taxes a r e supposed t o tax a r e a l form of wealth then they should t a x on the b a s i s of v a l u e and v a l u e alone. A l l the p r o p e r t i e s i n t h i s study have had taxes c a l c u l a t e d on the b a s i s of t h e i r market v a l u e — e i t h e r v a l u e as evidenced by s a l e or an e s t i m a t i o n of v a l u e based upon net incomes and market c a p i t a l i z a t i o n r a t e s . A summa-t i o n of the f i n d i n g s appears on the T a b l e f o l l o w i n g . As was mentioned i n P a r t D of t h i s chapter, t h e r e i s an obvious reason why taxes should v a r y between m u n i c i p a l i t i e s but no obvious reason f o r taxes to v a r y w i t h i n a m u n i c i p a l i t y . In the c i t y of Vancouver the spread was 36.3%, i n the m u n i c i p a l i t y of Burnaby the spread was 28.5% and i n the c i t y of New Westminster the spread was 40.2%. The r e s u l t s seem t o i n d i c a t e t h a t some other f a c t o r other than v a l u e may be used f o r the purpose of s e t t i n g assessments. At t h i s time i t would appear t o be the gross r e n t m u l t i p l i e r or the.net r e n t m u l t i p l i e r . In Chapter VII the vise and misuse of rules-of-thumb, i n c l u d i n g r e n t m u l t i p l i e r s , w i l l be d i s c u s s e d . F) Increases i n Property Taxes i n Vancouver, Burnaby and  New Westminster As w i t h most other expenses i n o p e r a t i n g apartment blocks, 62 TABLE 13 INCREASES IM PROPERTY TAXES IN VANCOUVER, BURNABY, NEW WESTMINSTER Sample S i z e Year Low Median Hiqh 1) Vancouver 6 1967 95.4 107.0 115.4 9 1968 99. 8 101. 2 104.7 9 1969 101.3 108.6 110. 8 12 1970 101. 8 105. 5 110. 2 2) Burnaby 5 1970 100. 2 102.0 104.2 3) New Westminster 7 1969 103.7 105.4 115.3 16 1970 100. 1 113.4 115.5 63 the c o s t of p r o p e r t y taxes has i n c r e a s e d . T h i s i n c r e a s e has had a v e r y g r e a t e f f e c t f o r two reasons; f i r s t , t he market f o r r e n t a l s has been s o f t so r e n t s have remained f a i r l y steady and, second, the r a t e of the tax i n c r e a s e has been v e r y l a r g e e s p e c i a l l y i n Mew Westminster where the mean i n c r e a s e was 13.4% i n 1970. T h i s i s a d i s -t u r b i n g f a c t o r t o many apartment owners because an i n -c r e a s e of a si m i l a r • m a g n i t u d e i s expected t h i s year and t h e r e a g a i n appears t o be l i t t l e hope of p a s s i n g the i n c r e a s e on t o the tenant. I f other m u n i c i p a l i t i e s * taxes do n o t r i s e as f a s t as Surrey's or !few Westminster's then the i n c r e a s e d i f f e r e n t i a l w i l l be borne by the l a n d -l o r d but i f a l l taxes go up then i t simply w i l l not be economical t o b u i l d apartment b l o c k s u n t i l r e n t s go up enough t o o f f s e t the l o s t net r e t u r n . The t a x problem i s f u r t h e r aggravated by the f a c t t h a t home owners o b t a i n a rebate on t h e i r taxes of $15 per month (1971). Thus, the owner of an a p a r t m e n t - l i k e condominium has the same accommodation but, because he owns i t , h i s monthly c o s t s are a u t o m a t i c a l l y $15 lower (1971). The r e b a t e i s intended t o encourage home ownership. In t h i s r e s p e c t . i t does h e l p because i t reduces the net income requirements of the purchaser by $720 per year (1971), not an i n s i g n i f i c a n t percentage. However, f o r those people who cannot a f f o r d t o buy homes the l a c k of the 64 r e b a t e and the consequently h i g h e r r e n t i s e q u i v a l e n t t o a v e r y r e g r e s s i v e tax. In t h i s r e g ard the reb a t e i s v e r y poor. An a l t e r n a t i v e t o the rebate i s f o r the p r o v i n c i a l and f e d e r a l governments t o pay a l l the c o s t s of the s o c i a l s e r v i c e s t h a t are now supported by the p r o p e r t y tax. T h i s would leave the pr o p e r t y and the p r o p e r t y t a x t o support o n l y the d i r e c t s e r v i c e s t o the s i t e . T h i s would a l s o reduce the r e g r e s s i v i t y of the p r o p e r t y t a x and, h o p e f u l l y , reduce the l a r g e annual i n c r e a s e s t h a t a r e now necessary because of the ve r y r a p i d l y i n c r e a s i n g c o s t s of w e l f a r e and s c h o o l s . Summation P r o p e r t y taxes impose a v e r y g r e a t burden on the income o f a p r o p e r t y and t h a t burden i s i n c r e a s i n g . P r o p e r t y taxes appear t o be l e v i e d i n a haphazard manner t h a t does not seem t o have too much b e a r i n g on v a l u e . P r o p e r t y taxes v a r y g r e a t l y i n some assessment areas and v a r y g r e a t l y between assessment ar e a s . P r o p e r t y taxes sometimes appear t o be r e g r e s s i v e i n n a t u r e when a p p l i e d t o apartment b u i l d i n g s . 65 CHAPTER VI YIELDS The two major areas of r e s e a r c h f o r t h i s paper are, f i r s t l y , o p e r a t i o n a l c o s t s and, secondly, net y i e l d s t o owners. T h i s chapter i s concerned with y i e l d s and i s broken down i n t o two s e c t i o n s ; one d e a l s w i t h p u r c h a s e / s a l e data which g i v e s an i r r e f u t a b l e r e s u l t and' the other d e a l s xsTith a h y p o t h e s i z e d s a l e p r i c e . U n f o r t u n a t e l y , many of the s a l e s i n the f i r s t c a t e g o r y took p l a c e p r i o r t o 1970 which was a time p e r i o d of r i s i n g or l e v e l l i n g apartment p r i c e s . S i n c e 1970 most apartment p r i c e s have d e c l i n e d very r a p i d l y and so t h e r e i s a d i f f e r e n c e i n the y i e l d s b e f o r e and a f t e r 1970 and conse-q u e n t l y a d i f f e r e n t p i c t u r e f o r those p r o p e r t i e s on which s a l e data e x i s t as opposed t o those p r o p e r t i e s . w h e r e a s a l e p r i c e i s h y p o t h e s i z e d . Purchase/Sale Data There are 15 p r o p e r t i e s f o r which s a l e data were ob t a i n e d and 19 p u r c h a s e s / s a l e s w i t h i n t h a t group. F i v e s a l e s o c c u r r e d i n 1971, seven i n 1970, f i v e i n 1969 and two i n 1968. One of the problems i n d e a l i n g w i t h p u r c h a s e / s a l e data d e r i v e d from i n d i v i d u a l s i s t o determine the v a l i d i t y of those data. For i n s t a n c e , i t became obvious that some b l o c k s t r a d e d hands at p r i c e s which c o u l d not be supported by t h e i r 66 TABLE 14 SALE DATA ON PROPERTIES SHOWING AVERAGE RETURN BEFORE CAPITAL GAIN OR LOSS AMD SHOWING AVERAGE RETURN INCLUDING ANY REALIZED GAIN OR LOSS Date of Purchase Date of S a l e S u i t e s Average Return E x c l u d i n g Gain or Loss Average T o t a l Return 3/69 8/71 35 3.4 -8.8 10/68 7/71 44 7.1 3.1 12/68 12/70 26 7.4 13.3 11/67 2/71 49 8.0 7.3 12/67 4/70 11 8.9 35.7 3/69 12/69 101 10.6 7.1 11/67 9/70 41 12.0 11.7 10/69 7/71 39 12.0 22.8 6/68 7/70 25 12.2 29.3 11/68 11/69 20 14. 1 33. 8 12/68 3/71 31 14.5 35.9 1/68 12/69 101 14.6 31.1 12/69 12/70 26 15.7 28.2 10/68 11/70 41 16. 2 25.0 12/67 1/69 24 20.5 74. 5 11/66 12/68 101 21.0 37.9 11/66 12/69 101 21.0 52.1 11/66 1/68 101 21.1 75.9 12/69 6/70 11 28.1 87.3 Median r a t e of r e t u r n e x c l u d i n g c a p i t a l g a i n : Median r a t e of r e t u r n i n c l u d i n g c a p i t a l g a i n : Median l e n g t h of ownership: S h o r t e s t p e r i o d of ownership: Longest p e r i o d o f ownership: Sample s i z e : 12.1% 26.0% 25 months 6 months 51 months 19 s a l e s 16 p r o p e r t i e s 67 e a r n i n g s . In one case, two v e r y s i m i l a r b l o c k s were traded at p r i c e s y i e l d i n g a r e t u r n of l e s s than 6% and a t gross r e n t m u l t i p l i e r s exceeding 8.0, T h i s appeared t o be a convenient way of s e t t i n g a h i g h v a l u e f o r purposes of v a l u a t i o n day and thus r e d u c i n g the burden of the c a p i t a l g ains tax. I f i t appeared as i f the s a l e was a non-arms-length t r a n s a c t i o n then t h a t p r o p e r t y was e l i m i n a t e d from the study. Of the 19 s a l e s o c c u r r i n g i n the sample group w i t h i n the past t h r e e y e a r s , 14 s o l d f o r y i e l d s i n excess of 10%. Of the 5 s a l e s s e l l i n g below 10% onl y one l o s s o c c u r r e d . S i n c e t h i s p r o p e r t y was y i e l d i n g a r e t u r n of 3.4% i t i s not d i f f i c u l t t o determine t h a t a l o s s would have o c c u r r e d no matter when the b u i l d i n g was s o l d . Of the p r o p e r t i e s s o l d i t can be s a i d t h a t p o s s i b l y o n l y two i n v e s t o r s " b a i l e d out" \ ^ i t h gains t h a t were not j u s t i f i e d and t h a t would have been l o s s e s i n today's market. These two are s a l e s 3 and 5. In one of these cases the y i e l d was 8.9% and a handsome c a p i t a l g a i n was s t i l l o b t a i n e d w h i l e i n the other case the y i e l d was 7.1% and a f a i r l y s m a l l g a i n was obtained, For t h a t group of s a l e s above 10%, some i n v e s t o r s s o l d out f o r gains t h a t c o u l d not be repeated i n today's market. The reason i s simply t h a t , a l t h o u g h the b l o c k was a v e r y good investment f o r the vendor, the p r i c e which the vendor o b t a i n e d d i d not make i t an economical o p e r a t i o n f o r the purchaser. Thus, many of the s a l e p r i c e s would be ve r y much lower i f the p r o p e r t y were marketed today. 68 In the appendix, on the t h i r d page f o r each p r o p e r t y , i s a summary showing the purchase and s a l e data f o r each b l o c k , the b e g i n n i n g and ending f i n a n c i n g and e q u i t y and a breakdown of the y i e l d by year. The cash flow f o r each year has been c a l c u l a t e d from the statement and the p r i n c i p a l repayment has been c a l c u l a t e d f o r the mortgage(s). Any market g a i n or l o s s has simply been p r o r a t e d over the h o l d i n g p e r i o d of the b l o c k u n l e s s t h e r e was evidence showing t h a t g r e a t e r or l e s s e r amounts of g a i n / l o s s o c c u r r e d at d i f f e r e n t times. The t o t a l y i e l d was d e r i v e d by summing the components and an a l l o c a t i o n of t o t a l y i e l d was then determined. As can be seen from the T a b l e f o l l o w i n g , the g a i n o b t a i n e d was v e r y s i g n i f i c a n t and o f t e n formed the predominant p a r t of the t o t a l y i e l d . At the bottom of each page 3 the t o t a l r e t u r n i s shown. The average r a t e of  r e t u r n e x c l u d i n g market g a i n i s the average of the t o t a l cash flow and p r i n c i p a l repayment as a percentage of the o r i g i n a l e q u i t y . T h i s i s o n l y a good measuring d e v i c e i f the o r i g i n a l e q u i t y i n the p r o p e r t y i s v e r y c l o s e t o the e q u i t y a t t h a t p o i n t of time where the c a l c u l a t i o n i s made. I f r e f e r e n c e i s made t o the appendix, pages 58 and 59, i t can be seen t h a t p r o p e r t y #155 r e t u r n e d 37.9% on o r i g i n a l e q u i t y f o r 1969 but A o n l y 19% or o n e - h a l f , based upon the equity of 1969. Thus, i t becomes v e r y important t o look a t the second f i g u r e which i s e i t h e r the I n t e r n a l r a t e . o f r e t u r n i n c l u d i n g market g a i n or Average r a t e of r e t u r n i n c l u d i n g market g a i n . T h i s f i g u r e 69 i s d e r i v e d by t a k i n g the r e t u r n i n any one year based upon the e q u i t y i n t h a t year and summing i t w i t h the r e t u r n s i n other y ears based upon the e q u i t y p o s i t i o n s i n each of the c o r r e s p o n d i n g years and compounding each year's component by a per-cent f a c t o r t o a r r i v e at a v a l u e e q u i v a l e n t t o the e q u i t y v a l u e a t the s a l e date or date of v a l u a t i o n , A simple example of the c a l c u l a t i o n i s shown below: O r i g i n a l e q u i t y , 1967, or $10,000 1967 r e t u r n 1,200 12% 1968 e q u i t y $11,200 196-8 r e t u r n 1,344 12% 1969 e q u i t y $12,544 1969 r e t u r n 1,505 12% 1970 e q u i t y $14,049 The i n t e r n a 1 r a t e of r e t u r n f o r t h i s investment f o r the p e r i o d 1967, 195 8 and 1969 i s 12.0%. The above example i s extremely simple i n t h a t i t assumes each year's r e t u r n i s the same. In p r a c t i c e , the r e t u r n s d i f f e r w i d e l y but the procedure f o r ca l c u -l a t i n g the r e t u r n i s the same. However, t h i s i s normally not. done by hand because i t i s a long and t e d i o u s method u s i n g . t r i a l and e r r o r . A l l i n t e r n a l r a t e of r e t u r n c a l c u l a t i o n s are made u s i n g the computer. Where the h o l d i n g p e r i o d of the p r o p e r t y i s onl y one or two years, the r a t e of r e t u r n -is c a l c u l a t e d ' i s i n g a 70 simple average. The example below w i l l i n d i c a t e the method used. 1) 1969 e q u i t y : $100,000 1969 r e t u r n 20,000 or 20% a) $8,000 cash flow or 8% b) $2,000 p r i n c i o a l repayment or 2% c) $10,000 market g a i n or 10% 1970 e q u i t y : $112,000 1970 r e t u r n 21,500 or 19.2% a) $9,000 cash flow or 8.0% b) $2,500 p r i n c i p a l repayment or 2.2% c) $10,000 market gain' " or 9.0% Average r a t e of r e t u r n = 20.0% + 19.2% = 19.6% 2 Purchase/Hypothesized S a l e Data • Where i t was p o s s i b l e ^ a hypothesized v a l u e or s a l e p r i c e was formed and the t o t a l y i e l d s c a l c u l a t e d from t h i s v a l u e . T h i s i s an i n h e r e n t l y dangerous assumption t o make because i t assumes t h a t the v a l u e chosen i s r i g h t and t h a t i t a c c u r a t e l y r e f l e c t s what the market w i l l pay f o r a p r o p e r t y . In a l l cases the attempt was made to be as a c c u r a t e as p o s s i b l e w h i l e remaining on the c o n s e r v a t i v e s i d e . I f th e r e are areas of e r r o r s these w i l l be i n the newer b l o c k s w i t h the low v a l u e s . The reason f o r t h i s might be t h a t an a s t u t e i n v e s t o r may gauge the market r i g h t , p i c k up the b l o c k at a y i e l d l e s s than t h a t i n d i c a t e d here (at a c o r r e s p o n d i n g l y higher p r i c e ) and e f f e c t changes i n management and e f f i c i e n c i e i n o p e r a t i o n t h a t w i l l r e s u l t i n a very p r o f i t a b l e o p e r a t i o n . 71 However, t h e r e are v e r y many b l o c k s i n t h i s c a t e g o r y and so any i n v e s t o r coming i n t o the market now w i l l have many b l o c k s t o choose from. The v a l u a t i o n has been based upon the f o l l o w i n g : i ) The r a t e of c a p i t a l i z a t i o n t h a t the market appears to be demanding on s i m i l a r p r o p e r t i e s , i i ) The c o n d i t i o n of the b l o c k both from the s t a n d p o i n t of q u a l i t y and from the s t a n d p o i n t of r e p a i r , i i i ) The l o c a t i o n of the prop e r t y and the t r e n d of the area with r e s p e c t t o the g e n e r a l c o n d i t i o n s and r e n t a l demand which w i l l a f f e c t f u t u r e v a l u e s , i v ) The c a p i t a l i z a t i o n r a t e f o r frame or c o n c r e t e commercial or i n d u s t r i a l p r o p e r t i e s w i t h i n the same area. v) The gross income of the p r o p e r t y and i t s r e n t a l s t r u c t u r e . Two s i m i l a r p r o p e r t i e s w i t h i d e n t i c a l net incomes and f i n a n c i n g arrangements should have d i f f e r e n t v a l u e s i f one b l o c k has r a t e s at market r e n t and one has r a t e s below market r e n t . There i s room f o r improvement i n one and the downslide r i s k i s l e s s . v i ) The l e v e l of expenses and the e f f i c i e n c y of o p e r a t i o n . There i s u s u a l l y a reason or reasons f o r a b l o c k t o have a h i g h r a t i o of expenses. T h i s i s d i s c o u n t e d to a c e r t a i n degree because net incomes a r e used 72 but i t a l s o appears as i f some p r o p e r t i e s t h a t are i n e f f i c i e n t become more i n e f f i c i e n t over time. The expenses g i v e n f o r the b l o c k have been "normalized" t o r e f l e c t t h i s problem. In some cases expenses have been i n c r e a s e d and i n some cases they have been dropped so as t o c r e a t e an approximation of the lo n g -run t r e n d . H o p e f u l l y , t h i s r e s u l t s i n a f a i r f a c t o r on which t o base v a l u e s , v i i ) The r a t e of i n t e r e s t on the mortgage, s u i t a b l y m o d i f i e d t o d i s c o u n t any sh o r t - t e r m b e n e f i t s or c o s t s . That i s , one p r o p e r t y w i t h an 8% mortgage wit h a 5 year c l a u s e i s not t r e a t e d the same as a s i m i l a r p r o p e r t y w i t h an 8% mortgage and no c l a u s e . For purposes of e v a l u a t i o n , i t has been assumed t h a t the i n t e l l i g e n t vendor w i l l pay o f f any mortgage t h a t c r e a t e s n e g a t i v e leverage so as to maximize the v a l u e of the pr o p e r t y . Thus, w i t h a 12% c a p i t a l i z a t i o n r a t e , an 11% second mortgage w i l l be r e t a i n e d w h i l e a 13% t h i r d mortgage i s p a i d o f f . I t must be s t r e s s e d t h a t t h i s i s onl y done f o r purposes of e v a l u a t i n g a p r o p e r t y . The f u l l l e v e r a g e s i t u a t i o n i s used when c a l c u l a t i n g y i e l d s and r e t u r n s , v i i i ) Opinions, judgement and "gut f e e l " are a l s o used t o form a v a l u e . These s u b j e c t i v e p o i n t s r e f l e c t them-s e l v e s i n the c a p i t a l i z a t i o n r a t e chosen and i n m o d i f i c a t i o n s t o the cash flow i n order t o c r e a t e a "normal" s i t u a t i o n . 73 The end r e s u l t of a l l these f a c t o r s i s , h o p e f u l l y , a market v a l u e . I t should be r e c o g n i z e d , however, t h a t many of the people who buy and s e l l i n the market and who t h e r e f o r e form the d i s c r e e t edge of the market do not t h i n k along o b j e c t i v e l i n e s but o f t e n l e t emotion or m i s i n f o r m a t i o n make t h e i r investment d e c i s i o n s f o r them. Obviously, i f t h i s happens often,we have a market t h a t i s not p e r f e c t and t h a t appears t o act i r r a t i o n a l l y . A r a t i o n a l l i n e of thought has gone i n t o the e v a l u a t i o n of each p r o p e r t y . T h i s can be an extremely i n a c c u r a t e and dangerous method of o p e r a t i o n i f a s i g n i f i c a n t segment of the market does not behave i n a s i m i l a r manner. The sample of p r o p e r t i e s w i t h hypothesized s a l e p r i c e s have been broken down i n t o two groups; one group c o n t a i n s a l l expected c a p i t a l l o s s s i t u a t i o n s and one group c o n t a i n s a l l p r o p e r t i e s w i t h an expected g a i n s i t u a t i o n . Each group w i l l be t r e a t e d s e p a r a t e l y and then compared. P r o p e r t i e s w i t h Expected C a p i t a l Gains The Table f o l l o w i n g l i s t s a l l p r o p e r t i e s t h a t would be s o l d w i t h an expected market g a i n . The order i s based upon the average or i n t e r n a l r a t e of r e t u r n e x c l u d i n g the proposed c a p i t a l g a i n . In some cases, as i n the f i r s t p r o p e r t y , the a c t u a l y i e l d o b t a i n e d i s l e s s than t h a t which w i l l be expected i n the f u t u r e . In t h i s i n s t a n c e the reason i s t h a t heavy expenses have been i n c u r r e d i n order t o upgrade the p r o p e r t y TABLE 15 DATA ON PROPERTIES WHICH WOULD HAVE A GAIN SITUATION OF AT LEAST THIS MAGNITUDE IF THEY WERE SOLD TODAY Year of Years Purchase Expected Average Rate of Return  Purchase Analysed P r i c e S a l e P r i c e Gain E x c l u d i n g Gain I n c l u d i n g Gain $ a/ o/ /a /o 1968 2 1,047,000 1,062,000 15,000 9.4 11.5 1967 3 405,000 406,000 1,000 10.4 10.8 1966 5 840,000 908,000 68,000 10.6 12.5 1969 1 1, 860,000 1,875,000 15,000 11.2 14.6 1968 2 208,500 219,500 11,000 11.2 17.7 1967 3 530,000 543,000 13,000 11.3 17.8 1967 3 425,000 458,000 33,000 12. 2 19.9 1967 3 1,337,000 1,425,000 88,000 12.3 17.9 1960 11 531,000 700,000 169,000 12.7 14.1 1968 2 433,000 458,000 25,000 12.7 25.6 1968 2 700,000 714,000 14,000 13.3 16.2 1968 2 278,000 284,000 6,000 13.9 16.1 1965 5 468,000 • 575,000 107,000 14.4 24.8 1967 3 452,800 510,000 57,200 16.0 24. 5 1966 4 840,000 1,034,000 194,000 16.0 26.6 1969 1 176,500 177,000 500 16. 1 17.0 1968 2 1,182,500 1,275,000 92,500 16.5 29.7 1968 2 160,000 167,000 7,000 17.6 20.2 1969 1 227,500 241,500 14,000 18.2 42.7 Median r a t e o f r e t u r n e x c l u d i n g c a p i t a l g a i n : Median r a t e o f r e t u r n i n c l u d i n g c a p i t a l g a i n : Sample s i z e : 12.7 17.8 19 75 and so a "normalized" cash flow must be i n t e r p r e t e d . Again, a l l gains have been p r o r a t e d on the b a s i s of time u n l e s s t h e i r i s reason t o b e l i e v e otherwise. Some of the i n c r e a s e s i n v a l u e have been v e r y h i g h but, because of the long h o l d i n g p e r i o d and because of the u t i l i z a t i o n of the i n t e r n a l r a t e of r e t u r n method of d e t e r m i n i n g y i e l d , the d i f f e r e n c e i n y i e l d b e f o r e and a f t e r t a k i n g a g a i n i n t o account i s o f t e n s m a l l . A l s o , an i d e n t i c a l s i t u a t i o n w i t h w i d e l y d i f f e r i n g e q u i t y p o s i t i o n s w i l l accentuate the g a i n s i t u a t i o n . P r o p e r t i e s and lev e r a g e are l i k e bonds; a s m a l l change i n r e t u r n i s r e f l e c t e d by a l a r g e g a i n (or l o s s ) i n v a l u e . Example: x y Cash flow b e f o r e f i n a n c i n g $100,000 $100,000 F i n a n c i n g $800,000 at 7% 56,000 $500,000 a t 7% 35,000 Net cash flow $ 44,000 $ 6 5,000 Gain i n market v a l u e 40,000 40,000 T o t a l r e t u r n $ 84,000 $105,000 P r o p e r t y "y" has a higher r e t u r n than p r o p e r t y "x." However, i f i t i s assumed t h a t the v a l u e of the p r o p e r t y i s $1.2 m i l l i o n then the p i c t u r e changes d r a m a t i c a l l y . x y Cash flow on e q u i t y 11.0% ' 9.3%' Market g a i n on e q u i t y 10.0% T o t a l r e t u r n 21.0% 15.0% Of course, the s i t u a t i o n r e v e r s e s i t s e l f i f a l o s s o c c u r s . The mean r e t u r n cn the group of p r o p e r t i e s w i t h expecte ga i n s was 12.7% e x c l u d i n g the g a i n and 17.8% i n c l u d i n g the g a i n . 76 P r o p e r t i e s w i t h Expected C a p i t a l Losses Of the 15 p r o p e r t i e s w i t h an expected c a p i t a l l o s s s i t u a t i o n , a l l but 5 have an o v e r a l l l o s s p o s i t i o n . T h i s l o s s p o s i t i o n w i l l n a t u r a l l y be reduced over time and i t w i l l eventu-a l l y change t o a p o s i t i v e r e t u r n i f the p r o p e r t y i s h e l d long enough and i f i n f l a t i o n c o n t i n u e s unabated. T h i s f a l s e p o s i t i o n i s s i m i l a r t o the i n v e s t o r who i n v e s t s i n s t o c k s and "averages down" h i s l o s s by buying more and more shares a t i n c r e a s i n g l y lower p r i c e s . However, the owner of an apartment b l o c k need not be so f o o l h a r d y . He has f o u r c h o i c e s or courses of a c t i o n : 1) He can r e c o g n i z e h i s mistake, take h i s paper l o s s and purchase the b l o c k from h i m s e l f a t a p r i c e t h a t y i e l d s an economic r e t u r n . 2) He can s e l l t he b l o c k a t - t h e r e c o g n i z e d market p r i c e , take h i s l o s s and i n v e s t h i s money elsewhere. 3) He can p l a c e the p r o p e r t y on the market a t an i n f l a t e d p r i c e and hope t h a t someone not attuned t o the market w i l l ; pay a p r i c e not j u s t i f i e d by the economics of the s i t u a t i o n . 4) He can bury h i s head i n the sand and r e f u s e t o r e c o g -n i z e the l o s s and average down the l o s s over time not by p u r c h a s i n g more p r o p e r t y but by p u r c h a s i n g more time. T h i s w i l l work f o r a l l p r o p e r t i e s except f o r the f i r s t one i n the T a b l e . T h i s investment w i l l TABLE 16 HYPOTHESIZED SALES PRICES ON PROPERTIES TO DETERMINE EXPECTED CAPITAL LOSSES AND YIELDS BEFORE AND AFTER LOSSES Average Rate Average Rate Year o f Years Purchase Expected of Return o f Return Purchase Analysed P r i c e S a l e P r i c e Loss E x c l u d i n g Loss I n c l u d i n g $ . $ $ o/ /a % 1969 1 355,000 285,000 70,000 -1.1 -74.7 1969 1 537,000 455,000 82,000 3.7 -63.5 1968 2 895,000 805,000 90,000 4.8 -19.4 1969 1 277,000 245,000 32,000 5.4 -32.7 1968 2 398,000 342,000 56,000 5.5 -21.1 1968 2 485,000 432,000 53,000 5.5 -16.7 1967 3 235,000 228,000 7,000 6.3 - 1.4 1969 2 417,000 387,000 30,000 6.7 - 9.7 1969 1 1 820,000 717,000 103,000 7.0 -23.7 1968 2 217,500 210,000 7,500 7.9 .8 1968 2 312,000 308,000 4,000 8.8 7.4 1968 2 353,000 348,000 5,000 9.1 7.0 1969 2 225,000 220,000 5,000 10.1 5.2 1969 1 365,000 3 54,000 11,000 10.3 .3 1968 2 267,000 251,000 16,000 12.3 - 1.7 Median r a t e o f r e t u r n e x c l u d i n g c a p i t a l l o s s : Median r a t e o f r e t u r n i n c l u d i n g c a p i t a l l o s s : Median l o s s as a percent o f purchase p r i c e : Sample s i z e : 6.7% -9.7 -8.6% 15 Note: Data d e t e r m i n i n g c a p i t a l i z a t i o n r a t e s i s co n t a i n e d i n the Appendix. 78 i n c r e a s e i t s l o s s over time because i t operates on 1 a net l o s s s i t u a t i o n . Presumably, i n f l a t i o n w i l l c o r r e c t t h i s s i t u a t i o n w i t h i n a few y e a r s . A comparison should be made between those b l o c k s w i t h an expected g a i n s i t u a t i o n and those b l o c k s with an expected l o s s s i t u a t i o n . The median r e t u r n , e x c l u d i n g any g a i n , f o r one group i s 12.7% while the median r e t u r n , e x c l u d i n g any l o s s , f o r the other group i s 6.7% or a 6% d i f f e r e n t i a l . For both groups the median c a p i t a l i z a t i o n r a t e i s 11%. I f i t i s assumed t h a t the average l e v e r a g e s i t u a t i o n i s approximately 70% then i t can be seen why the i n t e r n a l or average r a t e of r e t u r n r e s u l t s v a r y so much. Summation The a n a l y s i s of y i e l d s has shown t h a t many p r o p e r t i e s are extremely good buys when purchased, w h i l e others are v e r y bad buys and ot h e r s are s o l d at a r e t u r n r e f l e c t i n g a normal market r a t e . P a r t of t h i s l a r g e d i s c r e p a n c y can be based upon mis-i n f o r m a t i o n , i n c o r r e c t statements and d i s h o n e s t y , but the m a j o r i t of the d i s c r e p a n c y appears t o be caused by the f a c t t h a t many buyers and many s e l l e r s simply do not know t h e i r b u s i n e s s and so r e l y upon "rules-of-thumb," vendor's statements and other non-economic or n o n - r a t i o n a l means t o make t h e i r . i n v e s t m e n t d e c i s i o n s A net l o s s i s determined by summing cash flow and p r i n c i p a l repayment. Many b l o c k s have a n e g a t i v e cash flow but a l l but one more then o f f s e t t h i s by the p r i n c i p a l repayment. 79 CHAPTER VII SUMMATION7 OF FINDINGS AND CONCLUSIONS The apartment investment market, i n the years 1960 t o 1970, underwent a p e r i o d of r a p i d growth and change. We can expect f u r t h e r growth and f u r t h e r change, but along d i f f e r e n t l i n e s , over the next ten years, Most of the owners of apartment b l o c k s i n the fort h c o m i n g years w i l l come from t h r e e b a s i c groups: i ) The i n v e s t o r who owns the p r o p e r t y and runs i t as h i s main income, i i ) The i n v e s t o r , l a r g e or s m a l l , who owns a p r o p e r t y f o r long term income, g a i n and i n f l a t i o n p r o t e c t i o n , and i i i ) The l a r g e i n v e s t o r or development company who uses p r o p e r t y investment as a means of h i d i n g p r o f i t s u n t i l a f u t u r e date or who uses the p r o p e r t y f o r t a x s h e l t e r . The areas of apartment investment w i l l become more s t r u c t u r e d . On the one hand t h e r e w i l l be the areas or p r o p e r t i e s t h a t c a t e r t o the i n d i v i d u a l who l i v e s i n a p a r t i -c u l a r b l o c k or area because he wants t o or because a l t e r n a t i v e forms of housing are l e s s a p p e a l i n g . T h i s type of p r o p e r t y w i l l be owned by i n v e s t o r s ( i ) and ( i i ) . On the other hand t h e r e w i l l be the areas or p r o p e r t i e s t h a t c a t e r t o those 80 i n d i v i d u a l s who, because of income, have no c h o i c e b u t . t o l i v e i n low r e n t a l housing t h a t i s i n d i r e c t l y supported by the t h r e e l e v e l s of government and by the p u b l i c through low i n t e r e s t r a t e mortgages. T h i s type of p r o p e r t y w i l l be owned by i n v e s t o r s ( i i ) and ( i i i ) who are not concerned with a c a s h -f l o w p r o f i t but are more concerned w i t h o b t a i n i n g a 95% mort-gage on v a l u e ( u s u a l l y much i n excess of the construction-c o s t ) and a n i c e tax s h e l t e r which i s provided by the govern-ment. There i s a f o u r t h group of i n v e s t o r , the slum l a n d l o r d , but, f o r the purposes of t h i s paper, he i s assumed not to e x i s t . The end r e s u l t w i l l be t h a t areas such as West Vancouver, the 'West End, K i t s i l a n o , K e r r i s d a l e , the Simpson-Sears area of Burnaby and the Woodward's area of New Westminster w i l l c o n t i n u e t o be good r e n t a l areas because they are premium l o c a t i o n s and they w i l l a t t r a c t the type of tenant who wishes t o l i v e i n an apartment b l o c k and who i s w i l l i n g t o pay f o r the p r i v i l e g e . O u t l y i n g and l e s s d e s i r a b l e areas w i t h an abundance of a v a i l a b l e , l e s s expensive land w i l l a t t r a c t the l i m i t e d d i v i d e n d type of housing and so the poorer tenant* T y p i c a l l y , these p r o j e c t s are l a r g e i n s i z e , overcrowded and are s e l f -d e f e a t i n g because the breadwinner o f t e n spends more time and money g e t t i n g t o and from work than he saves by l i v i n g i n a l e s s d e s i r a b l e area, and s a v i n g a few d o l l a r s on r e n t . Mot a l l l i m i t e d d i v i d e n d or low income p r o j e c t s a r e bad and none need be so. The i n c l u s i o n o f s m a l l b u i l d i n g s or 81 p r o j e c t s among other r e n t a l s t r u c t u r e s would h e l p . The encouragement of s m a l l p r o j e c t s would help t o l e s s e n the f e e l i n g of overcrowding t h a t o f t e n accompanies low c o s t p r o j e c t s . The continued encouragement of w e l l - d e s i g n e d , w e l l - b u i l t and well-thought out p r o j e c t s can a l s o do much t o upgrade the q u a l i t y of housing a v a i l a b l e t o the l e s s w e l l - t o - d o . However, a l l of these measures would not be necessary i f one simple p o l i c y were implemented. T h i s would be t o g i v e those people who are deemed to r e g u i r e a s s i s t a n c e f o r housing the necessary funds so t h a t they can compete i n the open market f o r t h e i r housing. The c o s t of t h i s p o l i c y should be no g r e a t e r and c o u l d even be l e s s . For example, the f a m i l y e a r n i n g $5,500 and the one e a r n i n g $6,700 both q u a l i f y f o r a l i m i t e d d i v i d e n d u n i t but i t i s obvious t h a t one r e q u i r e s a s s i s t a n c e more than the o t h e r . I f the r e n t d i f f e r e n t i a l i s $20 per s u i t e per month then the t o t a l c o s t i s $40. However, i f the open market were used then need c o u l d be the b a s i s f o r a r e n t s u b s i d y . In the example g i v e n , the s u b s i d i e s c o u l d change to $5 and $25 f o r a t o t a l s a v i n g of $10. T h i s type of housing s i t u a t i o n i s i n h e r e n t l y more e f f i c i e n t because supply/demand and the market r e n t s are supposedly i n balance. The s o c i a l c o s t s caused by over-crowding are probably reduced and government i n f l u e n c e , of which t h e r e i s probably too much, i s r e d i r e c t e d on an i n d i v i -d u a l b a s i s as opposed to a b l a n k e t b a s i s . The stigma of l i v i 82 i n a s u b s i d i z e d p r o j e c t i s a l s o e l i m i n a t e d . I t was a l s o e v i d e n t throughout t h i s study t h a t the q u a l i t y of many p r o j e c t s was v e r y poor not o n l y from the sta n d p o i n t of c o n s t r u c t i o n but a l s o from the s t a n d p o i n t o f l o c a t i o n and d e s i g n . H o p e f u l l y , the more r a t i o n a l aspect of the f u t u r e market (supply/demand and market c o s t ) w i l l en-courage a more c a r e f u l c h o i c e of de s i g n and l o c a t i o n and make i t more economical and p r o f i t a b l e t o c o n s t r u c t b e t t e r b u i l d i n g s . The l o c a l governments can do t h e i r p a r t i n upgrading housing by being more f l e x i b l e . Some areas are making use of the land-use  c o n t r a c t e x t e n s i v e l y . T h i s method of development appears t o be p r e f e r a b l e t o the b l a n k e t r e z o n i n g t h a t o f t e n c h a r a c t e r i z e s development now. The land-use c o n t r a c t bases r e z o n i n g and d e n s i t y on the m e r i t s of the p r o j e c t being contemplated. I f both the developer and the m u n i c i p a l i t y or c i t y a re i n agreement a c o n t r a c t i s signed and the p r o j e c t proceeds. T h i s system i s b e t t e r because i t o f f e r s an i d e a l v e h i c l e t o i n c r e a s e the q u a l i t y of development but i t i s dangerous i n t h a t i t can be open t o abuse and a r b i t r a r y d e c i s i o n s by those i n c o n t r o l . The apartment investment market i s p r e s e n t l y changing t o the b e t t e r because of the change i n the tax a c t th a t removed the major governmental i n f l u e n c e t o housing, namely, the tax s h e l t e r . The r e s u l t should be a more p e r f e c t market which i s based upon supply/demand and c o s t of c a p i t a l . However, i t appears as i f the f e d e r a l government may be c r e a t i n g a p o t e n t i a l l y 83 dangerous s o c i a l and economic c o n d i t i o n by p r o v i d i n g below market-rate mortgages f o r lover income f a m i l i e s . The apartment investment market was found t o be ve r y i r r a t i o n a l . P a r t of t h i s i r r a t i o n a l i t y can be a t t r i b u t e d t o the b e f o r e mentioned t a x i n f l u e n c e s but a good p r o p o r t i o n of t h i s i r r a t i o n a l i t y can be blamed upon poor knowledge and bad d e c i s i o n s which were and are o f t e n based upon " r u l e s - o f -thumb." Three of these rules-of-thumb w i l l new be examined. Gross Rent M u l t i p l i e r The most p r e v a l e n t rule-of-thumb i s the gross r e n t m u l t i p l i e r or G.R.M. which i s simply the gross income of the pro p e r t y m u l t i p l i e d by a f a c t o r t o a r r i v e at an asset, v a l u e . The f a c t o r most o f t e n used i s "7 times g r o s s " f o r frame b u i l d i n g s and "7.5 times g r o s s " f o r c o n c r e t e b u i l d i n g s . A s i m i l a r s i t u a t i o n c o u l d apply t o the s t o c k market by s a y i n g t h a t a l l o i l s t o c k s should s e l l f o r 20 times earnings and a l l s t e e l s t o c k s should s e l l f o r 15 times e a r n i n g s . T h i s system i s o b v i o u s l y f o o l h a r d y when a p p l i e d t o the st o c k market and e q u a l l y f o o l h a r d y when a p p l i e d t o the apartment market. The G.R.M. does not take i n t o account the f o l l o w i n g : i ) The r a t i o of expenses t o income. i i ) The q u a l i t y of c o n s t r u c t i o n or the s t a t e of r e p a i r , i i i ) The l o c a t i o n . i v ) The f i n a n c i n g , v) The c a p i t a l i z a t i o n r a t e . With a l l these f a c t o r s a g a i n s t the G.R.M. i t i s i n c o n c e i v a b l e t h a t i t c o u l d be used and yet a v e r y l a r g e p r o p o r t i o n of inv e s ment d e c i s i o n s are i n f l u e n c e d and based upon i t . TABLE 17 84 THE RELATIONSHIP OF THE GROSS RENT MULTIPLIER TO COST OF DEBT CAPITAL AND TO THE CAPITALIZATION RATE Frame C o n s t r u c t i o n B u i l d i n g C a p i t a l i z a t i o n F i r s t Mortgage Number G.R.M. Rate Rate  % 150^" 4.93 S o l d (15%) 8 142 1 5. 59 Sold 8 139 6. 01 12 9 111 6.13 12 7 131 6.13 10. 5 9.5 156 6.18 11. 5 7.75 116 6. 25 13 9 117 6.36 12 7.25 109 6.38 12 9 137 6.39 15 8 130 6.40 11 7. 25 105 6.44 S o l d 9 163 6.48 11 8.75 114 6. 50 11 8.75 120 6. 50 12 8 112 6. 53 11 8. 875 125 6.55 11 8. 875 106 6.58 Sold 7.5 157 6.62 Sold 8 140 6.65 Sol d 8 119 6.66 11 8 121 6.67 11 9.5 146 6.69 11 7.5 152 6.70 12 9 122 6.71 10.5 9.25 144 6.74 13 7.25 129 6.75 Sol d 9 118 6.76 S o l d 9 115 6.79 12 6.75 147 6. 85 11 7.75 148 7.02 11 8 153 7.03 Sol d 7.5 138 7.04 11 7.75 108 7.07 Sol d 9.0 102 7.08 11 8.5 127 7.17 S o l d 9 128 7.17 S o l d 7.5 107 7.22 11 8 145 7. 22 S o l d 9.25 141 7.33 S o l d 8 104 7.40 11 8 113 7.56 11.5 8 123 7.73 S o l d 8.5 124 7.90 S o l d 8 132 7.94 Sold 6 B u i l d i n g s number 150 and 142 are l a n d l e a s e s i t u a t i o n s . T a b l e 1 7 ( c o n t i n u t e d ) Concrete C o n s t r u c t i o n 8 5 B u i l d i n g C a p i t a l i z a t i o n F i r s t Mortgage Number G.R.M. Rate Rate % % 1 5 4 6 . 5 6 1 0 . 0 7 . 0 0 1 5 8 6 . 9 3 1 0 . 5 7 . 7 5 1 5 5 7 . 1 2 1 0 . 5 6 . 7 5 1 6 6 7.80-L 1 0 . 0 7 . 0 0 1 6 1 8 . 0 2 1 0 . 0 1 0 . 0 0 1 2 6 8 . 2 2 1 0 . 0 7 . 7 5 Concrete C o n s t r u c t i o n Sample s i z e : 6 Range: 6 . 5 6 to 8 . 2 2 Median.: 7 . 4 6 Frame C o n s t r u c t i o n Sample s i z e : 4 3 Range: ' 6.01 t o 7.94 Median: 6 . 7 0 Frame P r o p e r t i e s S o l d Sample s i z e : 1 5 Range: 6 . 4 4 to 7 . 9 4 Median: 7 . 0 7 Value range of a p r o p e r t y w i t h $ 1 0 0 , 0 0 0 g r o s s income: Concrete c o n s t r u c t i o n : $ 6 5 6 , 0 0 0 t o $ 8 2 2 , 0 0 0 w i t h a mean of $ 7 4 6 , 0 0 0 . V a r i a t i o n from the median:-12.1% + 1 0 . 2 % Frame c o n s t r u c t i o n : $ 6 0 1 , 0 0 0 t o $ 7 9 4 , 0 0 0 w i t h a mean of $ 7 0 7 , 0 0 0 . V a r i a t i o n from the median:-15.0% + 1 2 . 3 % Although t h i s p r o p e r t y s o l d on the b a s i s of a gros s r e n t m u l t i p l i e r of 8 . 0 2 an e v a l u a t i o n f o r today's market would y i e l d a G.R.M. of 7 . 0 2 . TABLE 18 86 THE USE OF THE GROSS RENT MULTIPLIER TO VALUE A PROPERTY Example 1 Example 2 Example 3 Gross income $100,000 $100,000 Long run expense r a t i o 38,000 38,000 Net income b e f o r e debt s e r v i c e $ 62,000 $ 62,000 Debt s e r v i c e $500,000 at 8% 40,000 $500,000 at 10% 50,000 Net income $ 22,000 $ 12,000 Value of p r o p e r t y c a p i t a l i z e d a t 10% $720,000 $620,000 y Gross income $100,000 $100,000 Long run expense r a t i o 36,000 41,000 Net income b e f o r e debt s e r v i c e $ 64,000 $ 59,000 Debt s e r v i c e $500,000 a t 9% 45,000 45,000 Net income $ 19,000 $ 14,000 Value of p r o p e r t y c a p i t a l i z e d a t 11% $673,000 $627.000 Gross income $100,000 $100,000 Long run expense r a t i o 36,000 36,000 Net income b e f o r e debt s e r v i c e $ 64,000 $ 64,000 Debt s e r v i c e : $500,000 a t 8% 40,000 40,000 Net income $ 24,000 $ 24,000 Valu e of p r o p e r t y u s i n g a c a u i t a l z a t i o n r a t e of a) 10% $740,000 b) 12% $700,000 87 Net Rent M u l t i p l i e r The net r e n t m u l t i p l i e r i s s l i g h t l y b e t t e r than the G.R.M. i n t h a t i t c a p i t a l i z e s net income or t h a t which remains a f t e r t he o p e r a t i n g expenses have been deducted. A t y p i c a l f i g u r e i s 10 or 11 times net. T h i s term or t o o l i s not used much, however, p o s s i b l y because i t i s much more d i f f i c u l t to determine. A summation of the gross r e n t m u l t i p l i e r s f o r a l l p r o p e r t i e s f o r which v a l u e s have been determined i s shown i n the f o l l o w i n g T a b l e . For frame p r o p e r t i e s , e x c l u d i n g numbers 1 and 2 which are l a n d l e a s e s , the mean G.R.M. i s 6.70 and the range i s from 6.01 to 7.94, and the range f o r the middle 50% i s from 6.44 t o 7.17 — not p a r t i c u l a r l y a c c u r a t e f o r a r u l e -of-thumb used so e x t e n s i v e l y . F o l l o w i n g the Tables l i s t i n g the gross r e n t m u l t i -p l i e r s , the medians and the ranges, i s a Tabl e showing t h r e e b a s i c reasons why a gross re n t m u l t i p l i e r cannot be used; v a r i a t i o n i n debt c o s t s , v a r i a t i o n i n expenses and v a r i a t i o n i n c a p i t a l i z a t i o n r a t e s . "$X Per S u i t e " Syndrome The v a l u e per s u i t e syndrome has about as much v a l i d i as the gr o s s r e n t m u l t i p l i e r . One of the p r o p e r t i e s i n the sample was purchased i n 1967 f o r $467,000 or $9,530 per s u i t e . The reason f o r i t s purchase was t h a t i t was new and t h a t i t had TABLE 19 "X PER SUITE" AS A MEASURE OF VALUE CITY OF VANCOUVER Value Per S u i t e  Type S u i t e Income Value Per S u i t e S u i t e Income $ $ Frame 92 7,080 770 111 10,540 949 118 10,900 924 119 10,250 861 121 11,000 909 127 9,950 783 128 10,450 816 132 10,700 811 134 10,850 810 135 9,750 723 148 12,625 853 152 13,030 857 Concrete 140 11,750 839 145 12,960 893 155 12,890 831 161 12,430 772 Median income: $ 133 Median s u i t e v a l u e : $10,875 Range on s u i t e v a l u e : $ 7,080 to $13,030 or -34.9% t o +19.8% TABLE 20 'X PER SUITE" AS A MEASURE OF VALUE NEW WESTMINSTER Type S u i t e Income Value Per S u i t e Value Per S u i t e S u i t e Income Frame Concrete 95 8,430 818 101 7,500 752 103 8,430 818 117 9, 500 812 119 9, 540 802 122 9,800 803 122 11.600 951 123 10,900 886 124 9, 540 769 124 10,500 847 127 10,410 820 129 10,920 847 130 11,590 892 131 10,290 785 132 10,390 787 133 10,620 787 135 10,830 802 135 11,333 839 141 8, 375 594 1 123 10,270 835 158 15,570 986 Median income: Median s u i t e v a l u e : Range i n s u i t e v a l u e : $ 127 $10,390 $ 7,600 t o $15,570 or -26.9% t o +59.5% Land l e a s e 90 TABLE 21 "X PER SUITE" AS A MEASURE OF VALUE BURNABY Type S u i t e Income Value Per S u i t e $ Value Per S u i t e S u i t e Income Frame 118 121 125 126 128 132 137 139 9,420 9,580 11,000 9,300 9, 830 10,180 11,550 9,350 798 792 880 738 768 771 843 673 Median income: Median s u i t e v a l u e : Range on s u i t e v a l u e : $ 127 $10,050 $ 9,300 t o $11,550 or -7.5% t o +14.9% OTHER AREAS S u i t e Value Per Value Per S u i t e Type L o c a t i o n Income S u i t e S u i t e Income $ $ Frame Surrey 143 154 161 11,390 12,110 11,930 797 786 741 Frame Coquitlam 136 164 10,980 13,180 807 804 Frame North Vancouver 153 158 184 12,350 13,709 14,610 807 868 794 Frame M i s s i o n 130 11,230 864 Concrete West Vancouver 175 16,350 934 Median income: $ 160 Median s u i t e v a l u e : $12,230 Range on s u i t e v a l u e : $10,980 or -20.5% t o t o $16, +37 350 .5% a low c o s t per s u i t e . No other b a s i s was used. S i m i l a r s i z e d p r o p e r t i e s were s e l l i n g a t about $10,000 per s u i t e . In 1971 t h a t same b l o c k was s o l d f o r $467,500 and the owner was f o r t u n a t e i n o b t a i n i n g t h a t amount. The i n t e r n a l r a t e of r e t u r n f o r the h o l d i n g p e r i o d was 7.3%. I t would not have been unusual f o r a w e l l b u i l t and w e l l bought b l o c k to have y i e l d e d 15% per year over the same time p e r i o d . The Tables immediately f o l l o w i n g l i s t the ranges of s u i t e s , v a l u e s by l o c a t i o n and type of c o n s t r u c t i o n . For example, i n New Westminster the range goes from $8,375 t o $16,570 or n e a r l y double. An i n v e s t o r who buys on the b a s i s of a s e t f i g u r e per s u i t e i s o n l y l o o k i n g f o r t r o u b l e and some of the b u i l d e r s who s p e c i a l i z e i n b l o c k s w i t h a h i g h r a t i o of b a c h e l o r or s t u d i o s u i t e s would be o n l y too p l e a s e d t o accom-modate him. The Tables a l s o seek t o determine i f a simple co n s t a n t e x i s t s t h a t can be used to determine v a l u e . A more l o g i c a l approach would be to r e l a t e v a l u e to a constant based upon s u i t e income because i t i s obvious t h a t s u i t e s t h a t have incomes of $180 are worth more than s u i t e s t h a t have incomes of $100. As c o u l d be expected, no r e l a t i o n s h i p e x i s t s . The c o n c l u s i o n t h a t can be reached i s t h a t the o n l y a c c u r a t e v a l u a t i o n method i s one t h a t looks at r e n t a l r a t e s , expenses, f i n a n c i n g , age, l o c a t i o n , c o n d i t i o n and market r a t e 92 of i n t e r e s t f o r s i m i l a r investments. T h i s type of e v a l u a t i o n r e s u l t s i n a f i g u r e t h a t w i l l g i v e an economic r e t u r n . F i n d i n g s on O p e r a t i o n a l Costs The f o l l o w i n g c o n c l u s i o n s can be i n t e r p r e t e d from the data obtained on c o s t s of o p e r a t i o n : 1) Small b l o c k s are g e n e r a l l y l e s s e f f i c i e n t i n o p e r a t i o n 2) Good r e n t a l areas may appear t o have a lower c a p i t a l i -z a t i o n r a t e but c o s t s of o p e r a t i o n , r e n t a l income and a g e n e r a l l a c k ofproblems j u s t i f y the higher p r i c e s p a i d f o r p r o p e r t i e s . 3) S a l a r i e s are a v e r y s i g n i f i c a n t p r o p o r t i o n of c o s t s • but s a l a r i e s and r e p a i r c o s t s appear as i f they c o u l d be i n t e r r e l a t e d . 4) Newer b u i l d i n g s have lower r e p a i r c o s t s than o l d e r b u i l d i n g s . 5) Expenses seem t o run i n c y c l e s . There are peaks when major r e p a i n t i n g i s r e q u i r e d , when c a r p e t s need r e -p l a c i n g or when a p p l i a n c e s are r e p l a c e d . .6) The long run c o s t s of o p e r a t i n g a frame b u i l d i n g appear t o be lower than f o r a c o n c r e t e b u i l d i n g . 7) B u i l d i n g s w i t h lower income s u i t e s c o s t more to operate than those w i t h higher income s u i t e s . 8) The q u a l i t y of frame apartment b l o c k s has d e t e r i o r a t e d 9) The c o s t of u t i l i t i e s i s v e r y important, t o the over-a l l p r o f i t a b i l i t y of a b u i l d i n g . The proper c h o i c e and o p e r a t i o n of the he a t i n g equipment can reduce c o s t s d r a m a t i c a l l y . 93 10) P r o p e r t y management fees range from 2% to 5% and o f f e r a l e v e l of s e r v i c e comparable to t h a t o f f e r e d by a r e a s o n a b l y a s t u t e owner. F i n d i n g s on Taxes 1) P r o p e r t y taxes are lower on o l d e r b u i l d i n g s than on . newer b u i l d i n g s even though the v a l u e s may be the same. I f anything, taxes should be higher because the r a t i o of land v a l u e to t o t a l v a l u e i s higher and land has a higher r a t i o of assessment than do improvements. 2) Smaller b u i l d i n g s have a higher tax r a t e than do l a r g e r b u i l d i n g s . (See page 53) 3) I t i s extremely important to know the tax r a t e s and r a t i o s and t o appeal assessments i f they appear to be out of line."*" I t i s a l s o wise t o be known f o r t h i s h a b i t because i t seems to ensure t h a t r a t e s are on the low s i d e . 4) Property taxes are r e g r e s s i v e compared to s u i t e r e n t s . 5) P r o p e r t y tax r a t e s v a r y w i d e l y w i t h i n d i s t r i c t s and between d i s t r i c t s . 6) Some f a c t o r other than v a l u e seems to be a major i n f l u e n c e i n s e t t i n g assessments. I t would appear as i f the gross r e n t m u l t i p l i e r was a major i n f l u e n c e . 1 One i n v e s t o r has s u p p l i e d i n f o r m a t i o n on 5 b u i l d i n g s . I t i s s i g n i f i c a n t t h a t he always appeals taxes i f t h e r e appears to be any d i s c r e p a n c y . A l s o s i g n i f i c a n t i s the f a c t t h a t h i s p r o p e r t i e s have tax r a t e s which are not o n l y a l l below the mean but are sometimes, the lowest i n the group. 94 F i n d i n g s on Y i e l d s v 1) P r o p e r t i e s w i t h high r a t i o mortgages appear t o have a lower o v e r a l l net y i e l d even though t h i s f a c t o r should be taken out or compensated f o r by the market. 2) C a p i t a l gains form a v e r y s i g n i f i c a n t p r o p o r t i o n of the t o t a l y i e l d . 3) Many i n v e s t o r s operate on an i r r a t i o n a l b a s i s w i t h the r e s u l t t h a t the y i e l d s on apartment p r o p e r t i e s cover an extremely wide range. 4) Y i e l d s are c u r r e n t l y moving upwards because other b e n e f i t s , such as tax s h e l t e r s , have been removed and apartment p r o p e r t i e s must be g i n to compete w i t h other forms of s i m i l a r investment. S i m i l a r l y , p r i c e s of p r o p e r t i e s a re moving down. 5) Governmental i n f l u e n c e i n the market may a g a i n b e g i n t o have an e f f e c t upon y i e l d s . 6) Good r e n t a l l o c a t i o n s w i l l c o n t i n u e t o o f f e r good investment o p p o r t u n i t i e s w h i l e areas under the i n f l u e n c e of (5) above may show f u r t h e r d e t e r i o r a t i o n . In 1960 the apartment investment market was based on fundamentally sound economic p r i n c i p l e s . The 1960's saw a * r a p i d i n c r e a s e i n the l e v e l of apartment c o n s t r u c t i o n and the r i s e of the " n o n - p r o f e s s i o n a l " i n v e s t o r . The end of the 1960's saw changes t h a t were t o be g i n moving t h i s segment of the i n -vestment market back towards a supply/demand/cost o f . c a p i t a l o r i e n t e d base — i n other words, an economic base. The 1970's • may see the c r e a t i o n of two s e p a r a t e and d i s t i n c t markets; the c o n v e n t i o n a l market t h a t i s based upon economic funda-mentals and the l i m i t e d d i v i d e n d market which i s based upon t a x avoidance and t a x s a v i n g c r i t e r i a . APPENDIX TO RETURNS ON APARTMENT PROPERTIES . FOR THE PERIOD i960 TO 1970 IN. THE ' . • GREATER VANCOUVER AREA by FRANK RODERICK ARTHUR DALE-JOHNSON B.Comm., U n i v e r s i t y of B r i t i s h Columbia, 1969 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION i n the F a c u l t y of COMMERCE AND BUSINESS ADMINISTRATION THE UNIVERSITY OF BRITISH COLUMBIA May, 1972 ABSTRACT The appendices are concerned w i t h the p r e s e n t a -t i o n of the raw data on each of the p r o p e r t i e s . Each b l o c k has. a minimum of t h r e e pages of data which summarize most of the p e r t i n e n t f a c t s on the p r o p e r t y . Page one g i v e s the type of c o n s t r u c t i o n , the a n a l y s i s p e r i o d , the age of the p r o p e r t y , the l o c a t i o n , the s i z e , s u i t e d i s t r i b u t i o n and r e n t a l r a t e s , g e n e r a l i n f o r m a t i o n on the c o n s t r u c t i o n , the amenities o f f e r e d and the type of tenant, the f i n a n c i n g arrangements and any purchase or s a l e d a t a . Page two i s concerned w i t h a t a b u l a t i o n of the o p e r a t i o n a l c o s t s of the p r o p e r t y f o r as many years as data a r e a v a i l a b l e . A d e t a i l e d a n a l y s i s of p r o p e r t y taxes t o gross income, net income and t o t a l expenses i s a l s o i n c l u d e d . Page t h r e e i s concerned w i t h the y i e l d s obtained throughout the h o l d i n g p e r i o d of the p r o p e r t y . Y i e l d s are broken down i n t o cash flow, mortgage p r i n c i p a l r e d u c t i o n and c a p i t a l g a i n or l o s s . Where s a l e data are not a v a i l a b l e t h e r e i s a summary s e t t i n g out reasons f o r an expected s a l e p r i c e and c a p i t a l i z a t i o n r a t e . The p r o p e r t i e s w i t h i n the appendices are grouped a c c o r d i n g t o l o c a t i o n and type of c o n s t r u c t i o n . The appendices themselves c o n t a i n a l l the e s s e n t i a l data r e l a t i n g t o the study and, i n f a c t , g i v e a much more p r e c i s e and t r u e p i c t u r e of the investment outcomes and o p e r a t i o n a l c o s t s r e l a t i n g t o apartment investment as a whole. INDEX " Page I. Frame C o n s t r u c t i o n , Vancouver C i t y #103 1 #113 4 #115 7 #118 10 #120 13 #123 16 #127 19 #128 22 #129 25 #132 28 #137 31 #139 34 #149 37 I I . Concrete C o n s t r u c t i o n , Vancouver C i t y #133 40 #134 43 #135 46 #136 49 #154 52 #155 55 #161 60 #162 63 #164 66 I I I . Frame C o n s t r u c t i o n , Burnaby #101 69 #105 72 #111 75 #114 78 #131 81 #141 84 #142 . 8 7 #163 90 IV. Frame C o n s t r u c t i o n , New Westminster #102 93 #104 . • 96 #106 99 #108 102 Page IV. Frame C o n s t r u c t i o n , Mew Westminster (continued) VI. #109 105 #116 108 #117 111 #119 114 #121 117 #124 120 #125 123 #130 126 #138 129 #140 132 #146 135 #147 138 #148 141 #150 144 #152 147 #153 150 #157 153 #159 156 #160 159 #167 162 #168 165 #169 168 "ete C o n s t r u c t i o n , New Westminster #126 171 #143 174 #158 177 ! C o n s t r u c t i o n , Surrey #112 180 #151 183 #156 192 : C o n s t r u c t i o n , North Vancouver #107 195 #122 198 #165 201 ; C o n s t r u c t i o n , Coquitlam #110 204 #144 207 Frame C o n s t r u c t i o n , M i s s i o n #145 Concrete C o n s t r u c t i o n , West Vancouver #166 Examples of Computer P r i n t - o u t Showing C a l c u l a t i o n s 1 #103 CLASS 1 rame ANALYSIS PERIOD: 1966, 1967, 1968, 1969, 1970 AGE A p p r o x i m a t e l y 35 y e a r s LOCATION K i t s i l a n o - P o i n t Grey SIZE 60 s u i t e s GENERAL E x c e l l e n t r e n t a l a r e a L a r g e s u i t e s t h a t have been redone and appear i n new c o n d i t i o n . Hardwood f l o o r s a l t h o u g h most t e n a n t s appear t o have f l o o r s w e l l c o v e r e d w i t h t h e i r own c a r p e t s . O i l h e a t Underground p a r k i n g ( l o c k e d ) L e a s e d l a u n d r y Some s u i t e s have a good v i e w o f B u r r a r d I n l e t A w a i t i n g l i s t e x i s t s . FINANCING Not a v a i l a b l e . T h i s i s an a n a l y s i s o f o p e r a t i n g c o s t s o n l y . FRAME - VANCOUVER 2 #103 AGE SUITES AVERAGE SUITE INCOME PER MONTH (1970) TOTAL INCOME (1970) : 35 years : 60 : $182 : $131,077 EXPENSES 1966 1967 1968 1969 1970* Operat ing U t i l i t i e s 4.9 5.5 5.5 5,0 5.5 C a b l e v i s i o n .9 .9 .9 .9 1 .0 Telephone .6 - .2 .4 .5 E leva tor 3.7 1 .4 I.I 2.3 .8 Other 1 .0 1 .2 .3 1 .4 1 .4 Repai rs 6,6 6.8 10.5 6,5 36.9 Admin is t ra t ion S a l a r i e s 6.4 5.9 5.6 5.5 5.7 Management 4.0 4.0 4.0 4.0 4.0 Insurance .3 1 .5 .1 .1 .9 A d v e r t i s i n g - .1 . - — .1 Taxes Water,Sewer .9 .6 I.I .5 .7 Dues and Licenses .3 .3 .5 .5 .5 Taxes 14.5 14.2 14.0 15.0 15.4 TOTAL EXPENSES 43.3 42.3 42.8 42.1 73.4 PROPERTY TAX RATIOS Tax to gross income 14.5 14.2 14.0 15.0 15.4 Tax to net income 25.5 24.6 24.9 25.9 57.7 Tax to t o t a l expenses 33.5 33.5 31.9 35.6 20.9 Rat io Year 2 to Year 1 100.0% 106.1 % 103.3% 109.2% 103.. COMMENTS Very extensive renovat ions were undertaken in 1970 to br ing most s u i t e s up to s tandard . FRAME - VANCOUVER , The a n a l y s i s of t h i s property is for operat ional costs o n l y . 4 #113 CLASS : Frame ANALYSIS PERIOD: A p r i l 1969, 1970 AGE : The p r o p e r t y was f i r s t p u r c h a s e d about J a n u a r y 1967; 4 y e a r s o l d . LOCATION : 1 6 t h and M a i n SIZE : 20 s u i t e s GENERAL : Hardwood f l o o r No e l e v a t o r The p r o p e r t y shows wear b u t i t i s i n r e a s o n a b l e c o n d i t i o n g i v e n i t s age. C o n s t r u c t i o n q u a l i t y i s a v e r a g e L e a s e d l a u n d r y FINANCING : F i r s t M ortgage : Second M o r t g a g e : $104,400 a t 8%, 20 y e a r s , $936 p e r month. The mortgage was o r i g i n a l l y $113,000. $63,600 a t 9%7», 20 y e a r s , $607 p e r month. The mortgage was o r i g i n a l l y $66,000. PURCHASE PRICE : March, 1969 - $225,000 SALE VALUE A s a l e p r i c e t o r e f l e c t a r e t u r n o f a p p r o x i m a t e l y 1 1 % % woul d be p r o b a b l e . FRAME - VANCOUVER 5 #113 AGE : 1967 SUITES : 20 AVERAGE SUITE INCOME PER MONTH (1970) : $121 TOTAL INCOME : $29,103 EXPENSES 1969* 1970 Operating U t i l i t i e s 4.9 7.2 Cablevis ion 1.5 1.4 Repairs 4 .2* 2.7* Administrat ion Salar ies _* _* Management .3 -Insurance 3.5 2.9 Other 1.0 -Taxes Water and Sewer .7 Dues and Licenses .7 1.4 Taxes 16.8 16.0 TOTAL EXPENSES 33.4 31.7 PROPERTY TAX RATIOS* Tax to gross income 16.8 16.0 Tax to net income 25.1 23.4 Tax to to ta l expenses 50.2 50.4 Ratio C^OMMENTS Operational costs for 1969 re f l ec t Apr i l to December. This block i s owner operated and so repairs and sa la r ies are lower than normal. The only va l i d property tax ra t i o i s then TAX TO GROSS INCOME. FRAME - VANCOUVER 6 #113 PURCHASE DATA Purchase p r i c e F inancing Purchase equi ty SALE EXPECTATION $225,000 $171,500 $ 53,500 The property i s present ly owner-operated so the expenses do not show an amount fo r s a l a r i e s and repa i rs and maintenance are below normal. P a r t i a l l y o f f s e t t i n g t h i s is the fac t that no income is shown fo r the owner-occupied s u i t e . A "normal ized" cash flow of $1500 per year has been assumed for 1970, Th is combined with an expected c a p i t a l i z a t i o n rate of I I.5$ would r e s u l t in a sa le p r i c e of $220,000 and an ending equi ty of $52,000. A c a p i t a l i z a t i o n rate of 10.5$ would r a i s e t h i s value by $4500 YIELDS Cash flow P r i n c i p a l repayment Expected market loss Return on i n i t i a l equi ty of $53,500 Return on y e a r ' s equi ty ALLOCATION OF TOTAL YIELD Cash flow P r i n c i p a l repayment Expected market loss RETURNS 1969* $ 181 $3000 $(2200) $1,000 2.5$ 2.5% $2982 $7400 $(5000) $5,382 1970 $2801 $4400 $(2800) $4,400 8.2% 8.0% 55 A% 137.5$ (92.9)$ 100.0$ Average rate of return ex -c l u d i n g expected market loss 10.1$ Internal rate of retern i n -c l u d i n g expected market loss 5 .2% »C0MMENTS 1969 represents a nine month per iod on ly . #115 CLASS Frame ANALYSIS PERIOD: 1969 and 1970 AGE 5 years LOCATION Wall Street, East Vancouver SIZE 21 suites 2 two bedroom 19 one bedroom (2 penthouse) GENERAL Poor rental area No elevator Heavy o i l heat Hardwood floors Condition is generally below average Construction is below average Leased coin laundry FINANCING F i r s t Mortgage Agreement for Sale $80,500 (December 1970) at 6 3/47=, $711 per month. $48,250 at 8%, $500 per month (Dec. 1970). PURCHASE PRICE December, 1968 - $208,500 SALE VALUE The property is presently on the market for $247,500 and is grossly overpriced. A sale would probably not be effected at a rate of less than 12%. FRAME - VANCOUVER 8 #115 5 years 21 $128 $32,329 EXPENSES 1969 1970 Operating U t i l i t i e s 5.7 6.5 Cablevis ion 1.4 1.4 Garbage .3 .2 Repairs 18.6 6.7 Administrat ion Salar ies 5.9 6.4 Insurance 1.1 1.0 Other 1.1 .7 Taxes Dues and Licenses .7 .7 Taxes 11 ~;5 12.4 TOTAL EXPENSES 46.3 36.1 PROPERTY TAX RATIO Tax to gross income 11.5.. 12.4 Tax to net income 21.4 19.4 Tax to to ta l expenses 24.8 34.4 AGE SUITES AVERAGE SUITE INCOME PER MONTH (1970) TOTAL INCOME (1970) FRAME - VANCOUVER 9 #1 15 PURCHASE DATA Purchase p r i c e F inancing Purchase equi ty $208,500 $136,500 $ 72,000 SALE EXPECTATION The property is present ly on the market for $247,500. Using a c a p i t a l i z a t i o n rate of 12$ and a cash flow of $6000 a sa le value of $219,500 with an ending equi ty of $93,000 should be expected. YIELDS Cash flow P r i n c i p a l repayment Expected market Return on i n i t i a l equ i ty of $72,000 Return on y e a r ' s equi ty 1969 $2205 $4900 $5500 17.5$ 17.5$ 1970 $6086 $5200 $5500 $12,600 $16,800 23.3$ 20., 5$ ALLOCATION OF TOTAL YIELD Cash flow P r i n c i p a l repayment Expected market gain $8300 $10100 $11000 $29,400 28.2$ 34.4$ 37.4$ 100.0$ RETURNS Average rate of return exc lud ing market gain Internal rate of return i n c l u d i n g market gain I I .2$ 1 7 . 8% #118 CLASS : Frame AGE : 15 to 20 years ANALYSIS PERIOD: December 1969 to June 1970 LOCATION : Kerrisdale SIZE : 11 suites GENERAL : Excellent rental area Across the street from a small park No elevator Small building with older, very stable tenants. The suites and appliances are not modern but they appear to be in excellent shape, given the age. FINANCING : $80,000, 9%, $700 per month (approximately 21 years) PURCHASE PRICE : December 1969 - $102,000 SALE PRICE : June 1970 - $118,000 FRAME - VANCOUVER #1 18 AGE : 20 years SUITES : 11 AVERAGE SUITE INCOME PER MONTH (1970 - 6 months) : $ 132 TOTAL INCOME : $8720 EXPENSES 1970 (6 months)* Operat ing U t i l i t i e s 11.6 C a b l e v i s i o n I .3 Repai rs 2.8 Adm? n ? s t r a t i o n S a l a r i e s 7.2 A d v e r t i s i n g .3 Other .3 TOTAL EXPENSES 23,4 •COMMENTS: The property was owned f o r a per iod of s i x months and a l l taxes were adjusted at the time of s a l e . FRAME - VANCOUVER 12 #1 18 PURCHASE / SALE DATA Purchase p r i c e $102,000 Financing $ 80,000 Purchasing equi ty $ 22,000 Sale p r i c e $118,000 F inancing $ 79,300 Sale equ i ty $ 38,700 YIELDS Cash flow . $ 2,477 13.0% P r i n c i p a l repayment 700 3.7% Market gain 16,000 83.3% $19,177 I00'.0% *Return on i n i t i a l equi ty of $22,000 87.3% COMMENTS The t o t a l t r a n s a c t i o n took place wi th in a s i x month p e r i o d . For purposes of c a l c u l a t i o n i t has been assumed that the to ta l g a i n , i f the property would have been held a f u l l year , would not be apprec iab ly greater and would have been conf ined s o l e l y to cash flow and p r i n c i p a l repayment. An added specu la t ion would be that i f the property had been held a f u l l year the market gain could have been less (or more). #120 CLASS : Frame ANALYSIS PERIOD: 1969 and 1970 AGE : Constructed summer of 1968 LOCATION : Triumph Street, East Vancouver SIZE : 35 suites - 2 two bedroom 8 studio 6 large one bedroom 19 small one bedroom APPRAISAL : The property was appraised at $335,000 for mortgage purposes. GENERAL : Lower middle class rental area No curbs, street is very rough Exterior of building is showing premature signs of aging Interior fixtures are of very poor quality No elevator Carpeted suites, carpeting showing wear Leased coin laundry FINANCING : F i r s t Mortgage Second Mortgage - $194,000 at 8%, 20 years, $1,657 per month. - $47,000 at 13%, 10 years, $692 per month PURCHASE PRICE : December, 1968 - $353,000 SALE VALUE A sale price reflecting a return of approximately 12%+ would be probable. FRAME - VANCOUVER 14 #120 AGE • : 1968 SUITES : 35 AVERAGE SUITE INCOME PER MONTH (1970) : $127 TOTAL INCOME (1970) : $53,541 EXPENSES 1969 1970  Operat ing U t i l i t i e s 7.5 8,0 C a b l e v i s i o n 1.5 1.4 Repairs 7,8 3.8 Admin is t ra t ion S a l a r i e s 5.9 6.3 Management .6 3.1 A d v e r t i s i n g .1 ,1 Insurance 2.5 Other - .2 Taxes Dues and Licenses ,7 Taxes 13.3 12.8 TOTAL EXPENSES 41.8 35.7 Property tax r a t i o s Tax t o gross income 13,3 12,8 Tax t o net income 22.9 19.9 Tax to t o t a l expenses 31,8 35,8 Rat io Year 2 to Year I 100.0% 106.0% FRAME - VANCOUVER #120 PURCHASE DATA Purchase p r i c e $353,000 F inancing 247,000 Purchase equi ty 106,000 SALE EXPECTATION A c a p i t a l i z a t i o n rate of 12% with a cash flow of $6,000 (probably high) would y i e l d an o v e r a l l p r ice of $348,000 with an ending equi ty of $115,000. YIELDS 1969 1970 Cash flow $ II $ 6,237 P r i n c i p a l repayment 6,700 7,636 Expected market loss (2,500) (2,500) $4,211 $11,373 Return on i n i t i a l i n -vestment of $106,000 4.0% 10.7% Return on y e a r ' s equi ty 4.0% 10.3% ALLOCATION OF TOTAL YIELD Cash flow $ 6,248 40.1% P r i n c i p a l repayment 14,336 92.0% Expected market loss (5,000) (32.1%) $15,584 100.0% RETURNS Average rate of return ex -c l u d i n g expected market loss 9.1% Internal rate of return i n -c l u d i n g expected market loss 7 .0% •COMMENTS Th is property was appraised at $335,000 before purchase, and i t is l i k e l y that the appra isa l was generous even at that t ime. #123 CLASS : Frame ANALYSIS PERIOD: 1968, 1969 AGE : about 15 - 20 y e a r s LOCATION : 1 6 t h and 0 a k , Van c o u v e r SIZE : 11 s u i t e s GENERAL : Of a v e r a g e c o n s t r u c t i o n when i t was new Needs r e p a i n t i n g S m e l l s as do most b l o c k s o f t h i s age t h a t have n o t been p r o p e r l y m a i n t a i n e d o r p r o p e r l y v e n t i l a t e d . FINANCING : Agreement f o r s a l e o f $65,000, 8%%, 20 y e a r s , $558.10 p e r month ($61,863 b a l a n c e on s a l e ) . PURCHASE PRICE : December 15, 1967 - $94,000 SALE PRICE : A p r i l 15, 1970 - $120,000 A s a l e v a l u e t o d a y r e f l e c t i n g a r e t u r n o f 12%% - 13%% wou be p r o b a b l e . FRAME - VANCOUVER #123 AGE SUITES AVERAGE SUITE INCOME PER MONTH (1969) TOTAL INCOME (1969) 20 years I I $1 18 $15,531 EXPENSES Operat ing U t i I i t i e s C a b l e v i s i o n Garbage 1968 7.5 ,8 1969 8.3 I .5 .2 Repa i rs Admin is t ra t ion Sa Iar ies Management Insurance Other Taxes Water, Sewer Dues and Licenses Taxes 4.8 9,3 I .5 .9 2.9 ,8 13.2 8. 10.9 .8 I .2 .6 .7 13.5 TOTAL EXPENSES 42.7 45.8 PROPERTY TAX RATIOS Tax to gross income 13,2 13.5 Tax to net income 22.9 24.8 Tax to t o t a l expenses 30.8 29.4 Rat io Year 2 t o Year I 100.0$ 108.6$ FRAME - VANCOUVER 18 #123 PURCHASE / SALE DATA Purchase p r i c e $ 94,000 Financing 65,000 Purchase equi ty 29,000 Sale p r i c e 120,000 F inancing 62,000 Sale equi ty ' 58,000 'COMMENT Th is property would probably s e l l for less than $90,000 today. YIELDS 1968 1969 Cash flow $ I ,690 $ I,719 P r i n c i p a l repayment 780 910 Market gain 13,000 13,000 $15,470 $15,629 Return on i n i t i a l i n -vestment of $29,000 53.3% 53.9% Return on y e a r ' s equi ty 53.3% 36.8% ALLOCATION OF TOTAL YIELD Cash flow $ 3,409 I I.0% P r i n c i p a l repayment 1,690 5.4% Market .gain 26,000 83.6% $31,099 100.0% RETURNS Average rate of return ex-c lud ing market gain 8.9% Internal rate of return i n -c l u d i n g market g a i n . 35.7% #127 CLASS : Frame ANALYSIS PERIOD: October 1968 to October 1969 AGE : Approximately 5 years LOCATION : E x h i b i t i o n Park, East Vancouver SIZE : 20 s u i t e s GENERAL : Between E x h i b i t i o n Park and Wall S t r e e t * This i s a lower middle c l a s s l o c a t i o n , on a busy s t r e e t but a good l o c a t i o n w i t h i n t h a t area. No e l e v a t o r The e x t e r i o r and i n t e r i o r show signs of wear but the c o n d i t i o n of the b u i l d i n g i s good given the area. C o n s t r u c t i o n i s average FINANCING : F i r s t Mortgage - $88,000 ( o r i g i n a l amount) at 9%, 20 years, $783 per month. Second Mortgage - $51,000 ( o r i g i n a l amount) at 9%%, 20 years, $461 per month. PURCHASE PRICE : $193,000 i n October 1968 SALE PRICE $205,000 i n November 1969 FRAME - VANCOUVER #127 AGE : 5 years SUITES : 20 AVERAGE SUITE INCOME PER MONTH (1969) : $119 TOTAL INCOME (1969) : $28,607 EXPENSES 1969 Operat ing U t i l i t i e s 4.6 C a b l e v i s i o n I.5 Other .1 Repai rs .4 Admin is t ra t ion S a l a r i e s 6.0 Insurance I .6 Taxes Water, Sewer . ,8 Dues and Licenses I.I Taxes N 12.8 TOTAL EXPENSES 28.8 •PROPERTY TAX RATIOS Tax to gross income 12,8 Tax to net income 18.0 Tax to t o t a l expenses 44.5 Rat io FRAME - VANCOUVER #127 PURCHASE / SALE DATA Purchase p r i c e Fi nanci ng Purchase equi ty Sale p r i c e F inancing Sale equi ty YIELDS Cash flow P r i n c i p a l repayment Market gain RETURNS Average rate of return exc lud ing market gain Internal rate of return . inc lud ing market gain $193,000 $139,000 $ 54,000 $205,000 $137,000 $ 69,000 $5433 27,7% $2172 11.1% $12,000 61.2% $19,605 100.0% 14. 33.8% # 1 2 8 CLASS : F rame ANALYSIS PERIOD: 1969, 1970 AGE : c o m p l e t e d S p r i n g 1967 LOCATION 14 t h and O ak GENERAL Good r e n t a l a r e a A t t r a c t i v e e x t e r i o r A v e r a g e c o n s t r u c t i o n b u t p o o r l y f i n i s h e d i n s i d e E l e v a t o r , c a r p e t i n g ( s h o w i n g p e r m a t u r e wear) Underground p a r k i n g L e a s e d l a u n d r y FINANCING F i r s t M o rtgage - $333,500, 7%%, $2,488 p e r month, 25 y e a r s (no c l a u s e ) . The o r i g i n a l amount was $340,000. Second Mortgage - $105,000., 13%, $1,367 p e r month, 15 y e a r s ( o r i g i n a l b a l a n c e $110,000). PURCHASE PRICE : November 1 9 6 8 - $ 5 8 5 , 0 0 0 SALE PRICE : June 1 9 7 1 - $ 5 8 9 , 5 0 0 ( $ 5 7 3 , 5 0 0 n e t ) . An o f f e r o f $ 6 1 5 , 0 0 0 was o b t a i n e d i n December 1 9 7 0 b u t t h i s was r e j e c t e d . FRAME - VANCOUVER #128 AGE . : 1967 SUITES : 44 AVERAGE SUITE INCOME PER MONTH (1970) : $152 TOTAL INCOME (1970) : $80,033 EXPENSES 1969 1970 Operat ing U t i 1 i t i e s 6.1 5.4 C a b l e v i s i o n 1.2 1 .2 Garbage .1 .1 E leva tor — .1 Repai rs 6.9 4.7 Admin is t ra t ion Sa1aries 4.8 5.0 Management 4.4 5.0 Insurance 1 .3 1.4 Taxes Water, Sewer .7 .7 Dues and Licenses .7 ,6 Taxes 14.5 * 14.8 TOTAL EXPENSES 40.6 38.9 -PROPERTY TAX RATIOS Tax to gross income 14.5 14.8 Tax to net income 24.4 24.3 Tax t o t o t a l expenses 35.8 38,1 Rat io Year 2 t o Year I 100.0$ 105.0$ FRAME - VANCOUVER 24 #128 PURCHASE / SALE DATA Purchase p r i c e F inancing Purchase equi ty Sale p r i c e F inancing Sale equi ty YIELDS Cash flow P r i n c i p a l repayment Market loss ALLOCATION OF TOTAL YIELD Cash flow P r i n c i p a l repayment Market l o s s ' RETURNS Average rate of return exc lud ing market loss Internal rate o f return inc lud ing market loss $585,000 $438,000 $147,000 $573,500 $420,000 $153,500 1969 1970 $ 66 $8760 $(5750) $3076 $2626 $9500 $(5750) $6376 $ 2,692 28.5% $18,260 193.1% $(11,500) (121.6)% $9,452 100.0% 7.1% 3 . 1 % #129 CLASS ' rame AGE completed August 1968 ANALYSIS PERIOD: 1969, 1970 LOCATION Broadway/MacDonald SIZE 39 suites GENERAL On Broadway Carpeting, elevator leased laundry Average sized suites Below average quality finishing Low vacancy rate FINANCING Fi r s t Mortgage Second Mortgage: $257,000, 9%, 25 years, $2,156 per month (original balance of $260,000). $76,000, 12%%, 18% years, $875 per month (original balance of $77,000). PURCHASE PRICE : September 1968 - $400,000 SALE PRICE : July 1971 - $430,000 ($423,000 net) FRAME - VANCOUVER #129 AGE : 1968 SUITES : 39 AVERAGE SUITE INCOME PER MONTH (1970) : $ 134 TOTAL INCOME (1970) : $62,681 EXPENSES 1968* 1969 1970 Operat ing U t i l i t i e s 6.0 6.2 5.7 C a b l e v i s i o n 1.7 1.4 1.3 Garbage .1 .2 .1 Other .3 Repairs 1.9 5.3 3.9 Admin is t ra t ion S a l a r i e s 6.4 6.0 6.5 Management I.9 5.1 5.0 Insurance - .8 .8 Other .4 Taxes Water, Sewer ,7 . .9 .8 Dues and Licenses .1 .7 .7 Taxes - 12.2 12.2 TOTAL EXPENSES 18,7 39.0 37.5 --PROPERTY TAX RATIOS Tax to gross income Tax t o net income Tax to t o t a l expenses Rat io Year 2 to Year I N/A* 12.2 12.2 N/A* 20,0 19.6 N/A* 4.9.1 47.7 100,0$ 102.4$ •COMMENTS 1968 is f o r four months only and should not be considered i n d i c a t i v e f o r a I I expense i tems. FRAME - VANCOUVER PURCHASE / SALE DATA Purchase p r i c e $400,000 F inancing 337,000 Purchase equi ty 63,000 Sale p r i c e 423,000 Financing 325,000 Sale equi ty 98,000 YIELDS 1968* 1969 1970 Cash flow $3,246 $1,105 $2,860 P r i n c i p a l repayment 1 ,548 4,949 5,363 Market gain 3,200 9,900 9,900 $7,994 $15,954 $18,123 Return on- i n i t i a l equi ty of $63,000 38. 1 % 25.3% 28.8% Return on y e a r ' s equi ty 38. 1 % 23.5% 21 .8% ALLOCATION OF TOTAL YIELD Cash flow $ 7,211 17.1% P r i n c i p a l repayment 11,860 28.2% Market gain 23,000 $42,071 54.7% 100.0% RETURNS Average rate of return exc luding market gain 12.0% Internal rate of return inc lud ing market g a i n . 22.8% #132 CLASS Frame ANALYSIS PERIOD: 1968 AGE 7 years LOCATION Heather Street, Marpole SIZE 24 suites GENERAL Older building in f a i r shape only. No elevator Self-owned coin laundry Good rental area but this particular location is not the best. FINANCING : In the one year the property was held, the principal repayment was $4,383.98. The i n i t i a l equity was $50,000. PURCHASE PRICE : December 15, 1967 - $226,000 SALE PRICE : January 7, 1969 - $253,000 less $3,000 commission. A sale price reflecting a return of about 12%% would be probable today. FRAME - VANCOUVER 29 #132 AGE : 7 years SUITES : 24 AVERAGE SUITE INCOME PER MONTH (1968) : $111 TOTAL INCOME (1968) : $31,871 EXPENSES 1968 Operat ing U t i l i t i e s 3.8 C a b l e v i s i o n 1 .4 E leva tor .4 Repai rs 1 .2 Admin is t ra t ion S a l a r i e s 7.0 Insurance 1 .5 Other 1 .3 Taxes Dues and Licenses 1 .4 Taxes 16.5 TOTAL EXPENSES 34.6 PROPERTY TAX RATIOS Tax to gross income 16.5 Tax to net income 25 ,3 : Tax to t o t a l expenses 47,8 Rat io -30 FRAME - VANCOUVER #I 32 PURCHASE / SALE DATA Purchase p r i c e $226,000 Financing 176,000 Purchase equi ty 50,000 Sale P r i c e 253,000 Financing 171 ,600 Sale equi ty 81,400 YIELDS 1968 Cash flow $ 5,871 15.8% P r i n c i p a l repayment 4,384 11.8% Market gain 27,000 72.4% $37,255 100.0% RETURNS Rate of return exc luding market gain 20,5% Rate of return inc lud ing market qain 74.5% •COMMENTS The property was held for t h i r t e e n months but for purposes of a n a l y s i s i t has been assumed to have been one year . The p r i c e that the property was so ld fo r appears reasonable - - based upon 1968 expenses ( i f they are c o r r e c t and i n d i c a t i v e ) a rate of return of 12% is i n d i c a t e d . #137 CLASS Frame ANALYSIS PERIOD: 1970 AGE Ancient - about 45 years LOCATION Broadway and M ain SIZE 25 suites 1 bachelor 23 one bedroom 1 two bedroom $65 $62 to $112 $115 GENERAL On the market in early 1969 at $190,000 Old building in f a i r repair only A well kept slum building Repainted on the front only Leased laundry Oil heat No elevator T i l e and wood ( f i r ) floors Many children No parking (built on lot lines) FINANCING Agreement: $86,700 ($89,000) at 8%, $763 per month. Agreement: $31,000, $300 per month, 87=. PURCHASE PRICE : $176,500 - December 15, 1969 SALE VALUE For a property of this age a sale value and a rate of return would be very d i f f i c u l t to set because of the extremely limited market that this property would appeal to. A sale price reflecting a minimum rate of 15% is anticipated. The property is presently on the market for $215,000, a rather extreme figure. FRAME - VANCOUVER #137 AGE • SUITES AVERAGE SUITE INCOME PER MONTH (1969) TOTAL INCOME (1969) : 45 years plus : 25 $92 : $27,696 EXPENSES 1969 Operat ing U t i 1 i t i e s 9.9 C a b l e v i s i o n 1 .9 Garbage .2 Repai rs 4,2 Admin is t ra t ion S a l a r i e s 6.5 1nsurance 1 .4 Taxes Water, Sewer 1 .4 Dues and Licenses .8 Taxes 7.9 TOTAL EXPENSES 34.0 PROPERTY TAX RATIOS Tax to gross income Tax to net income Tax to t o t a l expenses Rat io 7.9 II .9 23.1 FRAME - VANCOUVER 33 #137 PURCHASE DATA Purchase equi ty Purchase p r i c e F inancina $176,500 120,000 56,500 SALE EXPECTATION Based upon a cap i ta I i za t ion rate of 15$ the property would appear to have a value of about $177,000 with an ending equi ty of $60,700. The 15$ is only a very a r b i t r a r y f igure but , because of the very l imi ted market that t h i s type of property appeals t o , perhaps a v a l i d one. The fac t that the present owners purchased the property on the open market for that p r i c e appears to lend c r e -dence to the assumption. On the bas is of the current asking pr ice $215,000, the return would be 9.2$. YIELD 1970 Cash flow $4,416 57.5$ P r i n c i p a l repayment 3,585 37.3$ Market gain 500 5.2$ $9,601 100.0$ RETURNS Rate of return excluding expected market gain 16.1$ Rate of re turn ' inc lud ing expected market gain 17.0$ #139 CLASS : Frame ANALYSIS PERIOD: 1969, 1970 AGE 1968 (Fall) LOCATION 12th and Kingsway SIZE 35 suites GENERAL Below average construction and finishing Some children Leased laundry 75% underground parking . Carpeting (average quality only) No vacancies Shows age prematurely FINANCING Fi r s t mortgage - $232,000 (original balance) 9%, 25 years $13921 per month. Second mortgage- $60,000 (original balance) 13%, 15 years $746 per month. . PURCHASE PRICE : December 1968 - $398,000 SALE VALUE : A sale price reflecting a return of 11 to 12% would be probable. FRAME - VANCOUVER #139 AGE : 1968 SUITES : 35 AVERAGE SUITE INCOME PER MONTH (1970) : $ 135 TOTAL INCOME (1970) : $56,821 EXPENSES I969i 1970 Operat ing U t i1 i t i e s 6,8 5.2 C a b l e v i s i o n 1.4 1 .2 Eleva tor .3 -Repairs 4.8 5.2 Admin is t ra t ion Sa1aries 6.0 6.5 Management 5.3 5.0 Insurance 1 .0 1 .0 Other .5 -Taxes Dues and Licenses .7 .6 Taxes 14.0 14.8 Water, Sewer - .9 TOTAL EXPENSES 40,8 40.4 PROPERTY TAX RATIOS Tax to gross income 14,0 14.8 Tax to net income 23.7 24.9 Tax to t o t a l expenses 34.3 36.77 Rat io Year 2 to Year I 100,0$ 107.3$ FRAME - VANCOUVER #139 PURCHASE DATA Purchase p r i c e $398,000 ' . ' F inanc ing 292,000 Purchase equi ty 106,000 SALE EXPECTATION Based upon the expenses as given (40$) and both mortgages a sa le value of $337,500 with an ending equi ty of $54,000 is i n d i c a t e d . If the second mortgage is deleted and the 12$ c a p i t a l i z a t i o n rate is r e t a i n e d , then the value r i s e s to $341,500 and the equi ty to $58,300. The fact that the new f i r s t mortgage was only 58.3$ of the purchase pr ice should have given the purchasers some bas is for r e c o n s i d e r a t i o n . YIELDS 1969 1970 Cash flow S 1,199 $ I ,854 P r i n c i p a l repayment 3,987 4,643 Expected market loss (28,250) (28,250) $(23,064) $(21,753) RETURNS Average rate of return excluding expected market loss 5.5$ Average rate of return inc lud ing expected market loss -21.1$ 37 #149 CLASS ' rarae ANALYSIS PERIOD: 1966, 1967, 1968, 1969, 1970. AGE : about 17 years LOCATION : West End ( w i t h i n one block of Stanley Park) SIZE : 23 s u i t e s GENERAL : Older type b u i l d i n g w i t h good s i z e d s u i t e s and wide hallways. Enclosed parking (locked door) f o r approximately 50%. No intercom or e l e v a t o r . S u i t e s have been almost completely r e f u r b i s h e d as tenant turnover a l l o w s . This i n c l u d e s p l a c i n g c a r p e t i n g over the e x i s t i n g hardwood, new cupboards, new plumbing f i x -t ures and new ap p l i a n c e s . Above average s i z e s u i t e s Older tenants (no c h i l d r e n ) Self-owned laundry O i l heat A n a l y s i s of o p e r a t i o n a l costs o n l y . FRAME - VANCOUVER 3 8 #149 AGE : 17 years SUITES : 23 AVERAGE SUITE INCOME PER MONTH (1970) : $ I 10 TOTAL INCOME (1970) : $30,290 EXPENSES 1966 1967 1968 1969 1970 Operat ing U t i I i t i e s C a b l e v i s i o n Garbage Other Repa ? rs Admin is t ra t ion S a l a r i e s Management Insurance Taxes Water, Sewer Dues and Licenses Taxes 5.9 I .6 .1 . I 12.8 9.7 3.0 2.1 I .5 .5 14.6 5.9 I .5 .1 .1 13.8 9.6 3.0 I .2 .4 14.8 I I .0 I .6 . I .2 5.4 8.7 3.0 .5 .9 .8 13.9 6.8 I .5 .1 I I .4 8.5 3.4 .2 .8 .8 13.6 5.8 I .7 .2 3.7 8.6 9.3 3.5 .2 .8 .8 14.7 TOTAL EXPENSES 51 .8 50.4 46.0 47.2 49.3 PROPERTY TAX RATIOS Tax to gross income 14.6 14.8 13.9 13.6 14.7 Tax to net income 30.2 29.8 25.8 25.7 28.9 Tax to t o t a l expenses 28.1 29.3 30.2 28.8 29.7 Rat io Year 2 to Year I l00.0$ 108.0$ 101.2$ 101.3$ 110.2$ FRAME - VANCOUVER #149 Th is is an a n a l y s i s of operat ional cos ts o n l y , 4 0 #133 CLASS : Concrete ANALYSIS PERIOD: 1967 (2 months), 1968, 1969, 1970 AGE : 10 to 12 years LOCATION : West End SIZE : 38 s u i t e s on 10 f l o o r s GENERAL : A l l s u i t e s face Burrard I n l e t although only about 40% have a view. The q u a l i t y of c o n s t r u c t i o n and of the f i n i s h i n g i s only average. Hardwood f l o o r s O i l heat Some younger tenants which r e s u l t s i n a higher turnover. A n a l y s i s of o p e r a t i o n a l costs only. CONCRETE - VANCOUVER 41 #133 AGE : 10 years SUITES : 38 AVERAGE SUITE INCOME PER MONTH (1970) : $ 141 TOTAL INCOME (1970) : $64,120 EXPENSES 1967* J968 1969 1970  Operati no U t i l i t i e s 4.3 6.5 6.7 6.7 C a b l e v i s i o n 1.0 1.2 I.I 1.4 Garbage .1 .1 .1 .1 Other I.I 1.2 1.2 1.3 Repairs 3.1 15.2 12.3 11.4 Adm? n i s t r a t ion S a l a r i e s 5.6 5.7 5.7 6.5 Management 5.0 5.0 4.9 5.0 Insurance 4.4 .7 .7 .4 A d v e r t i s i n g - .1 Other - .4 Taxes Water,- Sewer 1.4 .8 .8 I.I Dues and Licenses - .6 .6 .6 Taxes 13.3 13.3 14.1 15.8 TOTAL EXPENSES 39.3 50.8 48.2 50.3 PROPERTY TAX RATIOS Tax to gross income N/A Tax to net income N/A Tax to to ta l expenses N/A Rat io Year 2 to Year I 100.0% •COMMENTS 1967 represents two months o n l y . 13.3 14.1 15.8 26.4 29.1 31.8 26.1 29.2 31.5 100.3% 110.8% 108.3% CONCRETE - VANCOUVER 42 #133 Th is is an a n a l y s i s of operat ional cos ts o n l y . #134 CLASS : C o n c r e t e ANALYSIS PERIOD: 1967, 1968, 1969, 1970 AGE : A p p r o x i m a t e l y 5 y e a r s LOCATION : K e r r i s d a l e SIZE : 46 s u i t e s GENERAL : No mortgage s t a t e m e n t s a v a i l a b l e ; a n a l y s i s o f o p e r a t i o n a l c o s t s o n l y . Management No p o o l W e l l l o c a t e d , w e l l m a i n t a i n e d C o i n - o p e r a t e d ( l e a s e d ) l a u n d r y Gas h e a t A p p r o x i m a t e l y 50% a r e younger t e n a n t s C a r p e t i n g , b r i g h t s u i t e s E l e v a t o r No v a c a n c y p r o b l e m R e n t s appear r e a s o n a b l e g i v e n t h e l o c a t i o n and age o f t h e p r o p e r t y . Somewhat l a r g e r t u r n o v e r t h a n n o r m a l because o f t h e f a i r l y h i g h p r o p o r t i o n o f y o u n g e r - t e n a n t s . CONCRETE - VANCOUVER #134 AGE SUITES AVERAGE SUITE INCOME PER MONTH (1970)  TOTAL INCOME (1970) 5 years 46 $191 $105,671 EXPENSES Operati no U t i I i t i e s C a b l e v i s i o n Garbage Other Repa i rs Admi n i s t r a t i o n S a l a r i e s Management Insurance Other Advert i s ing Taxes Taxes Water, Sewer Dues and Licenses 1967 5.5 .8 .1 .3 4.9 4.3 2.5 .4 .1 15.0 .7 .2 1968 5.6 .9 .1 .4 4.6 4.3 2.5 .5 14.7 .6 .5 1969* 5.0 .9 . I .6 4.2 4.4 3.1 4.6 8.8 17, 1970 5.1 I .0 . I .4 8.4 4.5 3.0 4.1 .6 .5 15.8 .6 .4 TOTAL EXPENSES 34.8 34.6 50.0 43.4 PROPERTY TAX RATIOS Tax to gross income 15.0 Tax to net income 23.0 Tax to t o t a l expenses 43.2 Rat io Year 2 to Year I 100.05 14.7 22.5 42.5 102.4$ 17.1 34.2 34.1 10.3$ 15.8 27.8 36.5 101.8$ •COMMENTS The a d v e r t i s i n g and insurance costs as given are c o r r e c t . 4 5 CONCRETE - VANCOUVER #134 Th is is an a n a l y s i s of operat ional cos ts o n l y . \ 46 #135 CLASS : Concrete ANALYSIS PERIOD: 1966, 1967, 1968, 1969, 1970. AGE : 1955 LOCATION : Broadway - G r a n v i l l e SIZE : 157 s u i t e s GENERAL : A p p r o x i m a t e l y 145 s u i t e s have been c o m p l e t e l y redone i n t h e l a s t 2 y e a r s . C r e e p i n g o f t h e f o u n d a t i o n n e c e s s i t a t e d t h e f r e e z i n g o f t h e p r o b l e m a r e a . T h i s has been g o i n g on f o r 10 y e a r s and i t i s l i k e l y t o c o n t i n u e f o r t h e l i f e o f t h e b u i l d i n g . The system i s powered by b u n k e r o i l . Hardwood f l o o r s T u r n o v e r i s about 2 o r 3 p e r month A w a i t i n g l i s t e x i s t s A l l s u i t e s have d i s h w a s h e r s arid garbage d i s p o s a l u n i t s . L e a s e d c o i n l a u n d r y Underground p a r k i n g 2 e l e v a t o r s Some o f t h e s u i t e s a r e v e r y l a r g e ( l , 8 0 0 t o 2,000 square f e e t ) . FINANCING : Not a v a i l a b l e . A n a l y s i s o f o p e r a t i o n a l c o s t s o n l y . CONCRETE - VANCOUVER 47 #135 AGE : 1955 SUITES : 157 AVERAGE SUITE INCOME PER MONTH (1970) : $ I 82 TOTAL INCOME (1970) : $343,141 EXPENSES 1966 1967 1968 1969 1970 Operati ng U t i I i t i e s Cab Ievi s ion Garbage TeIephone E levator Other Repa i rs Admi n i s t r a t i o n S a l a r i e s Management A d v e r t i s i n g Insurance Other Taxes 6.5 8.5 3.6 7.6 I .0 .2 .3 .2 .8 9.0 8.2 3.5 2.1 7.3 I .2 .2 .2 .2 .8 7.7 8.3 3.5 .3 7.0 .9 .6 6.2 7.7 3.5 7.1 I.I .2 .7 I .4 .6 4.5 6.0 3.5 2.2 .2 Water, Sewer Dues and Licenses Taxes TOTAL EXPENSES .6 .3 13.6 43.5 .6 .4 _ I 4 J _ 48.0 .5 .5 13.2 43.9 .4 .5 12.2 39.3 .5 .5 12.8 41 .3 PROPERTY TAX RATIOS Tax to gross income 13.6 14.1 13 .2 12.2 12.8 Tax to net income 23.9 25.6 23 .3 21 .3 21 .4 Tax to to ta l expenses 31 .1 31 .5 . 30 .2 27.9 31 .8 Rat io Year 2 to Year 1 100.0? 110.1% 99 .8% 104.9% 104.0% CONCRETE - VANCOUVER #135 Th is is an a n a l y s i s of operat ional costs o n l y . #136 4 9 CLASS Concrete ANALYSIS PERIOD: 1966, 1967, 1968, 1969, 1970. AGE Approximately 20 years LOCATION West End SIZE 39 suites GENERAL Older concrete structure but very s t a t e l y i n appearance ( e s p e c i a l l y the entrance, lobby and s t a i r c a s e ) . 6 storeys but part of the 2 bottom storeys i s garage (2 l e v e l s ) . Some o r i g i n a l tenants. The turnover i s very low and a waiting l i s t e x i s t s . The majority of the turnover r e s u l t s from death or h o s p i t a l i z a t i o n of the resident. Appliances are replaced and the suites are completely refurbished as turnover allows. Elevator Leased laundry Half hardwood and h a l f carpet over hardwood O i l heat Larger than average sui t e s , wide hallways. Analysis of operational costs only. CONCRETE - VANCOUVER 50 #136 AGE SUITES AVERAGE SUITE INCOME PER MONTH (1970)  TOTAL INCOME (1970) 20 - 25 years 39 $140 $65,486 EXPENSES 1966 1967 1968 1969 1970 Ope rat i ng U t i l i t i e s 5.9 6.0 5.3 5.5 • 5.7 Cablevi s i on I.I I.I 1 .2 1 .2 -Garbage .2 .1 . 1 .1 .2 Other 1 .5 1 .3 1 .2 1 .4 1 .5 Repa i rs 13.3 8.1 14.2 13.9 10.8 Admi ni s t r a t i o n S a l a r i e s 6.7 6.4 6.0 6.1 6.4 Management 4.0 4.0 4.0 4.0 4.0 Insurance .4 - 1 .2 . 1 . 1 Other - .1 - - .1 A d v e r t i s i n g - - - . 1 -Taxes Water, Sewer .9 .8 .8 .6 .8 Dues and Licenses .4 .3 .6 .7 .6 "Taxes 13.7 13.7 12.7 13.9 14.4 TOTAL EXPENSES 48.1 42.0 47.3 51 .0 44.7 P R O P E R T Y T A X R A T I O S Tax to gross income 13.7 Tax to net income 26.3 Tax to t o t a l expenses 28.4 Rat io Year 2 to Year I 100.0$ 13.7 23.7 32.7 104.8$ 12.7 24.0 26.8 100.2$ 13.9 28.5 27.3 108.7$ 14.4 26.1 32.3 107.9$ 51 CONCRETE - VANCOUVER #|36 Th is is an a n a l y s i s of operat ional cos ts o n l y . 52 #154 CLASS Concrete ANALYSIS PERIOD: 1966, 1967, 1968, 1969, 1970 AGE 1959 LOCATION SIZE West End 72 suites GENERAL See building #155. The condition of #154 is slightly inferior to #155 and the management problems of #154 are somewhat greater. FINANCING $339,000 ($450,000), 7%, $3,152 per month, 25 years. PURCHASE PRICE : November 1959 - $733,000 SALE VALUE A sale price reflecting a return of 10% to 11% should be expected. If the building were in better shape and i f the tenancy problems were corrected the lower return figure would be more probable. CONCRETE - VANCOUVER 53 #154 AGE • SUITES AVERAGE SUITE INCOME PER MONTH (1970) TOTAL INCOME (1970) 1959 72 $148 (1969 $160)* $127,766 (1969 $138,503) EXPENSES 1966 1967 1968 1969 1970 Operat ing U t i 1 i t i e s 4.9 4.5 4.2 4.6 5.6 C a b l e v i s i o n 1 .3 1.0 1 .4 1 .2 1 .7 E leva to r .5 .4 .9 .4 1 .4 Repai rs 8.3 6.7 12.6 13.9 12.5 Admin is t ra t ion S a l a r i e s 4,5 5.4 8.1 7.1 6.1 Insurance .4 .6 .5 .3 .1 Other .3 .2 .5 .4 .2 A d v e r t i s i n g - .1 ,1 .2 .1 Taxes Water,Sewer ' .9 .8 .7 .6 Taxes 1 1.6 12.1 1 1 .4 1 1 .3 13.2 TOTAL EXPENSES 32.7 31 .8 40.3 39.7 40.6 PROPERTY TAX RATIOS Tax to gross income 11.6 12,1 11.4 11.3 13.2 Tax to net income 17.3 17.7 19.0 18.7 22.3 Tax to t o t a l expenses 35.6 38.0 28.2 28.4 32.5 Rat io Year 2 to Year I 100.0% 115.4% 104.3% 105.5% 108.1% •COMMENTS Vacancy problems occured in 1970, CONCRETE - VANCOUVER 54 #154 PURCHASE DATA Purchase p r i c e $733,000 (1959) F inancing 450,000 Purchase equi ty 183,000 EVALUATION OF MARKET VALUE (1966) To a r r i v e at an est imat ion of market value as of 1966, so that returns can be c a l c u l a t e d from that date to 1970, i t becomes necessary to compare t h i s block with i t s s i s t e r b lock , #155, The estimate a r r i v e d at f o r 1966 is specu la t ion o n l y . The only purpose is to give a c l o s e r approximation of value than the o r i g i n a f 1959 f i g u r e . 1966 income shows a net cash f low, a f t e r a l l expenses and mortgage payments, of $33,450. Th is combined with the p r i n c i p a l repayment of $9,450 would give a net return of $42,900. C a p i t a l i z a t i o n rates at t h i s time were approximately 9$ to 9.5$ for b u i l d i n g s of t h i s type . Th is would give an equi ty of approx-imately $450,000 and an overa l l value of $840,000 SALE EXPECTATION 1970 income is depressed approximately $11,000 from 1969. Using a "normal ized" cash flow of $43,000 and a c a p i t a l i z a t i o n rate of 10$ a sa le value of $909,000 with an ending equi ty of $570,000 would be expected. YIELDS 1966 1967 1968 1969 1970 Cash flow P r i n c i p a l repayment Expected market gain $33,450 10,500 15,000: $42,529 11,300 15,000 $40,011 12,100 15,000 $45,698 13,000 15,000 $38,037 13,900 9,000 $58,950 $68,829 $67,111 $73,698 $60,937 Return on 1966 equi ty of $450,000 Return on y e a r ' s equi ty 13.1$ 13.1$ 15.3$ 14.5$ 14.9$ 13.4$ 16.4$ 13.9$ 13.8$ 11.1$ ALLOCATION OF TOTAL YIELD Cash flow • P r i n c i p a l repayment Market gain $199,725 50,782 68,000 $318,507 62.5$ 15.9$ 21.6$ 100.0$ •RETURNS Average rate of return from 1966 to 1970 exc lud ing market gain 10.6$ Internal rate of return i n -c l u d i n g market gain 12 .5% #155 CLASS : Concrete ANALYSIS PERIOD: July 1959 to December 1970 AGE : 12 years LOCATION : West End SIZE : 54 suites GENERAL : O n transportation 2 blocks to the beach No balconies Outdoor pool Approximately 50% parking Self-owned laundry Built by the owner Well maintained but becoming dated. The owner has attempted to keep vacancies down by renting furnished suites. This seems to have compounded management problems and has resulted in decreased revenues and higher costs. The same comments apply to building #154 although the problem is not so pronounced as i t is in #155. FINANCING : $243,000 (December 1970) 6 3/4%, $2,261 per month, 25 years. The orighal balance was $328,000. PURCHASE PRICE : July 1959 - $531,000 SALE VALUE : An approximate return of 10 to 11% should be expected on a building of this age. Updating and correction of the major tenancy problem would result in a sale price reflecting a lower return, say 10%. 56 CONCRETE- VANCOUVER AGE : SUITES : AVERAGE SUITE INCOME PER MONTH (1970) . : TOTAL INCOME (1970) : 1959 54 $145 ($152 in 1969 $94,168 ($98,350 in 1969) #155 EXPENSES 1959* I960 1961 1962 1963 Operat ing Ut i 1 i t i e s - • 12.6 • 10.4 • 9.6 10.4 • 6-.I - Telephone .4 .2 .1 .2 -Eleva tor .5 .3 .5 .2 .1 Cab lev?son - • - • - 1 .6 Repai rs 3.9 2.4 6 , 5 . 10.3 2.4 Admin is t ra t ion S a l a r i e s 6.3 4.0 4.1 4.0 4.1 Management 3.8 - - - -A d v e r t i s i n g .6 .1 .6 - 1 .2 Insurance 6.8 .2 .1 .6 .2 - Other .9 . • 6 .3 .4 2.5 Taxes Dues and Licenses — - - - -Taxes* 6.5 14.5 13.1 12.2 12.2 TOTAL EXPENSES 42.1 32.7 34.8 38.2 .30.4 PROPERTY TAX RATIOS • : Tax t o gross .income 6.5 14.5 13.1 12.2 12.2 Tax t o net income "1 1.2 21 .6 20.0 19.7 17.5 Tax t o t o t a l expenses 15.5 44.4 37.6 32.0 40.1 Rat io Year 2 to Year 1 - 100.0% 99.4% 93.6% 103.0: •^COMMENTS 1959 Taxes U t i I i t i e s Management Th is r e f l e c t s s t a r t - u p costs and i t is not a r e p -resenta t ive year 1961 and 1962 taxes decreased s l i g h t l y from I960, and in 1964 they decreased from 1963. In 1965 taxes were 92.3% of those in I960. In 1963 the heat ing un i t was switched to o i l / g a s . In 1967 and 1968 c h a r i t a b l e g i f t s were made and charged to t h i s account . CONCRETE- VANCOUVER 57 #155 1964 1965 1966 1967* 1968* 1969 1970 5.9 6.3 5.8 5.3 4.9 5.8 5.2 .1 .3 .6 .5 .3 2.1 1.5 1.5 1.3 1.0 1.4 I.I 1.3 9.4 5.9 8.3 7.2 8•I 7.1 6.9 3.1 4.3 4.5 8.9 6.7 6.3 5.7 1.7* 5.5* .6 .4 - .1 - - -.4 .7 .7 .5 .4 .2 .2 .2 .2 - * I.3 .1 .4 I I .1 I I .6 K5_.2_ I I .3 I I .2 I I .3 12.1 32.2 3J.I 34.6 36.4 29.8 34.1 31.6 II.I 11.6 13.2 11.3 11.2 11.3 12.1 16.4 16.9 20.2 17.8 18.6 17.1 17.7 34.4 37.4 38.0 31.1 28.2 33.2 38.4 91.3% 105.5% 127.3% 95.4% 104.7% 108.0% 102.9% 58 CONCRETE - VANCOUVER PURCHASE DATA Purchase p r i c e Fi nanci ng Purchase equi ty SALE EXPECTATION #155 $531,000 328,000 203,000 Using a cash flow of $37,000 and a c a p i t a l i z a t i o n rate of 10.5$ a sa le value of $700,000 with an ending equi ty of $457,000 would be expected. YIELDS Cash flow P r i n c i p a l repayment Market gain 1959* $5,176 $5,176 I960 $10,935 5,500 $16,435 1961 $13,783 5,800 25,200 $44,783 1962 $1 I,245 6,200 4,200 1963 $20,759 6,600 8,400 $21,645 $35,759 Return on i n i t i a l i n -vestment of $203,000 2.5$ Return on y e a r ' s equi ty 2.5$ 8.1$ 8.1$ 22.1$ 21 .5$ 10.7$ 9.0$ 17.6$ 14.3$ ^COMMENT 1959 was the s t a r t - u p year. ALLOCATION OF TOTAL YIELD Cash flow P r i n c i p a l repayment Market' gain RETURNS $257,283 85,000 169,000 $51 1,283 Average rate of return excluding market gain 12.7$ Average rate of return,, including market gain 14.1% 50.3$ 16.6$ 33.1$ 100.0$ CONCRETE- VANCOUVER #155 1964 1965 _[96_6 1967 1968 1969 1970 19,770 $20,757 $23,787 $27,919 $28,166 $37,717 $37,269 7,000 7,500 8, 100 8,700 9,200 9,900 10,500 1*200 4,200 33/600 37,800 21 ,000 29,400 1 ,000 $30,970 $32,457 $65,487 $74,419 $58,366 $77,017 $48,769 15.3$ 16.0$ 32.3$ 36.7$ 28.8$ 37.9$ 24.0$ I 1 .7$ 1 1 .8$ 22.7$ 22.6$ 15.6$ 19.0$ 10.9$ 60 #161 CLASS : Concrete ANALYSIS PERIOD: 1970 (operational costs only) AGE : 1969 LOCATION : West End SIZE : 61 suites - 29 bachelor (420 square feet) $115 to $130 30 one bedroom (590 to 620 sq. ft.) $140 to $165 2 one bedroom penthouse suites of 650 square feet renting at $215. GENERAL : This property is an example of the "$x per suite syndrome" and has not been built to s e l l for a normal market yield. Hardwood floors Minimal quality construction for a concrete structure but i t looks reasonable. Two low speed elevators Leased laundry Vacancy problems and relatively high turnover. The maintenance of the rents indicated may be d i f f i c u l t in periods of over supply. FINANCING i $485,000, 10%, 30 years plus 10% of . a l l revenues over $102,000. It is possible to pay out the mortgage only after 10 years. SALE VALUE : The property was offered for sale at $850,000 and was sold for $820,000. The terms of the sale are not known but two alternatives have been assumed: (a) Cash to Mortgage (b) $200,000 cash with the balance held by the vendor at 10%, interest only. It should be noted that these assumptions are for analysis only and they may be completely wrong. 61 CONCRETE - VANCOUVER #161 AGE : 2 years SUITES : 61 AVERAGE SUITE INCOME PER MONTH (1970) : $ 140 TOTAL INCOME (1970) : $102,196 EXPENSES 1970  Operati ng U t i l i t i e s 4.2 C a b l e v i s i o n 1.2 Other 1,5 Repa? rs 3.4 Admin is t ra t ion S a l a r i e s 5.2 Insurance .5 Taxes Dues and Licenses .6 Taxes 14.1 TOTAL EXPENSES 30-. PROPERTY TAX RATIOS Tax to gross income 14.1 Tax to net income 20,4 Tax to t o t a l expenses 45.9 Rat io CONCRETE - VANCOUVER 62 #161 PURCHASE DATA Purchase p r i c e F inancing Purchase equi ty $820,000 485,000 335,000 SALE EXPECTATION Although the property was purchased to y i e l d 7.0% I can see no j u s t i f i c a t i o n ( in today 's market) for a c a p i t a l i z a t i o n rate of less than 10%. The reasons fo r t h i s are the terms of the mortgage ( p a r t i c i p a t i o n ) and the fac t that the expenses do not r e f l e c t the long run costs of operat ing the b u i l d i n g . On t h i s bas is the property would have a value of $717,000 with an ending equi ty of $235,000. YIELDS 1970 Cash flow P r i n c i p a l repayment Expected market loss $ 20,577 2,910 (103,000) $( 79,533) Loss Loss RETURNS Average rate of return excluding expected market loss 7.0% Internal rate of return inc lud ing expected market l o s s . -23.7% #162 CLASS : Concrete ANALYSIS PERIOD: 1970 (operational costs only) AGE : 1969 LOCATION : West End SIZE : 103 suites; 16 storeys 14 studio (440 square feet) $120 to $138 83 one bedroom (536 to 665 sq. ft.) $130 to $210 6 two bedroom (906 square feet) $235 to $250 GENERAL : Indoor pool Hardwood floors Underground parking Two high speed elevators No air-conditioning Average finish and amenities Average mix of suite types FINANCING ' : $845,000, 9%, 25 years, $7,245 per month. SALE VALUE A Sale value reflecting a return of 9%% to 10% on 37% expenses should be expected. The proprty is currently on the market for $1.5 million. CONCRETE - VANCOUVER #162 AGE : 2 years SUITES: : 103 AVERAGE SUITE INCOME PER MONTH (1970) : $155 TOTAL INCOME (1970) : $191,186 EXPENSES 1970  Operat ing U t i l i t i e s 4,4 C a b l e v i s i o n I.2 Garbage .1 E leva tor .6 Other ,9 Repai rs 3.2 Admin i s t r a t ion S a l a r i e s 4,1 Insurance .4 Taxes Water,Sewer .6 Dues and Licenses .5 Taxes 14,2 .TOTAL EXPENSES 30.2 PROPERTY TAX RATIOS Tax to gross income 14,2 Tax to net income 20,4 Tax to t o t a l expenses 47.1 Rat io 65 CONCRETE - VANCOUVER #162 PURCHASE DATA . Th is property is owned by the developer and is present ly on the market for $1,500,000. The eva luat ion is made on the bas is of 35% expenses and a 9{$ c a p i t a l i z a t i o n ra te . 1970 cash flow was $46,440 with expenses of 30.2%. SALE EXPECTATION Based upon a cash flow of $33,500 (37% expenses) and a c a p i t a l i z a t i o n rate of 9.5%, a sa le value of $1,286,000 with an ending equi ty of $451,000 would be expected. If an income/expense r a t i o of 35% is used the sa le value r i s e s to $1,328,000 and the equi ty r i s e s to $493,000. YIELDS a) On the bas is of the asking pr ice of $1,500,000 the t o t a l 1970 y i e l d would be Cash flow $46,440 P r i n c i p a l repayment 9,250 $55,690 Equi ty $655,000 Y i e l d 8.5% b) On the bas is of the expectat ions o u t l i n e d , the t o t a l a n t i c i p a t e d y i e l d would be: Cash flow $37,440 P r i n c i p a l repayment 9,250 $46,690 Equi ty Y i e l d $493,000 9.47% #164 CLASS : Concrete ANALYSIS PERIOD: 1970 (operational costs only) AGE : 1969 LOCATION : West End SIZE : 86 suites GENERAL : Underground parking Indoor pool, saunas, swirl pool Above average appearance, average suite finishing. Across from #162 and comparable Carpeted suites leased laundry Air-conditioned FINANCING : $770,000, 9%%, $6,238 per month SALE VALUE : The property i s offered for sale at $1,220,000 and w i l l probably s e l l to yield 9% to 9%% on the basis of 36% expenses. CONCRETE - VANCOUVER ' 6 7 #164 AGE SUITES AVERAGE SUITE INCOME PER MONTH CI970) TOTAL INCOME (1970) 1969 86 $161 . $166,193 EXPENSES 1970 Operat ing U t i l i t i e s 4.5 C a b l e v i s i o n 1 .1 Garbage . 1 Other 1 .1 Telephone .1 Repai r s . 2,9 Admin is t ra t ion S a l a r i e s 3,9 Insurance .8 A d v e r t i s i n g .2 Taxes Water,Sewer .4 Dues and Licenses .5 Taxes 15.2 TOTAL EXPENSES 30.8 PROPERTY TAX RATIOS Tax to gross income 15,2 Tax to net income 22.1 Tax to to ta l expenses 49.4 Rat io 68 CONCRETE - VANCOUVER #164 SEE BLOCK #162 FOR COMPARISON PURCHASE DATA Th is property is present ly being sold by the o r i g i n a l developer/owner who had the b u i l d i n g constructed for h is own account . The eva lua t ion is made on the bas is of 34$ expenses and a 9.25$ c a p i t a l i z a t i o n r a t e . The 1970 cash flow was $30,031 with expenses of 30.8$, SALE EXPECTATION Based upon a cash flow of $21,531 (36$ expenses) and a c a p i t a l i z a t i o n rate of 9 .25$, a sa le value of $1,033,000 with an ending equi ty of $266,000 could be expected. If an expense/income r a t i o of 34$ is used then the sa le value r i s e s to $1,069,000 and the equi ty r i s e s to $302,000. YIELDS a) On the bas is of the asking p r i c e of $1,220,000 the t o t a l 1970 y i e l d would be: Cash flow $30,031 P r i n c i p a l repayment 3,080 $33,111 Equity $450,000 Y i e l d 7.4$ b) On the bas is of the expectat ions o u t l i n e d , the t o t a l a n t i c i p a t e d y i e l d would be: Cash flow $24,831 P r i n c i p a l repayment 3,080 $27,91 I Equity Y i e l d $302,000 9.24$ #101 CLASS : Frame ANALYSIS PERIOD: 1970 o n l y AGE : New - F a l l 1969 LOCATION : Edmonds - M i d d l e g a t e a r e a o f Burnaby SIZE : 48 s u i t e s - 6 v a c a n c i e s as o f September 11, 1971. COST : T h i s i s a c o n t r a c t o r owned b l o c k . The a c t u a l c a p i t a l i z e d book v a l u e ( i n c l u d i n g some s t a r t - u p c o s t s ) i s $471,106. GENERAL : Good r e n t a l a r e a , b u t p r e s e n t l y d e p r e s s e d Road n o t c u r b e d b u t s c h e d u l e d f o r F a l l o f 1971 S e l f - o w n e d l a u n d r y A l i t t l e above a v e r a g e c o n s t r u c t i o n U n derground p a r k i n g FINANCING : $360,000 a t 9%%, 25 y e a r a m o r t i z a t i o n , $3,042 p e r month. SALE VALUE : The p r o p e r t y would p r o b a b l y s e l l t o y i e l d about 11%. FRAME - BURNABY 70 #101 AGE : 1969 SUITES : 46 AVERAGE SUITE INCOME PER MONTH (1970) : $ 130 TOTAL INCOME (1970) : $78,597 EXPENSES : 1970  Operat ing U t i I i t i e s 4.8 C a b l e v i s i o n I.3 E leva tor .7 Repa i rs .I Admin is t ra t ive S a l a r i e s 6.1 A d v e r t i s i n g .5 Insurance .9 Taxes Water and sewer I .0 Dues and License's .9 Property taxes 14.2 TOTAL EXPENSES 30.5 PROPERTY TAX RATIOS Tax to gross income 14.2 Tax to net income 20.4 Tax to t o t a l expenses 46.2 Rat io Year 2 to Year I COMMENTS : These expenses represent the f i r s t f u l l year of operat ion of the b u i l d i n g and as such can be expected to be lower than normal in the area of r e p a i r s . FRAME - BURNABY #101 71 PURCHASE DATA: Th is b u i l d i n g was b u i l t by the present owner for h is own account . The a n a l y s i s is of o p -e ra t iona l costs o n l y . 72 #105 CLASS : Frame ANALYSIS PERIOD: March 1969, 1970. AGE Purchased new LOCATION : Royal Oak-Kingsway area of Burnaby SIZE : 38 suites GENERAL Reasonably busy street Building appears to be of average construction and condition appears good Self-owned laundry (coin) Elevator, carpeted suites FINANCING Fi r s t Mortgage Second Mortgage: $277,000 at 9%, 25 years, $2,360 per month. The original balance was $285,000. $37,500 at 12%, 20 years, $432 per month. The original balance was $40,000. PURCHASE PRICE : February 1969 - $417,000 SALE VALUE A sale price to yield a return of approximately 11% would be probable. FRAME - BURNABY 73 #105 AGE_ : 1969 SUITES : 38 AVERAGE SUITE INCOME PER MONTH (1970) : $132 TOTAL INCOME (1970) : $60,111 EXPENSES 1969* 1970 Operat ing U t i l i t i e s 5.9 6.5 Cab Ievi s ion I.I 1.4 Garbage .1 .2 Repa i rs General 3.0 4.6 Other expenses 2 .8* Adm? n i s t r a t ion S a l a r i e s 6,9 6.3 Management 3.0 3.0 A d v e r t i s i n g 1.5 .8 Insurance I.4 I.2 Taxes Water and sewer I.2 1.5 Dues and Licenses .4 .4 Taxes 10.6* 15.4 TOTAL EXPENSES 38.0 , 41.4 PROPERTY TAX RATIOS Tax to gross income 10.6* 15.4 Tax to net income 17.1 26.3 Tax to t o t a l expenses 27.9 37,2 Rat io of 1/2 to Year I•" N/A N/A •COMMENTS 1969 represents the f i r s t 10 months of operat ion of a new b u i l d i n g and as such some expenses may not be norma I. FRAME - BURNABY #105 PURCHASE DATA Purchase p r i c e F inanci ng Purchase equi ty $417,000 $325,000 $ 92,000 SALE EXPECTATION A sa le p r i c e r e f l e c t i n g a y i e l d of about 11$ would be a n t i c i p a t e d . Th is would y i e l d an o v e r a l l p r i c e of $380,000 with an ending equi ty of $62,000. However, i f the property were so ld on the bas is of a f i r s t mortgage only then an o v e r a l l p r i c e of $387,000 with an ending equi ty of $69,000 would be expected. It would appear that the property was an uneconomic development to begin with and i t was a gross overpurchase. No sa le is l i k e l y to take place fo r some time unless extenuating circumstances were to e x i s t . How-e v e r , for purposes of a n a l y s i s o n l y , a sa le at $387,000 has been assumed. YIELDS 1969* 1970 Cash flow P r i n c i p a l repayment Expected market loss $ 2,943 3,180 (13,700) $(7,577) $ I ,710 4,500 (16,300) (10*090) Loss on i n i t i a l invest ment of $92,000. Loss on y e a r ' s equi ty 8.2$ 8.2$ I I .0$ 12.3$ RETURNS Average rate of return ex -c l u d i n g expected market loss 6.7$ Average rate of return i n -c l u d i n g expected market loss -9.6$ •COMMENTS 1969 represents a ten month period o n l y . 75 #111 CLASS Frame ANALYSIS PERIOD: 1968, 1969, 1970 AGE 7 years LOCATION C e n t r a l Park, Burnaby SIZE 60 s u i t e s , two b u i l d i n g s GENERAL No c h i l d r e n , preponderance of o l d e r tenants Two separate b u i l d i n g s w i t h a l a r g e c e n t r a l courtyard Hardwood f l o o r s , no e l e v a t o r Both b u i l d i n g s show t h e i r age and show a f a i r amount of wear. FINANCING F i r s t Mortgage : $282,000, 7%, 25 years, $2,101 per month. The o r i g i n a l balance was $300,000. Second Mortgage: $160,000, 14%%, 15 years, $2,140 per month. PURCHASE PRICE : $530,000 - December 1967 SALE VALUE A s a l e value r e f l e c t i n g an approximate r e t u r n of not l e s s than 1 2 % would be probable. FRAME - BURNABY #1 I I AGE : 7 years SUITES : 60 AVERAGE SUITE INCOME PER MONTH (1970) : $126 TOTAL INCOME (1970) : $90,988 EXPENSES 1968 1969 _l97p_ Operati nq U t i 1 i t i e s 7.7 7.9 8.3 Cab 1evi s ion 1 .4 1 .5 1 .5 Garbage .2 — -Repai rs 4.4 5.2 5.6 Admini s t r a t i o n S a l a r i e s 10.0 10.8 8.5 A d v e r t i s i n g .2 .1 -1nsurance .2 .2 1 .1 Other 1 .5 3.2 -Taxes Dues and Licenses .5 .5 .5 Taxes 14.1 14.3 13^ 9 TOTAL EXPENSES 40.1 43.7 39.3 PROPERTY TAX RATIOS Tax to gross income 14.1 14.3 13.9 Tax to net income 23.5 25.3 22.9 Tax to t o t a l expenses 35,2 32.7 35.3 Rat io Year 2 to Year I 100,0% 103.3% 101,2% 77 FRAME - BURNABY #111 PURCHASE DATA Purchase p r i c e $530,000 Financing $442,000 Purchase equi ty $ 88,000 SALE EXPECTATION Th is property is present ly on the market for $660,000 with a very d i f f e r e n t income and expense statement than that presented here . Based upon a cash flow of $4400 and a c a p i t a l i z a t i o n rate of 12% a sa le p r i c e of about $543,000 with an ending equi ty of $132,000 should be expected. However, i f an e v a l -uat ion is made subject only to the f i r s t mortgage then the sa le p r i c e ex -pecta t ion r i s e s to $558,000 and the equi ty r i s e s t o $147,000. YIELDS 1968 1969 1970 C a s h f l o w $ 451 $(1,567) $ 4 , 3 6 3 P r i n c i p a l repayment 9,500'. 10,400 11,500 Expected market gain 9,300 9,300 9,400 $19,251 $18,133 ' $25,263 Return on i n i t i a l equi ty of $88,000 21.9% 20.6% 28.7% Return on y e a r ' s equi ty 21.9% 16.8% 19.6% ALLOCATION OF TOTAL YIELD Cash flow $ 3,247 5.2% Pr incipal r repayment 31,400 50.1% Expected market gain 28,000 44.7% $62,647 100.0% RETURNS Average rate of return exc luding market gain 11.3% Internal rate of return inc lud ing market gain 17 .8% #114 CLASS Frame ANALYSIS PERIOD: 1969 and 1970 AGE Constructed 1968 LOCATION Middlegate area, Edmonds/Kingsway, Burnaby SIZE 86 suites GENERAL Furnished and unfurnished suites Children accepted Large building showing premature signs of wear and dis-repair. The type of clientele and the below average construction make the building appear much older than i t actually i s . Coin laundry, self-owned Carpeted suites but of below average quality FINANCING F i r s t Mortgage Second Mortgage: $582,000 at 8 3/4%, 25 year amortization, $4,885 per month. The original balance was $600,000. $119,000 at 13%, 15 year amortization, $1,554 per month. The original balance was $125,000. PURCHASE PRICE : November 1968; $895,000 SALE VALUE : A sale price reflecting a return of approximately 11 to 1 1 % % would be probable. FRAME - BURNABY 7 9 #114 AGE : 1968 SUITES : 86 AVERAGE SUITE INCOME PER MONTH ( 1970) : $118* TOTAL INCOME (1970) : $122,252* EXPENSES 1969 1970  Operating U t i l i t i e s 5.4 4.4 Cablevision 1.5 1.4 Garbage .1 .1 Telephone .1 .2 Elevator - .2 Repairs 4.0 5.0 Administrat ion Salar ies 5.9 5.6 Management .5 Adver t is ing* 1.5 1.7 Other 1.2 1.5 Insurance - 1.2 Taxes Water and Sewer 1.5 1.5 Dues and Licenses .9 Taxes 15.2 14.7 TOTAL EXPENSES 37.9 37.5 PROPERTY TAX RATIOS Tax to gross income 15.2 14.7 Tax to net income 24.5 14.7 Tax to to ta l expenses 40.3 39,2 Ratio Year 2 to Year 1 100,0% 100.2% •COMMENTS The low average of su i te income and the high adver t is ing r e f l ec t vacancy problems that are l i k e l y to continue to e x i s t . FRAME - BURNABY 80 #1 14 PURCHASE DATA Purchase p r i c e $895,000 F inancing $725,000 Purchase equ i ty $170,000 SALE EXPECTATION Th is is genera l ly a poor block with problem type tenants . It i s u n l i k e l y that the property would be purchased to y i e l d less than 11$. On t h i s bas is a p r i c e of $795,000 with an ending equi ty of $95,000 should be expected. However, any eva lua t ion should be made assuming that the second mortgage is paid o f f , and i f t h i s were t r u e , a sa le value of $810,000 with an ending equi ty of $110,000 would r e s u l t . In e i t h e r case a substant ia l market loss should be expected. YIELDS 1969 1970 Cash flow $(4,204) $ ( 850) P r i n c i p a l repayment 10,200 11,200 Expected market loss (42,500) (42,500) (34,504) (33,150) Return on i n i t i a l equi ty of $170,000 LOSS LOSS Return on y e a r ' s equi ty LOSS LOSS ALLOCATION OF TOTAL YIELD Cash flow $(5,054) LOSS P r i n c i p a l repayment 21,400 Expected market loss (90,000)  (73,654) LOSS RETURNS Average rate of return exc lud ing market loss 4.8$ Average rate of return i n c l u d i n g market loss -19.4$ 81 #131 CLASS : Frame ANALYSIS PERIOD: 1970 only AGE : Constructed 1969 LOCATION : Middlegate area of Burnaby SIZE : 29 suites - 1 bedroom and bachelor GENERAL : Above average construction On the edge of the Middlegate rental area No children • Self-owned laundry Attractive block Carpeting, elevator, underground parking FINANCING : F i r s t Mortgage : Second Mortgage: $210,000, 9%%, 25 years amortization, 5 year term, $1,808 per month. $50,000, 15%, interest only, 5 years. PURCHASE PRICE : December 1969 - $355,000 SALE VALUE The property is presently on the market for $370,000. On a projected rate-of-return basis a value giving an approximate return of 11% would be probable. FRAME - BURNABY #131 AGE . : I969 k SUITES : 29 AVERAGE SUITE INCOME PER MONTH (1970) : $128 TOTAL INCOME (1970) : $44,549 EXPENSES 1970  Operat ing U t i l i t i e s 6.0 C a b l e v i s i o n I.4 Other .7 Bepa ? rs 2.1 Admin is t ra t ion S a l a r i e s 6.9 Insurance 1,7 Taxes Dues and L icenses .5 Taxes 22.1 TOTAL EXPENSES 41 .0 PROPERTY TAX RATIOS* . Tax t o gross income 22,7 Tax to net Income 39.1 Tax t o t o t a l expenses 54.1 Ra t io •COMMENTS Th is was the f i r s t f u l l year of operat ion of the b l o c k . The taxes are very high but they appear to be c o r r e c t . FRAME - BURNABY #131 PURCHASE DATA Purchase p r i c e F inancing Purchase equi ty $355,000 260,000 95,000 SALE EXPECTATION Based upon a negative cash flow of $685 (36% expenses instead of the 41% shown) and a c a p i t a l i z a t i o n rate of 10.5%, a market value of $273,000 could be expected. However, the a n a l y s i s should be made without the second mort-gage. In t h i s case the cash flow v/ould be $6,815 and the value would be $285,000 with an ending equi ty of $77,000. In e i t h e r case the property was an uneconomical purchase. A lso of in te res t is the f a c t that the mortgage company saw f i t to grant a mortgage of only $210,000. On the bas is of a 75% loan (most prevalent) t h i s would give a value of $280,000 while a 70% loan would give a value of $300,000. YIELDS 1970 Cash flow $ (3,318) P r i n c i p a l repayment 2,310 Expected market loss (70,000) Loss $ (71,018) Loss RETURNS Average rate of return ex -c l u d i n g expected market loss -1.1% Internal rate of return i n -c l u d i n g expected market loss -74.7% #141 CLASS Frame ANALYSIS PERIOD: December 1968 to December 1970 AGE Approximately 3 years LOCATION Middlegate area, Burnaby SIZE 26 suites 4 studio at $112.50 17 one bedroom at $127.50 to $135.00 5 two bedroom at $146.00 to $156.00 GENERAL Smaller than average suites Poor color choices make the block unattractive Close to shopping, schools, transportation No younger children Carpeting, elevator, f u l l underground parking The quality of the finishing is below average, entrance and common area. Oil heat Leased laundry Average construction Very drab FINANCING F i r s t Mortgage : $169,000 (original balance of $180,000) 20 years, 8%, $1,492 per month. Second Mortgage : $39,000, $485 per month, 12%7°, 15 years. PURCHASE PRICE : December 1968 - $276,000 SALE PRICE December 1970 - $286,000 (net) A sale value reflecting a return of approximately ll7o would be probable today. FRAME - BURNABY #141 AGE  SUITES AVERAGE SUITE INCOME PER MONTH (1970) TOTAL INCOME (1970) 1968 26 $125 $38,888 ($39,021 in 1969) EXPENSES Operat ing U t i I i t i e s C a b l e v i s i o n Garbage E leva tor Other 1969 6.5 1.5 .1 .8 .9 1970 6.9 I .5 .3 .8 Repa ? rs Admin is t ra t ion Sa Iar ies Management A d v e r t i s i n g Taxes Water, Sewer Taxes 5.2 6.8 I .0 .2 1,9 15.4 40.3 6.2 7.1 .8 .4 2,0 15.9 42.0 PROPERTY TAX RATIOS Tax to gross income 15.4 15.9 Tax to net income 25,8 27.4 Tax t o to ta l expenses 38.1 37.8 Rat io Year 2 to Year I 100.0$ 102.8$ FRAME - BURNABY PURCHASE / SALE DATA Purchase p r i c e $276,000 Financing 209,000 Purchase equi ty 67,000 Sale p r i c e 286,000 F inancing 197,000 Sale equi ty 89,000 YIELDS J9_69_ 1970 . Cash flow $ (400) $ (1,119) P r i n c i p a l repayment 5,860 6,347 Market gain 5,000 _ 5,000 $10,460 $10,228 Return on i n i t i a l equi ty of $67,000 15.6$ 15.3$ Return on y e a r ' s equi ty 15.6$ 13,1$ ALLOCATION OF TOTAL YIELD Cash flow $ (I ,519) -7.3$ P r i n c i p a l repayment 12,307 59.2$ Market gain 10,000 48.1$ $20,788 100.0$ RETURNS Average rate of return ex-c l u d i n g market gain . 7.4$ Internal rate of return i n -c l u d i n g market g a i n . 1 3 . 3 % #142 LAND LEASE CLASS 1 rame ANALYSIS PERIOD: 1969, 1970 AGE 3 years LOCATION Simpson-Sears area of Burnaby SIZE 31 suites 3 bachelor ($100) 19 one bedroom ($130 - $135) 9 two bedroom ($155) GENERAL FINANCING 66 year ground lease Carpeting, elevator F u l l underground parking Leased laundry E x t e r i o r painted i n 1970 Average sized suites E x c e l l e n t shape..the property has been kept up No vacancy problems F i r s t Mortgage Second Mortgage: $167,800, 87., 25 years (no clause), $1,336 per month ( o r i g i n a l amount $175,000) $38,600, 12%%, $450 per month, 19 years ( o r i g i n a l amount $40,000) Land lease : $4,712.52 per year for 66 years. PURCHASE PRICE : October 1968 - $258,000 SALE PRICE June 1971 $290,000 A s i m i l a r b u i l d i n g i s presently on the market f o r $8,500 per s u i t e . See #150 for comparison. FRAME - BURNABY (LAND LEASE) #142 AGE  SUITES AVERAGE SUITE INCOME PER MONTH (1970) TOTAL INCOME (1970) 3 years 31 $139 $51879 EXPENSES Operat ing U t i I i t i e s C a b l e v i s i o n Garbage 1969 7.6 I .3 .1 1970 7.2 I .3 Repai rs Admin is t ra t ion S a l a r i e s Management Insurance Other Taxes Water,Sewer Dues and Licenses Taxes 2.9 7.3 .1 I .4 .9 I .3 .4 17.4 9.7 7.0 I .6 .7 I .3 .5 14.7 TOTAL EXPENSES 40.6 44.0 PROPERTY TAX RATIOS Tax to gross income 17,4 Tax to net income 29.2 Tax to t o t a l expenses 42.7 Rat io Year 2 to Year I I00.C 14.7 26,2 33.4 85.6% FRAME - BURNABY 89 #142 PURCHASE / SALE DATA Purchase p r i c e $258,000 F inancing 215,000 Purchase equi ty 43,000 Sale p r i c e 290,000 Financing 206,500 Sale equi ty 83,500 YIELDS 1969 1970 Cash flow $ 4,335 $ 2,852 P r i n c i p a l repayment 2,847 3,271 Market gain 16,000 16,000 $23,182 $22,123 Return on i n i t i a l equi ty of $43,000 53.9$ 51.4$ Return on y e a r ' s equi ty 53.9$ 35.7$ ALLOCATION OF TOTAL YIELD Cash flow $ 7,187 15.9$ P r i n c i p a l repayment 6,118 13.5$ Market gain 32_,_000_ 70.6$ $45,305 100.0$ RETURNS Average rate of return ex-c l u d i n g market gain 14.5$ Internal rate of return i n - , e lud ing market gain 35.9% CLASS Frame ANALYSIS PERIOD: 1969 AGE : 9 years LOCATION : Simpsons-Sears, Burnaby SIZE : 48 suites + 1 i l l e g a l (49) GENERAL : Non-basement Non-operational indoor pool No elevators Two separate buildings Hardwood floors Poor condition of the exterior and interior (lack of long term maintenance). Self-owned laundry Many long term tenants FINANCING : F i r s t Mortgage - $85,000, 7%, $1,090 per month F i r s t Mortgage - $85,000, 6 3/4%, $1,134 per month SALE VALUE The property was sold in December 1970 for $460,000 with $100,000 down and the balance by Agreement for Sale at 9%, 25 years, $2,981 per month. FRAME - BURNABY #163 AGE 9 years SUITES : 49 AVERAGE SUITE INCOME PER MONTH (1969) : $121 TOTAL INCOME (1969) : $70,942 EXPENSES 1969  Operat ing U t i I I t l e s 5.9 Cab Ievi s ion 1.2 Garbage .2 E leva tor .2 Repa i rs 3,0 Admin is t ra t ion S a l a r i e s 3,5 Insurance ,7 Taxes Water,Sewer 1,7 Dues and Licenses .9 Taxes 15.4 TOTAL EXPENSES 32.5 PROPERTY TAX RATIOS Tax to gross income 15,4 Tax to net income 22,8 Tax to t o t a l expenses 47.3 Rat io 9 2 FRAME - BURNABY #163 PURCHASE DATA Purchase p r ice $460,000 Financing 360,000 Purchase equi ty 100,000 •COMMENTS Th is property was purchased in December 1970 to y i e l d an expected rate of return of 12% based upon expenses of 38%. Given the age and cond i t ion of the property an expense r a t i o as low as 38% may be d e f i c i e n t . How -ever , the sa le p r i c e does conf i rm the general market rate of return that has been u t i l i z e d on s i m i l a r type investments. 93 #102 a rame April 1968, 1969, 1970 Purchased new Woodwards area, New Westminster 26 suites - 2 bachelor 6 two bedroom 16 one bedroom Average construction Carpeting (some of which has been replaced) Elevator Leased coin laundry Two blocks run by one manager Children Excellent condition, outside and in, given the quality of construction and the age. Fi r s t Mortgage - $177,000 at 8%%, 20 years, $1,588 per month. The original balance was $185,000. $278,000 J The property would probably s e l l to yield around 11%. FRAME - NEW WESTMINSTER #102 AGE : 1968 SUITES : 26 AVERAGE SUITE. INCOME PER MONTH (1970) : $129 TOTAL INCOME (1970) : $40,112 EXPENSES Operat ing U t i I i t i e s C a b l e v i s i o n Repa i rs Admin is t ra t ion Sa Iar ies Management Insurance Other Taxes Dues and Licenses Taxes TOTAL EXPENSES 1968 1969 1970 5.7 I .5 8.7 I .3 7.7 I .4 .9 6.0 6.5 .2 .9 .4 6.1 .5 I .6 .5 7.7 I .2 I .3 .4 2 .3 * .4 13.1 .5 15.7 18.8* 34.0 41 .4 PROPERTY TAX RATIOS Tax to gross income Tax to net income Tax to to ta l expenses Rat io Year 2 to Year I N/A 13.1 15.7 N/A 19.8 26.8 N/A 38.5 37.9 100.% 113.6% •COMMENTS :1968 represents the income fo r the f i r s t 8 months of the b u i l d i n g and i t is not i n d i c a t i v e of the long run expenses. 95 FRAME - NEW WESTMINSTER #102 PURCHASE DATA Purchase p r i c e $278,000 Financing 185,000 Purchase equi ty 93,000 SALE EXPECTATION 1970 was a year of heavy vacanc ies . A normal year should see income at about $42,000 with expenses of 40$ and a net cash flow of $7,500. On the bas is of a sa le expectat ion of 11$ t h i s would y i e l d an o v e r a l l p r i c e of about $284,000 with an ending equi ty of $110,000. YIELDS 1968* 1969 -1970 Cash flow $10,504 $10,389 $ 5,838 P r i n c i p a l repayment 2,500 4,100 4,400 Expected market gain I,600 2,200 2,200 $14,600 $16,700 $12,400 Return on i n i t i a l i n -vestment of $93,000 15.7$ 18.0$ 13.3$ Return on y e a r ' s equi ty 15.7$ 17.2$ 12.0$ ALLOCATION OF TOTAL YIELD Cash flow $26,700 61.1$ P r i n c i p a l repayment 11,000 25.2$ Expected market gain 6,000 '13.7$ $43,700 100.0$ RETURNS Average rate of return exc lud ing market gain 12.2$ Internal rate of return inc lud ing market g a i n . 16 .1% •COMMENTS 1968 represents an e ight month period o n l y . 96 #104 Frame September 1967, 1968, 1969, 1970. Purchased new Woodwards area, New Westminster 44 suites - 2 bachelor 9 two bedroom 33 one bedroom A l i t t l e above average construction Good rental area Elevator Leased coin laundry Excellent condition given the age and construction quality. F i r s t Mortgage - $274,600 at 8%, 20 years, $2,446 per month. The original balance was $295,000. Second Mortgage' - $45,300 at 12%, 15 years, $591 per month. The original balance was $50,000. $452,800 The property would probably s e l l to yield approximately 11%. FRAME = NEW WESTMINSTER " #104 AGE : 1967 SUITES : 44 AVERAGE SUITE INCOME PER MONTH (1970) : $130 TOTAL INCOME(1970) : $68,897 EXPENSES 1967* 1968 1969 1970 Operat ing U t i l i t i e s 5.0 7.1 7.4 6.7 C a b l e v i s i o n 1.5 1.4 1.3 1.3 Repairs .1 1.7 2.4 2.4 Admin is t ra t ion S a l a r i e s 6.1 6.4 6.0 7.2 Management .7 .2 .5 .6 Insurance 7 .2* .7 - 1.6 Other .4 Taxes Dues and Licenses I.0 .4 .4 .4 Taxes I.7* 12.2 12.3 14.5 TOTAL EXPENSES 23.3 30.4 30.4 34.7 PROPERTY TAX RATIOS Tax to gross income N/A Tax to net income N/A Tax to t o t a l expenses N/A Rat io Year 2 to Year I N/A 12.2 12.3 14.5 17.5 17.7 22.3 40.1 40.6 41.9 100.0% 104.9% I 14.1% •COMMENTS 1967 represents only a p a r t i a l year for a new b u i l d i n g and i t i s not i n d i c a t i v e of long run c o s t s . FRAME - NEW WESTMINSTER #104 PURCHASE DATA Purchase p r i c e $452,800 Financing $345,000 Purchase equi ty $107,800 SALE EXPECTATION The 1970 income is depressed some $2300 from 1969. A normal year should see income at approximately the level of 1969 with expenses at about the level of 1970. A cash flow of $11,000 should be expected. Th is combined with an expected c a p i t a l i z a t i o n rate of 11$ would give a sa le value of about $510,000 with an ending equi ty of $190,000. YIELDS 1967* 1968 1969 1970 Cash flow P r i n c i p a l repayment Expected market gain $ 3,204 $ 2,400 $ 5,800 $11,369 $ 7,800 $17,160 $13,086 $ 8,700 $17,160 $ 8,522 $ 9,800 $17,160 $11 ,400 $36,300 $38,900 $35,500 Rate on i n i t i a l equi ty of $108,000 Return on y e a r ' s equ i ty 42.3$ 42.3$ 33.6$ 31.3$ 36.0$ 27.6$ 32.9$ 21.1$ ALLOCATION OF TOTAL YIELD Cash flow P r i n c i p a l repayment Expected market gain $ 36,200 $ 28,700 $ 57,200 29.6$ 23.5$ 46.9$ RETURNS $ 1 2 2 , 1 0 0 100 .0% Average rate of return exc luding market gain 16.0$ Internal rate of return inc lud ing market gain 24 .5% •COMMENTS 1967 represents four months o n l y . #106 CLASS Frame ANALYSIS PERIOD: 1968, 1969 to September 1970 AGE Purchased new in October 1967 LOCATION : Woodwards area, New Westminster SIZE 41 suites 29 one bedroom 11 two bedroom 1 three bedroom GENERAL FINANCING This block has a slab deflection which would cost approxi-mately $10,000 to correct. The purchase price (1970) reflects this. Good rental area but on a noisy street Carpeting, large indoor garden, elevator Suites are in good shape given the age The quality of construction is average. The property was purchased by City Savings and Trust and sold under an Agreement for Sale and at the same time a second mortgage was placed on the property. This mortgage contained a participation clause. The underlying f i r s t mortgage is $246,000 (original balance) 22 years, 7%%, $1,918 per month. The second mortgage is $80,000 (original balance) at 13%, 14% years, $1,000 per month, 7%% of the gross over $40,000. The total Agreement for Sale was originally $326,000 and at the time of sale the outstanding balance was $304,500. PURCHASE PRICE : 1967; $420,000 SALE PRICE 1970; $426,000 (no commission) 100 FRAME - NEW WESTMINSTER  AGE SUITES AVERAGE SUITE INCOME PER MONTH (1969) TOTAL INCOME (1969) 1967 41 $132 $64,727 #106 EXPENSES 1968 1969 1970* Operati ng U t i 1 i t i e s 7.0 6.6 8.3 C a b l e v i s i o n 1 .2 1 .3 1 .4 Garbage .1 .1 .4 Telephone .7 .8 .8 Other .8 .8 1.3 Repai rs 1 .6 1.8 8.5 Admin is t ra t ion Sa1aries 6.0 5.8 7,2 Management 3.2 3.0 3.0 Insurance 1 .4 1 .3 2,0 Other - - .1 Taxes Dues and Licenses .5 .5 ,3 Taxes 12.2 12.5 14.3 TOTAL EXPENSES 34.7 34.5 47.6 PROPERTY TAX RATIOS Tax to gross income Tax to net income Tax to t o t a l expenses Rat io Year 2 to Year I •COMMENTS 12.2 18.7 35.3 100.0$ 12.5 19.0 36.2 105.9% 47.6 27.3 30.0 I 14.0% The property was so ld in September 1970 and the taxes have been ad jus ted . A l s o , t h i s b u i l d i n g had a heavy vacancy problem and heavy repa i rs and maintenance in 1970. FRAME - NEW WESTMINSTER #106 PURCHASE/ SALE DATA Purchase p r i c e $420,000 Financing $326,000 Purchase equi ty $ 94,000 Sale p r i c e $426,000 Sale f inanc ing $304,500 Sale equi ty $121,500 YIELDS 1968 1969 1970* Cash flow $ 4,719 $ 5,575 $ 2,009 P r i n c i p a l repayment 7,200 8,000 7,200 Market gain 2,200 2,200 I,600 $14,100 $15,800 $ 6,800 Return i n i t i a l i n -vestment of $94,000 15.0$ 16.8$ 8.7$ Return on years equi ty 15.0$ 15.3$ 7.2$ ALLOCATION OF TOTAL YIELD Cash flow $ 8,285 22.6$ P r i n c i p a l repayment $22,400 61.1$ Market gain $ 6,000 16.3$ $36,685' 100.0$ RETURN Average rate of return 12.0$ Internal rate of return 11 .7% •COMMENTS 1970 r e f l e c t s ten f igures have been months o n l y , adjusted on a AI I percentage year ly b a s i s . #108 CLASS ' : Frame ANALYSIS PERIOD: 1969 (9 months), 1970 AGE : 1968 LOCATION : Woodwards' area, New Westminster SIZE : 35 suites - 4 two bedroom - $150 to $165 31 one bedroom - $115 to $135 GENERAL : Good rental area Below average construction Hardwood floors in the bedrooms Poor grade of carpeting Leased laundry Average sized suites Generally poor condition, given the age Three vacancies FINANCING : The statements for the period analyzed show 3 mortgages. Early in 1971 two mortgages were discharged leaving the f i r s t mortgage at 9%. F i r s t Mortgage : $239,000, 9%, 25 years (clause), $2,028.55 per month (original balance $245,000). Second Mortgage: $43,000, 13%, 15 years, $560 per month " ($45,000) Third Mortgage : $14,000, 13%, 17 years, $180 per month ($15,000) PURCHASE PRICE : M arch 1969 - $386,000 SALE PRICE : The property is presently on the market for $370,000. A sale price of approximately $355,000 is expected. December 1971 - Sale price $367,500 (no sales commission). FRAME - NEW WESTMINSTER #108 AGE : 1968 SUITES : 35 AVERAGE SUITE INCOME PER MONTH (1970) : $124 TOTAL INCOME (1970) : $52,002 EXPENSES 1969* 1970 Operat ing U t i 1 i t i e s 5.5 10.0 Cab 1evi s ion 1,4 1 .4 Telephone .1 .3 Repai rs 4.6 5,8 Admin is t ra t ion S a l a r i e s 7.4 6.8 Management - .7 A d v e r t i s i n g 2,3 .7 Insurance 4.4 -Other .6 ,6 Taxes Dues and Licenses .5 .6 Taxes 9.3 15.2 TOTAL EXPENSES 36.1 42.2 PROPERTY TAX RATIOS Tax to gross income N/A 15.2 Tax to net income N/A 26,4 Tax t o t o t a l expenses N/A 36,1 Rat io Year 2 to Year I N/A -•COMMENTS 1969 represents nine months o n l y . FRAME - NEW WESTMINSTER , #108 PURCHASE / SALE DATA Purchase p r i c e F inancing Purchase equi ty $386,000 $305,000 $ 81 ,000 Sale p r ice F inancing Sale equi ty YIELDS Cash flow P r i n c i p a l repayment Market loss $367,500 $297,400 $ 70,000 1969* $ 682 $3100 (8000) (4200.) 1970 $(2913) $ 4500 (10,500) ($8900) Loss on i n i t i a l i n -vestment Loss on y e a r ' s equi ty 5.2$ 5.2$ I I .0$ 12.2$ •COMMENTS 1969 represents a per iod of nine months o n l y . Th is property was purchased on the bas is of $x per s u i t e and not on the bas is of an economic e v a l u a t i o n . The s a l e was at the probable low in the market but i t never the less represents the level where a purchaser f e l t an economic level e x i s t e d . 105 #109 CLASS 1 rame ANALYSIS PERIOD: 1969 and 1970 AGE 10 years LOCATION Queen's Park area, New Westminster SIZE 48 suites 11 two bedroom ($135 to $155)-3 at penthouse 37 one bedroom ($108 to $127) GENERAL Hardwood floors Heavy o i l heat Elevator, hardwood floors Five floors including the penthouse No balconies Coin-operated leased laundry Suites are only in average condition Approximately 15 children 5 vacancies at present FINANCING F i r s t Mortgage Second Mortgage: $301,000, 9"/o, 25 years, $2,513 per month. The original balance was $303,500. $48,000, 137., 15 years, $622 per month. The original balance was $50,000. PURCHASE PRICE : December 1968 - $433,000 SALE VALUE The property is presently on the market for $528,000 ( i t s "appraised" value). It is expected that the age and condi-tion of the building would require a yield of 12 to 12%% which would result in a closer approximation of value. FRAME - NEW WESTMINSTER 106 #109 AGE : 10 years SUITES ' : 48 AVERAGE SUITE INCOME PER MONTH (1970) : $124 TOTAL INCOME (1970) : $71,694 EXPENSES 1969 1970 Operating U t i 1 i t i e s 6.6 8.2 C a b l e v i s i o n 1 .5 1 .4 E leva tor .2 .3 Repa i rs 7.5 4.6 Admin is t ra t ion S a l a r i e s 7.1 6.7 Management . 1 -A d v e r t i s i n g . 1 .3 Insurance 1 .5 1 .1 Other 1 .3 .4 Taxes Dues and Licenses .6 .6 Taxes 1 1 .6 12.2 TOTAL EXPENSES 38.0 35.7 PROPERTY TAX RATIOS Tax to gross income 11.6 12.2 Tax to net income 18.7 18.9 Tax to t o t a l expenses 30.6 34.1 Rat io Year 2 to Year I 100.0% 105.8% FRAME - NEW WESTMINSTER 107 #109 PURCHASE DATA Purchase p r i c e $433,000 F inancing $354,000 Purchase equi ty $ 79,000 SALE EXPECTATION An expected c a p i t a l i z a t i o n rate of 12$ and a cash flow of $7500 would y i e l d a sa le value of $458,000 with an ending equi ty of $114,000. YIELDS 1969 1970 Cash flow $6,444 $8,490 P r i n c i p a l repayment $4,700 $5,150 Expected market gain $12,500 $12,500 $23,600 $26,100 Return on i n i t i a l equi ty of $79,000 29.9$ 33.0$ Return on year'-s equi ty 29.9$ 26.9$ ALLOCATION OF TOTAL YIELD Cash flow $14,900 30.0$ P r i n c i p a l repayment $ 9,800 19.7$ Expected market gain $25,000 50.5$ $49,700 100.0$ RETURNS Average rate of return exc lud ing market gain 12.7$ Internal rate of return inc lud ing market gain 2 5 . 6 % 1 0 8 #116 CLASS : Frame ANALYSIS PERIOD: 1969, 1970 AGE 18 years LOCATION : New Westminster, to the south of 1 2 t h Street. SIZE 33 suites GENERAL Less desirable rental area No elevator Hardwood floors Self-owned laundry The age of the building and i t s appliances w i l l necessitate replacement of some major items in the next very few years. The condition appears reasonable given the age of the building. No balconies FINANCING F i r s t Mortgage Second Mortgage: $140,000, 9%, 25 years, $1,242 per month (The original balance was $150,000) $63,600, 107=, 25 years, $575 per month (The original balance was $65,000) PURCHASE PRICE : November 1968 - $267,000 SALE VALUE Given the age and condition of the block, a return of approxi-mately 13 - 147. should be demanded by the knowledgeable market. Such a return and price would reflect the need for considerable replacements in the near future. FRAME - NEW WESTMINSTER #116 AGE. : 18 years SUITES : 33 AVERAGE SUITE INCOME PER MONTH (1970) : $101 ($106 in 1969) TOTAL INCOME : $40,151 EXPENSES 1969 1970 Operating U t i 1 i t i e s 8.4 11.6 Cablevis ion 1 .7 1.7 Telephone .2 .2 Repai rs 3.4 5.9 Administrat ion Sa lar ies 7.3 7.7 Management .6 .5 Insurance 1.4 1.4 Other - .6 Taxes Dues and Licenses .3 Taxes 9.8 11.5 . EXPENSES 33.1 41.1 PROPERTY TAX RATIOS Tax to gross income 9.8 11.5 Tax to net income 14.7 19.5 Tax to to ta l expenses 29.7 27.9 Ratio Year 2 to Year 1 100.0% 112.0% 110 FRAME - NEW WESTMINSTER '* #116 PURCHASE DATA Purchase p r i c e $267,000 Financing $210,000 Purchase equi ty $ 57,000 SALE EXPECTATION Using an income / expense r a t i o of 38$ i t would be expected that the age and cond i t ion of the block would necess i ta te a c a p i t a l i z a t i o n rate of at least 13$. Th is would allow fo r the c a p i t a l replacement that w i l l be necessary in the next few y e a r s . On t h i s bas is a sa le p r i c e of about $251,000 with an ending equi ty of $47,000 should be expected. YIELDS 1969 1970 Cash flow $ 6,188 $ I,847 P r i n c i p a l repayment 2,880 3,143 Expected market loss (8,000) (8,000) $ 988 $(3,010) Return on i n i t i a l equi ty of $57,000 I.9$ Loss Return on y e a r ' s equi ty 1.9$ Loss ALLOCATION OF TOTAL YIELD Cash flow $ 8,035 P r i n c i p a l repayment 6,023 Expected market loss (16,000)  $( 1,922) Loss •RETURNS Average rate of return exc lud ing market loss 12.3$ Average rate of return inc lud ing market loss -1.7$ #117 CLASS : Frame ANALYSIS PERIOD: June 1968, 1969, 1970 AGE : 13 years LOCATION : Agnes Street, New Westminster SIZE : 23 suites - 21 bachelor ) , , \ furnished 1 one bedroom.* 1 three bedroom penthouse GENERAL : Area of older blocks, none of which are f i r s t rate. Close to St. Mary's Hospital Furnished suites Construction below average Some suites are carpeted Maintenance has not been high with the result that the property is slightly run down. FINANCING : F i r s t Mortgage : Second Mortgage: $66,000, 7%7o, 20 years, $668 per month. The original balance was $85,000. $48,900, 13%, 15 years, $665 per month. The original balance was $53,500. PURCHASE PRICE : May 1968 - $160,000 SALE VALUE A sale price reflecting an approximate return of 127« to 137<> would be probable. The property is presently on the market for $199,000 after a reduction from $210,000 and $225,000. FRAME - NEW WESTMINSTER #117 AGE : 13 years SUITES : 23 AVERAGE SUITE INCOME PER MONTH (1970) : $95.00 TOTAL INCOME (1970) : $26,222 EXPENSES 1968* 1969 1970 Operating U t i l i t i e s 4.3 7.6 7.1 Cablevis ion 2.2 1.7 1.8 Repairs 3.2 5.4 3.3 Administrat ion Salar ies 9.8 9.9 10.6 Management .4 1.0 .1 Adver t is ing .1 .1 .3 Insurance 1.3 .6 2.1 Other - .2 Taxes Dues and Licences .4 .3 .3 Taxes 5.3 9.8 11.2 TOTAL EXPENSES 27.0 36.2 37.1 PROPERTY TAX RATIOS Tax to gross income 5.3 9.8 11.2 Tax to net income 7.2 15,3 17.8 Tax to to ta l expenses 19.5 27.1 30.2 Ratio Year 2 to Year 1 - 100.0% 112.6% v •COMMENTS 1968 i s for May to December only . FRAME - NEW WESTMINSTER #117 PURCHASE DATA Purchase p r i c e $160,000 Financing $130,000 Purchase equ i ty $ 30,000 SALE EXPECTATION There have been many improvements in the property which have resu l ted in an increase in income fo r 1971 of approximately 15%. However, based upon 1969 and 1970 income / expenses with a cash flow of approximately $1,000 and based upon a c a p i t a l i z a t i o n rate of 12% a sa le p r i c e of $167,000 with an ending equi ty of $48,000 would be ob ta ined . Th is approximation is supported by the fac t that even with the 15% increase in income there has been no sa le at the asking p r i c e of $195,000. The increase in value brought about by the 1971 changes would probably y i e l d a value of about $185,000. YIELDS 1968* 1969 1970 Cash flow $1442 $ 91 1 $ 394 P r i n c i p a l repayment $2300 $4300 $4700 Expected market gain $1600 $2700 $2700 $5342 $791 1 $7794 Return on i n i t i a l equi ty of $30,000 30.5% 26.4% 26.0% Return on y e a r ' s equi ty 30.5% 23.3% 19.0% ALLOCATION OF TOTAL YIELD Cash flow $ 2,747 13.0% P r i n c i p a l repayment $11,300 53.7% Market gain $ 7,000 33.3% $21,000 100.0% RETURNS Average rate of return exc lud ing market gain 17.6% Internal rate of return inc lud ing market gain 2 0 . 2 % •COMMENTS 1968 is fo r e ight months o n l y . 114 #119 CLASS : Frame ANALYSIS PERIOD: 1969 and 1970 AGE Constructed 1968 LOCATION Woodwards area, New Westminster SIZE 29 suites 6 bachelor 16 one bedroom 7 two bedroom $105 to $115 $130 to $140 $165 to $175 GENERAL Excellent rental area, very quiet street Different design and small size make this block very appealing. No children Well kept Elevator, carpets, self-owned laundry Wife of owner manages the block and charges a 3% fee. Construction is a l i t t l e above average Underground parking, garden/fenced leisure area. FINANCING F i r s t Mortgage Second Mortgage: $184,000, 8%, 21 years, 5 year term, $1,556 per month. The original balance was $192,000. $30,500, 13%, 15% years, $4,600 per annum. The original balance was $32,000. PURCHASE PRICE : $312,000 - F a l l 1968 SALE VALUE The property is presently on the market for $350,000. A sale price yielding a rate of return of approximately 11% should be expected. 115 FRAME - NEW WESTMINSTER " #119 AGE_ : 1968 SUITES : 29 AVERAGE SUITE INCOME PER MONTH (1970) : $133 TOTAL INCOME (1970) : $46,256 EXPENSES 1969 1970 Operat ing U t i l i t i e s 9.4 8.4 C a b l e v i s i o n I.4 1,3 Other 1.0 I.I Repa ? rs 2.4 3.1 Admin i s t r a t i on S a l a r i e s & Benef i ts 6,1 6.5 Management .2 2.8 A d v e r t i s i n g I.0 .3 Insurance 3.2 I.5 Other 1.3 Taxes Dues and Licenses .4 .4 Taxes 13.3 14.5 TOTAL EXPENSES 39.8 39.9 PROPERTY TAX RATIOS Tax to gross income 13.3 14.5 Tax to net i ncome 22.1 24.1 Tax to t o t a l expenses 33.5 36.6 Rat io Year 2 to Year I 100.0$ 113.9$ FRAME - NEW WESTMINSTER 116 #119 PURCASE DATA Purchase p r i c e F inancing Purchase equi ty $312,000 $224,000 $ 88,000 SALE EXPECTATION Because of the f i v e year term on an otherwise advantageous mortgage i t is l i k e l y that a normal market would c a p i t a l i z e the return at a rate ,->f 11% g i v i n g a value of $301,000 and an ending equi ty of $87,000. However, i f i t is assumed that the second mortgage is paid o f f and an 11% c a p i t a l i z a t i o n rate is s t i l l used, then an ending value of $308,000 and an ending equi ty of $93,500 would r e s u l t . YIELDS 1969 1970 Cash flow P r i n c i p a l repayment Expected market loss Return on i n i t i a l equi ty of $88,000 Return on y e a r ' s equi ty ALLOCATION OF TOTAL YIELD Cash flow P r i n c i p a l repayment Expected market loss RETURNS $3327 $4500 $(2000) $4,827 6.6% 6,6% $7858 $9500 $(4000) $4531 $5000 $(2000) $7,531 8.4% 8.6% 58.8% 71.1% (29.9%) $13,358 100.0% Average rate of return ex -c l u d i n g expected market loss 8.77% Internal rate of return i n -c l u d i n g expected market l o s s . 7 .44% 117 #121 CLASS : Frame ANALYSIS PERIOD: 1970 AGE : Purchased new, December 1969. This property was built for and presold to an investor. LOCATION : Woodwards' area of New Westminster SIZE , : 42 suites GENERAL : Good rental area Suites are average in size Rentals at peak of the market so some vacancies Carpets, elevator, self-owned laundry Average construction Large percentage of underground parking Two sleeping rooms FINANCING : F i r s t Mortgage : $303,000, 9%%, 25 years, $2,576 per month. The original balance was $305,000. Second Mortgage: Originally $110,000, 13%, 15 years, $1,244 per month. $10,000 in principal was paid at the end of 1970. The current balance of the mortgage is $99,000. • PURCHASE PRICE : Contract cost: $537,000 SALE VALUE : The property should s e l l to yield approximately 11%. FRAME - NEW WESTMINSTER #12! AGE : 2 years SUITES : \ 42 AVERAGE SUITE INCOME PER MONTH (1970) : $135 TOTAL INCOME (1970) : $68,218 EXPENSES 1970 Operat ing U t i l i t i e s & C a b l e v i s i o n 8.2 Repairs I .9 Admin is t ra t ion S a l a r i e s 5.5 Management I.2 A d v e r t i s i n g .8 Insurance 2.5 Taxes Dues and Licenses ,4 Raxes 14.3 TOTAL EXPENSES 34.9 PROPERTY TAX RATIOS Tax to gross income 14,3 Tax t o net income 22.0 Tax t o t o t a l expenses 41,1 Rat io 119 FRAME - NEW WESTMINSTER #121 PURCHASE DATA Purchase p r i c e $537,000 Financing $415,000 Purchase equi ty $122,000 SALE EXPECTATION Using a c a p i t a l i z a t i o n rate of 11%, with the e x i s t i n g second mortgage, a sa le value of $451,000 with an ending equi ty of $42,000 would be obta ined. If an eva luat ion is made without the second mortgage then the value r i s e s to $455,000 with an equi ty of $46,000. In. e i t h e r c a s e , a massive loss would occur i f the property were so ld at t h i s t ime . YIELDS 1970 Cash flow ($1426) Loss P r i n c i p a l repayment $6000 Expected market loss ($82,000) ($77,426) Loss RETURNS Average rate of return on equi ty exc lud ing the expected market l o s s . 3.7% Average r a t e of r e t u r n i n c l u d i n g the expected market l o s s -63.5% #124 CLASS : Frame AGE : 1967 ANALYSIS PERIOD: J u l y 1968, 1969. LOCATION : Woodwards area, New Westminster SIZE 25 s u i t e s 4 bachelor 19 one bedroom 2 two bedroom GENERAL Good r e n t a l area but on a busy s t r e e t C a r p eting, c o i n laundry ( l e a s e d ) , e l e v a t o r Average c o n s t r u c t i o n , average s i z e d s u i t e s No c h i l d r e n FINANCING F i r s t Mortgage Second Mortgage: $160,000 (December 1969) at 8%, $1,402 per month, 20 years. The o r i g i n a l balance was $169,000. $18,000 (December 1969) at 12%, $300 per month, 9 years. The o r i g i n a l balance was $20,000. PURCHASE PRICE : J u l y 1968 $254,000 SALE PRICE September 1970 - $290,000. The 1970 p a r t i a l statement i s not a v a i l a b l e but i t i s understood t h a t the o v e r a l l net p o s i t i o n d i f f e r e d l i t t l e from 1969. FRAME - NEW WESTMINSTER #124 AGE : 1967 SUITES : 25 AVERAGE SUITE INCOME PER MONTH (1969) : $ 122 TOTAL INCOME (1969) : $36,718 EXPENSES 1968* 1969 Operati ng U t i 1 i t i e s 10.6 7.9 C a b l e v i s i o n 1 .5 1 ,4 Other 1 .2 I.I Garbage - ,1 Repairs 6.4 4,0 Admin is t ra t ion S a l a r i e s 6.3 6.5 Management .4 -Insurance .5 1 .3 Other - .3 Taxes Dues and Licenses — .5 Taxes - 14.3 TOTAL EXPENSES 26.9 37.4 PROPERTY TAX RATIOS Tax to gross income N/A 14.3 Tax to net income N/A 22,8 Tax to t o t a l expenses N/A 38.2 Ratio..Year 2 to Year I N/A •COMMENTS 1968 expenses represent a s i x month p e r i o d . FRAME - NEW WESTMINSTER 122 #124 PURCHASE/ SALE DATA Purchase p r i c e $254,000 F inancing 185,000 Purchase equi ty 69,000 Sale p r i c e $290,000 F inancing 174,000 Sale equi ty 116,000 YIELDS 1968* 1969 1970* Cash flow $ 2,676 $ 2,561 $ 1,582 P r i n c i p a l repayment 2,667 5,620 2,990 Market gain 9,000 18,000 9,000 $14,343 $26,181 $13,572 Return on i n i t i a l i n -vestment of $69,000 41.6$ 37.9$ 33.7$ Return on y e a r ' s equi ty 41.6$ 32.3$ 22.4$ ALLOCATION OF TOTAL YIELD Cash flow $ 6,819 12.6$ P r i n c i p a l repayment 11,277 20.8$ Market gain 36,000 66.6$ $54,096 100.0$ RETURNS Average rate of return exc lud ing market gain 12.2$ Internal rate of return inc lud ing market gain 2 9 . 3 % •COMMENTS The year 1968 was fo r s i x months and 1970 was fo r seven months. 123 #125 Frame 1969 and 1970 Constructed in 1968 Woodwards area, New Westminster 42 suites - 2 bachelor 12 two bedroom 28 one bedroom Good rental area Underground and undercover parking Self-owned laundry as of January 1971 Exterior of building good Interior and suites good Suites are at market rent Elevator, carpeting Management The building i s of average construction F i r s t Mortgage - $284,400 at 8 7/8%, 20 years, $2,645 per month. The original balance was $300,000. Second Mortgage - $61,700 at 13%, 15 years, $808 per month. The original balance was $65,000. October, 1968 - $485,000 The location of the property and i t s quality and age would probably result in a price giving an approximate return of 11%. FRAME - NEW WESTMINSTER ••» #125 AGE : 1968 SUITES : 42 AVERAGE SUITE INCOME PER MONTH (1970) : $131 TOTAL INCOME (1970) : $65,989 EXPENSES 1969 1970  Operat ing U t i l i t i e s 6.8 7.6 C a b l e v i s i o n 1.5 I.4 Repairs 2.7 4.3 Admin is t ra t ion S a l a r i e s 6.0 6.4 Management 3.2 2,9 A d v e r t i s i n g .6 .1 Insurance 2,2 1.3 Other .5 .3 Taxes Dues and Licenses .7 ,6 Taxes 12.8 * 13.7 TOTAL EXPENSES 36.9 38.7 PROPERTY TAX RATIOS Tax t o gross income 12.8 13.7 Tax to net income 20,3 22,4 Tax to t o t a l expenses 34,7 35.5 Rat io Year 2 to Year I 100.0$ 113.2$ FRAME - NEW WESTMINSTER 125 #125 PURCHASE DATA Purchase p r i c e $485,000 Financing $365,000 Purchase equi ty $120,000 SALE EXPECTATION Using a c a p i t a l i z a t i o n rate of 11$ and a zero cash f low, a sa le p r i c e of $432,000 with an ending equi ty of $86,000 would be expected. YIELDS 1969 1970 Cash flow $( 2,042 $( 978) P r i n c i p a l repayment 7,550 8,660 Expected market loss (26,500) (26,500) $(21,000) $(18,800) Loss on i n i t i a l i n -vestment of $120,000 -17.5$ -15.7$ Loss on y e a r ' s equi ty -17.5$ -18.6$ ALLOCATION OF TOTAL YIELD Cash flow $( 3,020) Loss P r i n c i p a l repayment 16,210 Expected market loss (53,000) RETURNS Average rate of return excluding expected market l o s s . 5.5$ Average rate of return inc lud ing expected market l o s s . -16.7$ $(39,810) Loss 126 #130 CLASS : Frame ANALYSIS PERIOD: 1968, 1969, 1970. AGE : Approximately 5 years LOCATION : New Westminster, near Woodwards SIZE : 24 suites GENERAL Good rental area On a busy street Elevator No children Hardwood floors Exterior and interior good considering the age Approximately 18 parking spaces FINANCING Fir s t Mortgage Second Mortgage Agreement for Sale -$134,400 (December 19 70) at 7%%, 22 years, $1,050.63 per month. The original balance was $140,000. Refinanced December, 1967. $20,300 (December 1970) at 11%, 10 years, $477 per month. The original balance was $30,000. $43,700 (December 1970) at 12%, 18 years, $500 per month. The original balance was $45,000. PURCHASE PRICE : December, 1967 - $235,000 SALE VALUE The property would probably sel l to yield approximately 11 - 11%%. FRAME - NEW WESTMINSTER #130 AGE SUITES AVERAGE SUITE INCOME PER MONTH (1970) TOTAL INCOME (1970) 5 years 24 $117 ($124 for 1969) $33,570 ($35,620 in 1969) EXPENSES 1968 1969 1970 Operat ing U t i 1 i t i e s 7,5 8.3 8.6 C a b l e v i s i o n 1 .6 l'.4 1 .5 Garbage .1 .1 .1 E leva tor .1 - -Other .6 .8 .9 Repa i rs 4.3 6.2 8.6 Admin is t ra t ion Sa1aries 5.7 6.8 8.2 A d v e r t i s i n g .1 .2 .3 Insurance 2.6 I.I 2.7 Other .1 .9 1 ,5 Taxes Dues and Licenses .6 . .5 .5 Taxes 12.6 12.5 13.9 TOTAL EXPENSES 35,8 38.7 46.5 PROPERTY TAX RATIOS Tax to gross income Tax to net income Tax t o t o t a l expenses Rat io Year 2 to Year I 12.6 12.5 13.9 19,6 20,3 26.0 35.2 32.2 29.9 100.0$ 103.7$ 103.0$ •COMMENTS A higher vacancy rate ex is ted in 1970. FRAME - NEW WESTMINSTER 128 #130 PURCHASE DATA Purchase p r i c e $235,000 F inanc ing $215,000 Purchase equ i ty $ 20,000 SALE EXPECTATION Assuming a negat ive cash flow of $3,000 and a c a p i t a l i z a t i o n rate of 11% a sa le value of $228,000 with an ending equi ty of $30,000 would r e s u l t . YIELDS 1968 1969 1970 Cash flow $(2,514) $(2,483) $(6,386) P r i n c i p a l repayment 5,271 5,770 6,315 Expected market loss (2,300) (2,300) (2,400) $ 457 $ 987 $(2,471) Return on i n i t i a l i n -vestment of $20,000 2.3% 4,9% -12.4% Return on y e a r ' s equi ty 2.3% 4.3% - 9.3% ALLOCATION OF TOTAL YIELD Cash flow $(11 ,383) Loss P r i n c i p a l repayment 17,358 Market loss ( 7,000) Loss $( 1,025) Loss RETURNS Average rate of return exc luding market loss 6.3% Internal rate of return inc lud ing market loss -1.4% #13$ CLASS : Frame ANALYSIS PERIOD: 1968, 1969, 1970 AGE : About 4 years LOCATION : New Westminster SIZE : 42 suites GENERAL : Average construction Carpeting (average q u a l i t y which i s showing wear), Elevator Some ch i l d r e n Covered balconies 50% undercover parking Presently being repainted FINANCING : F i r s t mortgage: Approximately $290,000 ($306,000 at 7 3/4%, $2,279 per month). PURCHASE PRICE : November 30, 1967 - $425,000 SALE VALUE • : A sale value r e f l e c t i n g an approximate return of 11 to 1 1 % % would be probable today. FRAME - NEW WESTMINSTER #138 AGE SUITES AVERAGE SUITE INCOME PER MONTH (1970) TOTAL INCOME (1970) 1967 42 $123 ( $129 fo r 1969*) $62,1 14 ($65,023 in 1969*) EXPENSES • )968 1969 1970  Operat ing U t i l i t i e s 8.6 7,9 8.5 E leva tor .2 .5 .2 C a b l e v i s i o n - I ,4 1.3 Garbage - . I Repairs 1.4 4.9 6.8 Admin is t ra t ion S a l a r i e s 6,7 6.1 6.4 Management .1 - .3 A d v e r t i s i n g .1 Insurance I,7 I.4 3.0 Other .8 . 2 ' .4 Taxes Dues and Licenses .4 .9 .7 Taxes 12.2 ' 12.5 14.9 TOTAL EXPENSES 32.0 35.9 42.5 PROPERTY TAX RATIOS Tax t o gross income Tax to net income Tax to t o t a l expenses Rat io 12.2 12.5 14.9 17.9 19.5 26.0 38.1 34,8 35.1 100.0$ 105.4$ 114.0$ •COMMENTS 1970 showed a much higher vacancy f a c t o r . FRAME - NEW WESTMINSTER #138 PURCHASE DATA Purchase p r i c e $425,000 Financing 306,000 Purchase equi ty 119,000 SALE EXPECTATION Because of the locat ion and condi t ion a c a p i t a l i z a t i o n rate of at least II % (poss ib ly 11.5%) should be used. 1970 income was about $3,000 below 1969 and expenses were about $3,000 h igher . Using a "normal ized" cash flow of $13,500 and a c a p i t a l i z a t i o n rate of 11% y i e l d s a market value of $458,000 and an ending equi ty of $167,000. YIELDS 1968 1969 1970 Cash f1ow $15,751 $14,307 $ 8,374 P r i n c i p a l repayment 4,284 4,590 4,896 Market gain 16,000 $36,035 $34,897 $14,270 Return on i n i t i a l i n -vestment of $119,000 30.3% 29.3% 12.0% Return on y e a r ' s equi ty 30.3% 25.1% 8.9% ALLOCATION OF TOTAL YIELD Cash flow $38,432 45.1% P r i n c i p a l repayment 13,770 16.2% Market gain 33,000 38.7% $85,202 100.0% RETURNS Average rate of return ex -c l u d i n g market gain 12.2% Internal rate of return i n -c l u d i n g market g a i n . 19.9% 132 #140 CLASS Frame ANALYSIS PERIOD: 1968, 1969, 1970. AGE 4 years LOCATION Woodwards area, New Westminster SIZE 49 suites 8 bachelor - $100 to $105 36 one bedroom - $115 to $130 5 two bedroom - $150 to $155 GENERAL Good rental area The exterior of building has just been repainted. The interior of the building shows hard usage and the lack of quality in the i n i t i a l construction. Construction quality is below average Leased coin laundry Poor quality carpeting, some of which has been replaced. Poor quality cupboards, general finishing Unstable structural areas in the building L i t t l e or no tenant storage Children and pets accepted. FINANCING F i r s t Mortgage Second Mortgage: approximately $295,500 (December 1970) $2,653 per month, 20 years, 8%, no clause. The original balance was $325,000. approximately $46,500 (December 1970) $621.52 per month,.13%, due in 1972. PURCHASE PRICE : $467,000 - November 1967 SALE VALUE The property i s presently on the market for $500,000. Offers have been received in the $475,000 range and a sale price of approximately $485,000 is expected. A price of this level would contravene the expected yield method of pricing--in this case a yield of 12 to 12%% should not be considered abnormal. However, i t appears as i f the present market considers the value to be higher than the yield would indicate. February 1972: A sale price of $475,000 (less $8,000 commis-sion) was obtained. FRAME - NEW WESTMINSTER 133 #140 AGE : 1967 SUITES : 49 AVERAGE SUITE INCOME PER MONTH (1970) : $119 TOTAL INCOME (1970) : $70,188 EXPENSES 1968 1969 1970 Operat ing U t i 1 i t i e s 8.2 8.6 10.0 C a b l e v i s i o n 1 .3 1 .5 1 .5 E leva tor - 1 .2 .2 Garbage .2 .2 — Repairs 7.3 6.9 9.0 Admi n i s t r a t i o n S a l a r i e s 5.9 6.1 7.1 Management 3.5 3.0 3.0 A d v e r t i s i n g - .2 .1 Insurance 2.1 1 .5 1 .6 Other 1 .0 .3 .5 Taxes Dues and Licenses .7 .4 ; .5 Taxes 12.3 13.0 14.8 TOTAL EXPENSES 42.4 42.8 48.2 PROPERTY TAX RATIOS Tax to gross income 12.3 13,0 14,8 Tax to net income 21.4 22.6 28.6 Tax to t o t a l expenses 29.1 30.2 30.7 Rat io Year 2 to Year I 100.0$ 106.7$ 115.0$ FRAME - NEW WESTMINSTER PURCHASE / SALE DATA Purchase p r i c e $467,000 Financing 370,000 Purchase equi ty 97,000 Sale p r i c e $467,000 Financing 342,500 Sale equi ty 124,500 YIELDS 1968 1969 1970 Cash flow $ 316 $ 657 $(2,962) P r i n c i p a l repayment 8,995 9,481 10,313 Market gain _- - -$9,-31 I $10,138 $ 7,351 Return on i n i t i a l investment of $97,000 9.6$ 10.5$ 7.6$ Return on y e a r ' s equi ty 9.6$ 9.6$ 6.4$ ALLOCATION OF TOTAL YIELD Cash flow $(1,989) (7.4$) P r i n c i p a l repayment 28,789 107.4$ Market gain - 0.0$ $26,800 100.0$ RETURNS Average rate of return 8.0$ Internal rate of return 7 .3% #146 CLASS Frame ANALYSIS PERIOD: 1970 AGE Approximately 5 years LOCATION Woodwards 1/Queen's Park area, New Westminster SIZE 25 suites 19 one bedroom - $120 to $128 5 two bedroom - $135 to $148 Penthouse (2 bedroom) - $175 GENERAL Older tenants (approximately 25% original) History of zero vacancies Very reasonable rents Smaller two bedroom suites, average sized one bedroom suites No children Elevator except to penthouse Self-owned laundry February 1971 (not reflected in this analysis) 50% underground parking Average construction Good condition, given the age F u l l management FINANCING Fi r s t Mortgage Second Mortgage: $139,000, 7%%, $1,098 per month, matures 1991. The original balance was $150,000. Approximately $53,000, 15%, $739.30 per month. The original balance was $54,000. PURCHASE PRICE : December 1969 - $277,000 SALE VALUE The property is presently on the market for $280,000. The estate is prepared to retire the present second mortgage and carry a new second mortgage of approximately $60,000 at 10%. A sale value reflecting a return of approximately 1 1 % would be probable. 136 FRAME - NEW WESTMINSTER ' #146 AGE : 5 years SUITES : 25 AVERAGE SUITE INCOME . PER MONTH (1970) : $122 TOTAL INCOME (1970) : $36,614 EXPENSES 1970 Operat ing U t i l i t i e s 7,4 C a b l e v i s i o n I,4 Garbage .I Telephone ,2 Repai rs 5.3 Admin is t ra t ion S a l a r i e s 7.5 Management 4,0 A d v e r t i s i n g .2 Insurance 2,4 Other .2 Taxes Dues and Licenses ,6 Taxes 13.7 TOTAL EXPENSES 43.0 PROPERTY TAX RATIOS Tax to gross income 13.7 Tax to net income 24,1 Tax to t o t a l expenses 32,0 Rat io FRAME - NEW WESTMINSTER 137 #146 PURCHASE DATA Purchase p r i c e Financi ng Purchase equi ty $277,000 193,000 84,000 SALE EXPECTATION 1970 had a high vacancy r a t e . A more normal year should have a zero cash flow and, with the 15% second mortgage, a sa le value of $240,000 with an ending equi ty of $52,000. A more reasonable eva lua t ion would be based upon the assumption that the property is sold with the f i r s t mortgage o n l y . On t h i s bas is the approximate sa le value would be $245,000 with an ending equi ty of $57,000. YIELDS 1970 Cash flow $ ( 1 , 1 6 1 ) Loss P r i n c i p a l repayment 5,696 Expected market loss (32,000) $(27,465) Loss RETURNS Rate of return exc luding expected market loss 5.4% Rate of return inc lud ing expected market loss -32.7% 138 #147 CLASS : Frame ANALYSIS PERIOD : 1968, 1969, 1970 AGE : C o n s t r u c t e d t h e summer o f 1967 LOCATION : Lower Woodwards a r e a , New W e s t m i n s t e r SIZE : 39 s u i t e s 5 b a c h e l o r - $97.50 t o $107.00 20 one bedroom -$118.00 t o $125.00 14 two bedroom -$145.00 t o $150.00 GENERAL : Good r e n t a l a r e a The b l o c k i s o f aver a g e c o n s t r u c t i o n b u t i t has been w e l l l o o k e d a f t e r . R e p a i n t e d i n t h e summer o f 1971 Hardwood f l o o r s Gas f u r n a c e Underground p a r k i n g o f about 70% o f t h e t o t a l S u i t e s a r e o f aver a g e s i z e No v a c a n c y problems b e c a u s e o f r e a s o n a b l e r e n t s L e a s e d l a u n d r y Some c h i l d r e n b u t t h e y a r e w e l l c o n t r o l l e d E l e v a t o r •FINANCING : F i r s t M o r t g a g e : $265,700 (December 1970). The o r i g i n a l b a l a n c e was $277,000, 7 3/4%, 25 y e a r s , $2,070 p e r month. Second M o r t g a g e : $53,300 (December 1970). The o r i g i n a l b a l a n c e was $58,000, 12%, 15 y e a r s . T h i s mortgage was r e t i r e d i n June o f t h i s y e a r . PURCHASE PRICE : November 1967 - $405,000 SALE VALUE A v a l u e r e f l e c t i n g a r e t u r n o f a p p r o x i m a t e l y 11% would be p r o b a b l e . FRAME - NEW WESTMINSTER 139 #147 AGE SUITES AVERAGE SUITE INCOME PER MONTH (1970) TOTAL INCOME (1970) 4 years 39 $127 $59,279 EXPENSES 1968 1969 1970 Operat ing U t i l i t i e s 7.0 7.5 9.2 Cab lev is ion 1 .3 1 .4 -Garbage .1 .2 -Other .5 .5 -Elevator - .9 -Repai rs 1 .2 3.4 5.7 Admin is t ra t ion S a l a r i e s 6.4 6.5 7.9 Management 3.0 3.0 2.9 A d v e r t i s i n g .3 .1 -Insurance 1 .7 1 ,4 1 .4 Other - .3 .8 Taxes Dues and Licenses 1 .0 .6 .7 Taxes 12.6 12.6 14.4 TOTAL EXPENSES 35.2 38.4 42.9 PROPERTY TAX RATIOS Tax to gross income 12.6 12.6 14.4 Tax to net income 19.4 20.4 25,3 Tax to t o t a l expenses 35.9 32.7 33.6 Rat io Year 2 to Year I 100.0% 104.9% 115.5% 140 FRAME - NEW WESTMINSTER #147 PURCHASE DATA Purchase p r i c e $405,000 Financing 335,000 Purchase equi ty 70,000 SALE EXPECTATION Using a norma I ized cash flow of $2,500 and a c a p i t a l i z a t i o n rate of 11$ a sa le p r i c e of $403,000 with an ending equi ty of $85,000 would be expected. However, i f a sa le were to be made cash to the f i r s t mortgage then a sa le value of $406,000 with an equi ty of $88,000 would be ob ta ined . YIELDS 1968 1969 1970 Cash flow . $3,067 $3,254 $ 707 P r i n c i p a l repayment 5,390 5,853 6,340 Expected market gain 333 333 333 $8,790 $9,440 $7,380 Return on o r i g i n a l equi ty of $70,000. 12.6$ 13.5$ 10.5$ Return on y e a r ' s equi ty 12.6$ 12.5$ 9.1$ ALLOCATION OF TOTAL YIELD Cash flow $ 7,028 27.4$ P r i n c i p a l repayment 17,583 68.7$ Expected market gain I,000 3.9$ $25,611 100.0$ RETURNS Average rate of return ex-c l u d i n g expected market gain 10.4$ Internal rate of return i n -c l u d i n g expected market g a i n . 10.8% 141 #148 CLASS : Frame ANALYSIS PERIOD: October 1968 to October 1970 AGE : 3 years LOCATION : New Westminster SIZE : 63 suites : ones - $125 to $128 twos - $162 to $175 bachelor $117 GENERAL : Carpeting Leased laundry Reasonable rents but slightly smaller than average suites. A similar building but with hardwood floors is across the street and i t has not vacancy problems and comparable rents. Average construction and fini s h . FINANCING : F i r s t Mortgage : $450,000, 8%, 20 years, $3,812 per month ( $ 4 6 2 , 0 0 0 ) . Second Mortgage: $60,000, 11%%, 5 years, $1,302 per month. PURCHASE PRICE : October 1968 - $700,000 SALE VALUE A sale value reflecting a return of approximately 1 1 % would be probable. FRAME - NEW WESTMINSTER 142 #148 AGE • : 3 years SUITES : 63 AVERAGE SUITE INCOME PER MONTH (1969) : $ 135 TOTAL INCOME (1969) : $101,738 EXPENSES 1968* 1969 1970* Operating U t i I i t i e s Cab lev i s ion 5.3 7.4 I .3 7.3 I ,4 Repa i rs Admin is t rat ion Sa l a r i e s Management Insurance Other Adver t i s ing Taxes Dues and Licenses Taxes ,7 5.4 .2 2,4 4.8 1.0 I .9 I.I 5.9 ,2 ,4 12.2 3.1 6.4 .7 .3 15.0 TOTAL EXPENSES 21 .6 30,6 34.2 PROPERTY TAX RATIOS Tax to gross income N/A Tax t o net income N/A Tax to t o t a l expenses N/A Rat io Year 2 to Year I N/A 12.2 17,6 40.0 100.0% 15.0 22.8 43.9 I 15.0% •COMMENTS 1968 1970 October to December only January to October on ly . FRAME - NEW WESTMINSTER #148 PURCHASE DATA Purchase p r i c e $700,000 Financing 512,000 Purchase equi ty 188,000 SALE EXPECTATION A c a p i t a l i z a t i o n rate of 11$ with a "normal ized" cash flow of $4,500 would y i e l d a sa le value of $714,000 and an ending equi ty of $243,000. If the second mortgage were deleted the sa le value and equi ty would remain s u b s t a n t i a l l y the same. YIELDS 1968* 1969 1970* Cash flow $ 3,707 $ 9,289 $ 1,075 P r i n c i p a l repayment 4,807 19,884 16,641 Expected market gain 5,250 _JLP^P_' I ,750 $13,764 $36,173 $19,466 Return on i n i t i a l equi ty of $188,000 29.3$ 19.2$ 13.8$ Return on y e a r ' s equi ty 29.3$ 18.3$ 11.5$ ALLOCATION OF TOTAL YIELD Cash flow $14,071 20.3$ P r i n c i p a l repayment 41,332 59.5$ Expected market gain 14,000 20.2$ $69,403 100.0$ RETURNS • Average rate of return ex -c l u d i n g expected market gain 13.3$ Internal rate of return i n -c l u d i n g expected market gain 1 6 . 2 % •COMMENTS 1968 represents three months and 1970 represents nine months. 144 #150 CLASS Frame (Landlease) ANALYSIS PERIOD: 1970 AGE 1968 LOCATION Lower Woodward's area, New Westminster SIZE 41 suites with the following distribution: 4 bachelor at $110 33 one bedroom at $122 to $137 4 two bedroom at $157.50 to $172.50 1 office GENERAL 65% underground parking 5 stage gas boiler (efficient) plus separate domestic hot water. Self-owned laundry with $180 to $200 per month income. Carpeting Above average quality of construction. Average sized suites Elevator Lots of storage room The building has not been well looked after in the last 3 years with the result that there are a number of areas of minor disrepair. The long-run operational and maintenance costs of this building should be below average. FINANCING Landlease - 60 year land lease, $82,000 at 8%, $6,560 per year. F i r s t Mortgage- $242,000 (present balance), 25 years, 8%%, $24,156 per year with a participation clause of 7%% of the gross income in excess of $62,500 per year. PURCHASE PRICE : 1968 - $368,000 SALE PRICE : December 1971 - $343,400 less a commission of $5,000. FRAME - NEW WESTMINSTER ( LAND LEASE) #150 AGE : 3 years SUITES : 41 AVERAGE SUITE INCOME PER MONTH (1970) : $141 TOTAL INCOME (1970) : $69,612 EXPENSES 1970  Operat ing U t i l i t i e s 7.5 C a b l e v i s i o n 1.4 E leva tor 2.0 Repa i rs 2,7 Admin is t ra t ion S a l a r i e s 5.5 Insurance I.2 Taxes 12.3 TOTAL EXPENSES 32.6 PROPERTY TAX RATIOS Tax t o gross income 12.3 Tax to net income 18.3 Tax to t o t a l expenses 37,8 Rat io FRAME - NEW WESTMINSTER 146 #150 PURCHASE DATA Purchase p r i c e (1968) $368,000 Financing $253,000 Equity $115,000 Purchase p r ice (1971) $343,400 Financing $242,400 Equity $101,000 SALE EXPECTATION Th is property was purchased on the bas is of a 1970 statement showing a cash flow of $16,190 which was corrected to show a flow of $11,051. The equi ty gain for 1971 w i l l be $4,048 g i v i n g a to ta l return of $15,100. On t h i s b a s i s , an o v e r a l l return of 15.0$ was demanded - - cons iderab ly higher than" that expected of a s i m i l a r property .he Id f r e e h o l d . CONCLUSION It would appear as i f the market expects f reehold p roper t i es to apprec ia te at a much higher rate than leasehold p r o p e r t i e s . However, the rate d i f f e r -e n t i a l of 4$ appears to be high unless i t is assumed that the market p laces a very great weight in long run market / i n f l a t i o n p r o t e c t i o n . Such an assumption does not appear unless theory is bypassed and concrete examples are ana lysed . 147 #152 CLASS : Frame ANALYSIS PERIOD: 1969, 1970 AGE Approximately 10 years LOCATION Lower New Westminster SIZE 42 suites GENERAL Close to lower New Westminster business d i s t r i c t . This i s an area of older blocks and i t is not a prime rental area. Only 6 balconies and 12 parking spaces. Leased laundry. Hardwood and carpet (poor condition) mixture. The general condition of the building reflects only average care since new. The result i s a building in less than ideal condition which reflects in lower rents than average and higher vacancy and turnover. As of December 8, 1971 there were 5 vacancies. FINANCING Agreement - $310,000, 9%, $2,180 per month (in excess of 50 years amortization). PURCHASE PRICE : November 1968 - $365,000 SALE VALUE A sale value reflecting a return of 12-12.5% would be probable. FRAME - NEW WESTMINSTER 148 #152 AGE : 10 years SUITES : 42 AVERAGE SUITE INCOME PER MONTH (1970) : $103 TOTAL INCOME (1970) : $52,005 ($52,858 In 1969) EXPENSES 1969 1970  Operating U t i l i t i e s 7,6 8.8 Cab lev i s ion 1.5 I.6 Garbage .2 Other .4 Repai rs 5.4 6.5 Administrat ion Sa la r ie s 7.8 7.8 Management 5.0 4,8 Adver t i s ing .2 .4 Insurance I.I 1,1 Other .6 .8 Taxes Dues and Licenses I.0 .8 Taxes I I.0 I I.2 TOTAL EXPENSES 41.7 43.9 PROPERTY TAX RATIOS Tax to gross income 11.0 11.2 Tax to net income 18.9 19.9 Tax to to ta l expenses 26.4 25.5 Ratio Year 2 to Year I 100.0$ 100,1$ 149 FRAME - NEW WESTMINSTER #152 PURCHASE DATA Purchase p r i c e $365,000 Financing 310,000 Purchase equi ty 55,000 SALE EXPECTATION A "normalized" cash flow of $3,800 and a c a p i t a l i z a t i o n rate of 12$ would y i e l d a sa le value of $354,000 and an ending equi ty of $46,000. The property is c u r r e n t l y on the market for $441,000 YIELD 1969 1970 Cash flow $ 4,653 $ 3,017 P r i n c i p a l repayment 1,740 1,910 Expected market loss (5,500) (5,500) $ 893 $( 573) Return on i n i t i a l equi ty of $55,000 I.6$ - I.0$ Return on y e a r ' s equi ty 1.6$ -1.1$ ALLOCATION OF TOTAL YIELD Cash flow $ 7,670 P r i n c i p a l repayment 3,650 Expected market loss (I 1,000) $ 320 RETURNS Average rate of return exc luding expected market l o s s . 10.3$ Interna! rate of re tu rn . .3% 1 #153 CLASS Frame ANALYSIS PERIOD: October 1968 to November 1970 AGE Constructed Summer of 1968 LOCATION Silver Avenue, Simpson-Sears area, Burnaby. SIZE 42 suites 30 one bedroom 11 two bedroom 1 bachelor GENERAL Good rental area No curbs or f u l l width roads (now completed) Exterior of building w i l l need painting shortly. Other than that, an attractive building, (now repainted). Interior of the building shows poor care and is beginning to reveal a lack of maintenance. Elevator, recreation room Underground parking (locked) Self-owned coin laundry Small suites but very reasonable rents Construction is above average and the financing is extremely attractive. FINANCING Fir s t Mortgage Second Mortgage: $281,000 ($300,000 original) @ 7%%, 25 years, $2,195 per month. $55,000 ($60,000 original) @ 12%, 13 years, $750 per month. PURCHASE PRICE $460,000 SALE PRICE : $485,000 151 FRAME - BURNABY #153 AGE SUITES AVERAGE SUITE INCOME PER MONTH (1969) TOTAL INCOME (1969) : 3 years : 42 : $137 : $68,999 EXPENSES 1968* 1969 1970* Operating U t i l i t i e s 1 .4 7,2 5.8 C a b l e v i s i o n 1 .3 1 ,2 1 ,4 Telephone .1 ,1 ,1 Repai rs I.I 5.0 3.3 Admin i s t r a t i o n S a l a r i e s 6.2 6.5 6.3 Insurance 2.0 I.I ,7 A d v e r t i s i n g - .2 .4 Other - .3 1 .2 Taxes Dues and Licenses .6 .4 .4 Taxes 13.7 13.5 15.3 . EXPENSES 26.5 35.5 '34.9 PROPERTY TAX RATIOS Tax to gross income Tax to net income Tax to to ta l expenses Rat io Year 2 to Year I COMMENTS* 13.7 18.6 51.7 13.5 20.9 37.9 100.0$ 15.3 23.5 44,0 104.2$ 1968 was for three months only and 1970 was for eleven months o n l y . FRAME - NEW WESTMINSTER 152 #153 PURCHASE-SALE DATA Purchase p r i c e Fi nanclng Purchase equi ty Sale equi ty F inancing Sale equi ty YIELDS $460,000 360,000 100,000 $485,000 346,500 138,500 1968* Cash flow P r i n c i p a l repayment Market gain Return on i n i t i a l equi ty of $100,000 Return on y e a r ' s equi ty $3,443 I ,573 2,900 $7,916 31 .7% 31 .7% J960 $ 9,181 5,700 I I,500 $26,381 26.4% 25.3% 1970 $ 8,690 5,867 10,400 $24,957 25.0% 20.7% ALLOCATION OF TOTAL YIELD Cash flow P r i n c i p a l repayment Market gain $21,314 13,140 25,000 $59,454 35.9% 22.1% 42.0% 100.0% RETURNS Average rate of return exc lud ing market gain Internal rate of return inc lud ing market gain 16.2% 2 5 . 0 % 1 5 3 #157 CLASS 1 rame ANALYSIS PERIOD: O p e r a t i o n a l c o s t s o n l y f o r 1969 and 1970 ( c o n t r a c t o r b u i l t / o w n e d ) . AGE 4 y e a r s LOCATION : New W e s t m i n s t e r SIZE 45 s u i t e s GENERAL Needs p a i n t i n g b a d l y A l l o u t s i d e p a r k i n g 3 v a c a n c i e s as o f November 1971 S e l f - o w n e d l a u n d r y A v e r a g e c o n s t r u c t i o n and f i n i s h i n g FRAME - NEW WESTMINSTER 154 #157 AGE : 4 years SUITES : 45 AVERAGE SUITE INCOME PER MONTH (1970) : $123 TOTAL INCOME (1970) : $66,460 EXPENSES 1968* 1969 1970 Operat ing -U t i 1 i t i e s 9.4 9.4 8.8 Cab 1evi s ion 1 .5 1 .4 1 .4 E1evator .2 - -Repa i rs 4.3 5.7 4.4 Admin is t ra t ion Sa1aries 3.0 3.4 3.3 Management I .9 1 .0 2.3 Advert i s i ng .4 - -Insurance .8 1 .0 .8 Other .6 .9 1 .3 Taxes Dues and Licenses .3 _ — Taxes 3.0 14.8 13.8 TOTAL EXPENSES 25.4 37.6 36.0 PROPERTY TAX RATIOS Tax to gross income Tax to net i ncome Tax to to ta l expenses Rat io Year 2 to Year I •COMMENTS N/A N/A N/A N/A 14.8 ' 27.8 31 .5 100.0$ 13.8 21 .5 38.2 94.7$ 1968 was a s t a r t - u p year with some expenses c a p i t a l i z e d 155 FRAME - NEW WESTMINSTER #157 Th is is an a n a l y s i s of operat ional cos ts o n l y . 156 #159 CLASS Frame ANALYSIS PERIOD: 1970 AGE 10 y e a r s LOCATION Kingsway and 1 2 t h Avenue, New W e s t m i n s t e r SIZE 15 s u i t e s 1 b a c h e l o r 9 one bedroom 5 two bedroom $105 $120 t o $135 $140 and $145 GENERAL : C l o s e t o t r a n s p o r t a t i o n b u t on a q u i e t s i d e s t r e e t . O i l h e a t No b a l c o n i e s 5 p a r k i n g s paces ( f r e e ) F r e e l a u n d r y 1 v a c a n c y as o f November 1971 Good r e p a i r g i v e n t h e age (owner managed). SALE VALUE : A s a l e v a l u e r e f l e c t i n g a r e t u r n o f a p p r o x i m a t e l y 12% would be p r o b a b l e . FRAME - NEW WESTMINSTER 157 #159 AGE : 10 years SUITES : 15 AVERAGE SUITE INCOME PER MONTH (1970) : $108 TOTAL INCOME (1970) : $19,463 EXPENSES 1970  Operat ing U t i l i t i e s 9.3 C a b l e v i s i o n I.6 Repa i rs 2.0 Admin is t ra t ion S a l a r i e s 9.3 Insurance .7 Taxes Dues and Licenses .6 Taxes 13.0 TOTAL EXPENSES 36.6 PROPERTY TAX RATIOS Tax to gross income 13.0 Tax to net income 20.6 Tax to t o t a l expenses 35.6 Rat io 158 FRAME - NEW WESTMINSTER #159 Th is is an a n a l y s i s of operat ional cos ts o n l y . #160 CLASS Frame ANALYSIS PERIOD: Operational costs for 1970 only (contractor built/owned) AGE 3 years LOCATION : New Westminster SIZE 60 suites + 1 office/suite GENERAL Ful l underground parking Large ground level balconies Slightly above average construction Land lease Elevator Self-owned laundry SALE VALUE A sale value reflecting a rate of return considerably higher than normal should be expected because of the land lease situation. Similar sales (few) have been in the 127° to 147> range. FRAME - NEW WESTMINSTER #1 AGE : 3 years SUITES : 60 AVERAGE SUITE INCOME PER MONTH (1970) : $ 133 TOTAL INCOME (1970) : $96,076 EXPENSES. 1970  Ope rat i rig U t i l i t i e s 7.8 C a b l e v i s i o n I,3 Repai rs 3.4 Admin is t ra t ion S a l a r i e s 5.2 Management' .5 Insurance ,6 Other .2 Taxes 13,9 TOTAL EXPENSES 32.9 PROPERTY TAX RATIOS 13.9 20.6 42,1 Tax to gross income Tax to net income Tax to t o t a l expenses Rat io 161 FRAME - NEW WESTMINSTER #160 Th is is an a n a l y s i s of operat ional cos ts on ly , #167 Frame ( l a n d l e a s e ) 1968 and 1969 o p e r a t i o n a l c o s t s o n l y (owner b u i l t / o p e r a t e d ) . Woodward's a r e a , New W e s t m i n s t e r 1967 42 s u i t e s L a n d l e a s e A v e r a g e c o n s t r u c t i o n and f i n i s h , good e x t e r i o r appearance C a r p e t i n g , e l e v a t o r S e l f - o w n e d l a u n d r y 1 v a c a n c y as o f November, 1971 On T r a n s p o r t a t i o n , 2 b l o c k s f r o m Woodward's FRAME - NEW WESTMINSTER #167 AGE_ : 4 years SUITES : 42 AVERAGE SUITE INCOME PER MONTH (1969) : $118 TOTAL INCOME (1969) : $59,456 EXPENSES - 1969 1970 Operat ing U t i 1 i t i e s 8.4 8.1 C a b l e v i s i o n 1 .4 1 .3 E leva tor .1 Repai rs 5.6 5.0 Admin is t ra t ion S a l a r i e s 6.5 7,1 Management 2.0 2.0 A d v e r t i s i n g J -Insurance 1.3 .7 Other .6 .2 Taxes Dues and Licenses .4 .5 Taxes 15.0 15.7 TOTAL EXPENSES 41.3 40.7 PROPERTY TAX RATIOS Tax to gross income 15.0 15.7 Tax to net income 25.5 26.5 Tax t o t o t a l expenses 36.2 38.6 Rat io Year 2 to Year I 100.0% 111,6% 164 FRAME - NEW WESTMINSTER #167 Th is is an a n a l y s i s of operat ional cos ts o n l y . 165 #168 CLASS : Frame (landlease) ANALYSIS PERIOD: 1968, 1969 (operational costs only) AGE : 1967 LOCATION : Woodward's area, New Westminster SIZE : 55 suites plus 2 "offices" or "sleeping rooms" GENERAL : Corner entrance as opposed to the standard central entrance. A poor choice of exterior color has resulted in premature fading. Needs painting. Average interior finish and quality. Self-owned laundry Carpeting, elevator Large ground level patios Some underground parking Landlease FRAME - NEW WESTMINSTER -* # 1 6 8 AGE 4 years SUITES : 55 plus 2 rooms » 57 AVERAGE SUITE INCOME PER MONTH (1969) ; 57 s u i t e s = $120 TOTAL INCOME (1969) : $81,829 EXPENSES 1968 1969 Operat i ng U t i l i t i e s 7.3 8,0 C a b l e v i s i o n 1 .2 1 .4 E levator .5 ,1 Repai rs 5.0 4.0 Admin is t ra t ion Sa1aries 5.8 5.3 Management 2.0 2.0 Insurance 1 .4 1 .4 Other ,9 ,8 A d v e r t i s i n g - .1 Taxes Dues and Licenses .5 ,5 Taxes, Landlease 22.4 27.2 TOTAL EXPENSES 46.9 50.9 PROPERTY TAX RATIOS NOT APPLICABLE FOR THIS PROPERTY. 167 FRAME - NEW WESTMINSTER #168 Th is is an a n a l y s i s of operat ional cos ts o n l y . 168 #169 CLASS : Frame (landlease) ANALYSIS PERIOD: 1970 (owner b u i l t , operational costs only) AGE : 3 years SIZE : 51 suites plus 4 "sleeping rooms" ( i l l e g a l ) GENERAL : The income i s increased s i g n i f i c a n t l y by the addition of 4 "sleeping rooms" or " o f f i c e s " at $60 each per month. The cost of t h i s a d d i t i o n a l space i s minor i n comparison with the income (about $4,000). Self-owned laundry and vending machines Large patios for ground l e v e l suites Average construction and f i n i s h Landlease 60% underground parking 3 vacancies as of November, 1971 Carpeting, elevator FRAME - NEW WESTMINSTER #169 AGE : 3 years SUITES : 51 plus 4 sl-eeping rooms = 55/51 AVERAGE SUITE INCOME PER MONTH (1970) : 55 s u i t e s = $125 TOTAL INCOME (1970) : $82,481 EXPENSES -J970 Operat ing U t i l i t i e s 8.0 C a b l e v i s i o n I.4 Repai rs . 4.0 Admin is t ra t ion S a l a r i e s 5.4 Management ,6 Insurance ,8 Other .3 Taxes 13.1 TOTAL EXPENSES 33.6 PROPERTY TAX RATIOS Tax to gross income 13.1 Tax to net income 19,7 Tax to t o t a l expenses 38.8 Rat io -170 FRAME - NEW WESTMINSTER #169 Th is is an a n a l y s i s of operat ional costs o n l y . 1 7 1 #126 CLASS : Concrete ANALYSIS PERIOD: August 1967, 1968, 1969, 1970 AGE : 1967 LOCATION : Woodward's area, New Westminster SIZE : 86 suites with the following distribution: 13 s t u d i o - $116 t o $134 - 445 square f e e t 53 one bedroom - $150 t o $179, 690, 710, 750 s q . f t . 15 two bedroom - $210 t o $234, 960 s q u a r e f e e t 2 t h r e e bedroom - $440 - 1765 s q u a r e f e e t GENERAL : No p o o l o r a i r - c o n d i t i o n i n g Saunas L o c k e d u n d e r g r o u n d p a r k i n g C o m b i n a t i o n g a s / o i l h e a t B a l c o n i e s C l o s e t o t r a n s p o r t a t i o n and s h o p p i n g B u i l t f o r t h e p r e s e n t owners. C a r p e t i n g , two e l e v a t o r s A v e r a g e + c o n s t r u c t i o n , g i v e n t h e t y p e and age o f t h e b u i l d i n g . FINANCING : Ground l e a s e - ( s e l f - o w n e d i n t e r n a l f i n a n c i n g ) 40 y e a r s a t $9,800 p e r y e a r ($140,000 a t 7 % ) . F i r s t Mortgage-$850,000, 7 3/4%, 25 y e a r s , $6,018 p e r month. S h a r e h o l d e r ' s Loan - $346,900, 8%%, i n t e r e s t o n l y . The t o t a l f i n a n c i n g c o s t s r e p r e s e n t t h e t o t a l p u r c h a s e p r i c e o f a p p r o x i m a t e l y $1,337,000. SALE VALUE : A s a l e v a l u e r e f l e c t i n g a r e t u r n o f about 10% would be p r o b a b l e . CONCRETE - NEW WESTMINSTER 1 7 2 #126 AGE : 1967 SUITES : 86 AVERAGE SUITE INCOME PER MONTH (1970) : $168 TOTAL INCOME (1970) : $173,345 EXPENSES 1967* 1968* 1969 1970 Operat ing U t i1 i t i e s 9.4 6.2 5.9 6.5 C a b l e v i s i o n 2.4 1 .2 1,2 1 .2 Eleva tor 1 .2 .4 .1 -Other .7 1 ,4 1 .3 1 .2 Repai rs 3.7 r.5 2.1 3.0 Admin is t ra t ion S a l a r i e s 5.1 5.1 4.5 4.7 Management 3.4 -. - .2 A d v e r t i s i n g .7 .2 .2 -Insurance 1 .5 .5 .5 .5 Other 2.2 .6 .4 .5 Taxes 6.7 17.5 15.6 17.2 TOTAL EXPENSES 36.7 34.6 31 .6 34.9 PROPERTY TAX RATIOS Tax t o gross income N/A 17.5 15.6 17.2 Tax tonet income N/A 26.7 22.7 26.4 Tax to t o t a l income N/A 50.8 49.2 49,3 Rat io Year 2 to Year 1 N/A 100.0% 97.9% III.8% •COMMENTS In 1967 a l l i n t e r e s t c o s t s were c a p i t a l i z e d and added to the shareho lder ' s loan. 1968 represents some s t a r t - u p cos ts a l s o . (The b u i l d i n g was not opera t ing at i t s normal occupancy l e v e l . ) 173 CONCRETE - NEW WESTMINSTER #126 PURCHASE DATA Purchase p r i c e $1,337,000 F inancing $1,337,000 Purchase equi ty N O N E SALE EXPECTATION A c a p i t a l i z a t i o n rate of 10$ has been used although there could be a v a l i d argument for a rate as low as 9$. On a 10$ bas is the pro jec t would be worth approximately $1,480,000 with an ending equi ty of $142,000. However, i t should be noted that the property is owned by a f i n a n c i a l i n s t i t u t i o n and that both the amount and the rates of f inanc ing are advantageous. If i t is assumed that the "shareholders loan" of $347,000 was the o r i g i n a l equi ty then the fo l lowing s i t u a t i o n e x i s t s . Purchase p r i c e $1,337,000 F inancing 990,000 Equity 347,000 Again using a c a p i t a l i z a t i o n rate of 10$, an expected p r i c e of $1,425,000 would be obtained g i v i n g an ending equi ty of $475,000. YIELDS 1968 1969 1970 Cash flow P r i n c i p a l repayment Expected market gain $22,868 11,900 42,000 $38,159 12,750 42,000 $33,909 13,600 44,000 $76,800 $92,900 $91,500 Return on i n i t i a l i n -vestment of $347,000 22.1$ 26.8$ 26.4$ Return on y e a r ' s equi ty 22.1$ 23.2$ 20.1$ ALLOCATION OF TOTAL YIELD Cash flow P r i n c i p a l repayment Expected market gain $ 94,936 38,250 128,000 36.3$ 14.5$ 49.2$ • $261,186 100.0$ RETURNS Average rate of return ex -c l u d i n g expected market gain 12.3$ Internal rate of return i n -e lud ing expected market g a i n . 1 7 . 9 % 174 #143 CLASS C o n c r e t e ANALYSIS PERIOD: 1966, 1967, 1968, 1969 AGE: : C o n s t r u c t e d 1965 LOCATION New W e s t m i n s t e r SIZE 64 s u i t e s GENERAL No i n f o r m a t i o n on mortgages I n d o o r p o o l and sauna S e l f - o w n e d l a u n d r y C a r p e t i n g , e l e v a t o r , g a l l e y t y p e k i t c h e n s L o c a t e d on a busy s t r e e t , on t r a n s p o r t a t i o n , c l o s e t o S t . Mary's H o s p i t a l . PURCHASE PRICE : $800,000 (1965) SALE PRICE $840,000 (1970) CONCRETE - NEW WESTMINSTER #143 AGE ' : 1965 SUITES : 64 AVERAGE SUITE INCOME PER MONTH (1969) : $128 ($130 in 1967) TOTAL INCOME : $97,908 ($100,145 in 1967 EXPENSES 1966 1967 1968 1969 Operat ing U t i 1 i t i e s 6.5 6.5 6.3 8 .7* C a b l e v i s i o n I .4 I.I I .3 1 .4 Garbage .1 .1 .2 .2 E l e v a t o r 1 .3 ,8 .4 .2 Other .9 1 .0 1 .2 1 .5 ReDa i rs 4.2 6.0 8.4 8.6 Admin is t ra t ion S a l a r i e s 5.0 4.9 5.5 5.7 Management 3.0 3.0 3.2 3.3 Insurance - .1 1 .1 .2 A d v e r t i s i n g - - .3 -Taxes Taxes _ 15.0 _ Water,Sewer .9 .9 1.2 1 .0 Dues and Licenses .5 .5 .5 .5 TOTAL EXPENSES 23.9 25.0 44.6 31 .2 PROPERTY TAX RATIOS NOT AVAILABLE FOR THIS BUILDING •COMMENTS In 1968 the s t ruc ture s ta r ted to s h i f t which resu l ted in ground f reez ing and a very heavy increase in cos ts f o r 1968 and 1969. 176 CONCRETE - NEW WESTMINSTER * #143 Th is is an a n a l y s i s of operat ional cos ts o n l y . 177 #158 CLASS Concrete ANALYSIS PERIOD: 1966, 1967, 1968, 1969, 1970 AGE Approximately 10 years LOCATION Woodwards area, New Westminster SIZE 56 s u i t e s GENERAL Good r e n t a l area S t a b l e tenants w i t h few vacancies No b a l c o n i e s but a l a r g e lobby/sun room Some carpeted s u i t e s Self-owned laundry Indoor pool E l e v a t o r (2) 507<> underground p a r k i n g Average s i z e d s u i t e s O i l / g a s heat (conversion) The b u i l d i n g i s becoming a l i t t l e dated but i t i s i n good r e p a i r . FINANCING $245,000 (December 1970), 7%%, $2,385 per month. PURCHASE PRICE J u l y 1963 - $468,000 SALE VALUE A sale p r i c e r e f l e c t i n g a r e t u r n of approximately 107. to 10%% would be probable. CONCRETE - NEW WESTMINSTER 178 #158 AGE : 10 years SUITES : 56 AVERAGE SUITE INCOME PER MONTH (1970) : $123 TOTAL INCOME (1970) : $82,915 EXPENSES ]966_ 1967 1968 1969 1970  Operating U t i l i t i e s 6.5 6.1 5.3 5.7 5.7 Cab lev i s ion 1.6 1.2 1.5 1.6 1.5 E levator - - .3 .3 .1 Repairs 9.2 5.5 4.7 5.7 4.3 Admin i s t rat ion Sa l a r i e s 6.6 6.6 6.5 6.1 5.8 Insurance .4 .3 .3 .5 .1 Adver t i s i ng - - .1 .3 .1 Other - • - - .2 Taxes Water,Sewer I.I 1.3 .6 .9 -Taxes 14.1 14.2 13.1 14.9 15.8 TOTAL EXPENSES 39.4 35.3 32.4 35.9 33.6 PROPERTY TAX RATIOS Tax to gross income 14,1 14.2 13.1 14.9 15.8 Tax t o net income 23.2 21 .9 19.3 23.3 23.8 Tax to t o t a l expenses 35.7 40.3 40.3 41 .5 46.9 Rat io Year 2 to Year 1 100.0$ 107.8$ 99,6$ 115.3$ 1 1 1.2$ FRAME - NEW WESTMINSTER 179 #158 PURCHASE DATA Purchase p r i c e $468,000 F inancing 284,000 Purchase equi ty 184,000 SALE EXPECTATION Based upon a "normalized" cash flow of $24,000 and a c a p i t a l i z a t i o n rate of 10.5$ a sa le value of $575,000 with an ending equi ty of $330,000 would be expected. YIELDS 1966 1967 1968 1969 1970 Cash flow $12,292 $18,094 $24,220 $21,946 $26,428 P r i n c i p a l repayment 8,100 8,700 9,300 10,000 10,700 Market gain 21 ,000 21,000 25,200 4,200 15,600 $41,392 $47,794 $58,720 $36,146 $52,728 Return on i n i t i a l investment of $184,000 22.5$ 26.0$ 31.9$ 19.6$ 28.7$ Return on y e a r ' s equi ty 22.5$ 22.4$ 23.7$ 13.0$ 18.1$ ALLOCATION OF TOTAL YIELD Cash flow $102,980 40.1$ P r i n c i p a l repayment 46,800 18.2$ Market gain 107,000 41.7$ $256,780 100.0$ RETURNS Average rate of return ex-c l u d i n g market gain 14.4 Internal rate of return i n -c l u d i n g market g a i n . 24.8% #11.2.. CLASS Frame ANALYSIS PERIOD: 1970 AGE Constructed 1969 and Spring of 1970 LOCATION King George Highway area, Surrey SIZE 154 suites 17 one bedroom 123 two bedroom 14 three bedroom GENERAL 154 s u i t e s , two and three storey, garden apartment on 8 acres. Heated indoor pool Carpeted, l o t s of storage space Larger than average suites 3 bedroom u n i t s are two storey Each suite has i t s own priv a t e entrance 5 laundry rooms with leased machines Playground and tot l o t s Ground f l o o r suites have 200 square foot patios Gross p o t e n t i a l revenue i s about $275,000 Vacancies now 4%. FINANCING $1,415,000 at 8 7/8%, 30 years, $11,097 per month. PURCHASE PRICE July 1969 - $1,700,000 plus $154,000 to pay o f f p r o j e c t . The t o t a l e f f e c t i v e p r i c e including start-up costs would be approximately $1,860,000. SALE PRICE One h a l f of the property was sold i n December of 1969 for $1,000,000. SALE VALUE : A sale value r e f l e c t i n g a return of approximately 11% would be probable. FRAME - SURREY 181 #112 AGE : I year SUITES : 154 AVERAGE SUITE INCOME PER MONTH (1970) : $129* TOTAL INCOME (1970) : $237,547* EXPENSES 1970  Operati ng U t i l i t i e s 8.7 C a b l e v i s i o n I .6 Garbage .6 Repa ? rs 2.1 Adtni n i s t r a t i o n SaIar ies 4.I Management 2.7 A d v e r t i s i n g .6 Insurance I .3 Other .2 Taxes Water and Sevier 2.5 Dues and Licenses I .3 Taxes 20 .5* TOTAL EXPENSES 46.2 PROPERTY TAX RATIOS Tax to gross income 20.5* Tax to net income 38.1* Tax to to ta l expenses 44.4* Rat io of Year 2 to Year I •COMMENTS : 1970 was the f i r s t f u l l year of operat ion of t h i s pro jec t but there were many problems which resu l ted in very high vacancies in the f i r s t s ix months of 1970. Gross potent i a I revenue (no vacancies) is aboul $310,000 with an expected actual gross of $285,000 to $295,000. The property tax assessment should have bee appealed. FRAME - SURREY 182 #1 12 PURCHASE DATA Approximate purchase p r i c e $1,860,000 F inancing 1,415,000 Purchase equi ty 445,000 SALE EXPECTATION Because of the large sca le development of l imi ted div idend and condominium housing in Surrey , there w i l l be continued pressure on conventional p ro jec ts such as t h i s . There fore , a c a p i t a l i z a t i o n rate of at least 11% should be used. Based upon an actual gross of $290,000 with expenses of 40% t h i s would r e s u l t in an expected p r i c e of $1,865,000 and an ending equi ty of $460,000. YIELDS 1970 Cash flow $40,000 P r i n c i p a l repayment 10,000 Expected market gain I 5,000 $65,000 Return on equi ty 14.6% RETURNS Average rate of return exc lud ing market gain II .2% Internal rate of return inc lud ing market g a i n . 14.6% #151 CLASS • rame ANALYSIS PERIOD: 1967, 1968, 1969 AGE LOCATION 5 years Surrey SIZE Originally 98 suites, now 101 suites 12 one bedroom 50 two bedroom 39 three bedroom (8 with double plumbing) GENERAL Family type accommodation area Across from a shopping center, very close to freeway access, adjacent to parks, close to schools. Below average construction Vacancy factor approximately I07o. Indoor pool Recreation rooms, outside play areas Balconies, carpeting, no elevator, large storage areas in suites. Leased laundry Exterior painted in 1970 Extensive repairs and upgrading have occurred in the last 2 years. This area is being h i t badly by limited dividend rental housing and by low cost condominiums. See building #156 FINANCING Agreement - $885,000, 87., $6,869 per month, 25 years, originally $900,000. The underlying mortgage is $685,000, 87., 20 years. 183 #151 1. P u r c h a s e d November, 1966 f o r $918,000. 2. A 507. i n t e r e s t was s o l d i n J a n u a r y , 1968 f o r $505,000. 3. A 33 1/3% i n t e r e s t was s o l d i n M ay, 1969 f o r $388,500. 4. The whole p r o p e r t y was s o l d i n Dec. 1969 f o r $1,150,000. 5. The p r o p e r t y i s p r e s e n t l y on t h e m a r k e t f o r $1,250,000. A s a l e v a l u e r e f l e c t i n g a r e t u r n o f n o t l e s s t h a n 12% s h o u l d be e x p e c t e d . 184 FRAME - SURREY #151 AGE : 5 years SUITES : 101 AVERAGE SUITE INCOME PER MONTH (1969) : $143 TOTAL INCOME (1969) : $173,637* EXPENSES 1967 - 19681 1969 Operating U t i 1 i t i e s 8.0 7.2 7.1 Cab lev is ion 1 .5 1 ,2 1 .2 Garbage ,9 - .9 Telephone .1 .1 Other .1 .3 .2 Repa ? rs 3.2 6,4 5.3 Administ ra t ion S a l a r i e s 7.0 7.0 6.8 Management .6 2,5 2.9 A d v e r t i s i n g - .5 ,5 Insurance .4 ,7 .7 Other .7 , 1 -Taxes Water,Sewer 3.7 2.8 3.0 Dues and Licenses .5 .5 .4 Taxes 16,2 15,7 16.4 TOTAL EXPENSES 42.8 45.0 45.4 PROPERTY TAX RATIOS Tax t o gross income Tax to net income Tax to t o t a l expenses Rat io Year 2 to Year I 16.2 15.7 16,4 28.3 28.5 30,0 37.8 34.8 36,1 100,0$ 101.7$ 104.8$ *C0MMENTS Potent ia l income $194,000. 1968 and 1969 income the same. 1971 income would appear to be lower than 1968/1969 because of cont inuing vacancy problem. FRAME - SURREY 185 #151 Por t ions of the fo l lowing property were sold three times in three y e a r s . The las t sa le at a rate s l i g h t l y below the high point which was reached in the spr ing of 1969. In 1970 and 1971 there were very heavy vacancies in the area which were brought about by four major f a c t o r s . 1. ) The economic slow down. 2. ) The cons t ruc t ion of new, non basement homes that were wi thin reach of many of the potent ia l and e x i s t i n g tenants . 3. ) The cons t ruc t ion of condominiums, some as low as $14,000, which tenants earning $400.00 per month could a f f o r d . 4. ) The advent of " l im i ted d iv idend" rental u n i t s . The r e s u l t has been that a heavy vacancy s i t u a t i o n e x i s t s , rents cannot be r a i s e d , expenses are r i s i n g and many repa i rs are needed to a p ro jec t that was shoddy to begin wi th . The present owners have the property l i s t e d at $1,250,000. A sa le at $1,050,000 would be fo r tuna te . SUMMATION 100$ purchased November 1966 50$ sold January 1968 50$ sold December I969N $918,000 $168,000 equity $575,000 $227,000 equity $505,000 $138,000 equity I Leaves 50$ > 33,3$sold —>33.3$ sold March 1969 December 1969 $388,500 Leaves 16.6$ $150,000 (equity) $383,333 $151 ,333 equity -> 16.6$ sold December 1969 $1,150,000 $ 454,000 $191,667 $775,667 equtiy FRAME, - SURREY PURCHASE/SALE DATA #1 #151 1 8 7 Purchase p r i c e F inancing Purchase equi ty Sale p r i c e F inancing Sale equi ty YIELDS Cash flow P r i n c i p a l repayment Market gain RETURNS $918,000 (November 1966) 750,000 168,000 $1 ,010,000 734,000 276,000 1967 Average rate of return exc lud ing market gain Internal rate of return $ 19,741 15,750 92,000 $127,491 21.1$ 75.9$ 50$ was so ld in January 1968. below is based on 100$ 15.5$ 12.4$ 72. 1$ The a n a l y s i s 100.0$ FRAME - SURREY #151 PURCHASE / SALE DATA #2 Purchase p r i c e F inancing Purchase equi ty $918,000 750,000 168.000 (November 1966) Sale p r i c e F inancing Sale equi ty YIELDS Cash flow P r i n c i p a l repayment Market gain $1,165,000 716,000 449,500 1967 $ 19,741 15,750 92,000 $127,491 Return on i n i t i a l equi ty of $168,000 Return on y e a r ' s equi ty ALLOCATION OF TOTAL YIELD Cash flow Pr inc ipa l • repayment Market gain RETURNS Average rate of return exc luding market gain Internal rate of return 75.9% 75.9% $ 40,530 33,750 247,500 $321,780 21 .0% 52.1% 33.3% was sold in March 1969. The a n a l y s i s below i s based on 100% 1968 $ 20,789 18,000 155,500 $194,289 I 15.6% 70.4% 12.6% 10.5% 76.9% 100.0% 189 FRAME - SURREY #151 PURCHASE / SALE DATA #3 Purchase p r i ce $918,000 Financing 750,000 Purchase equity 168,000 Sale p r i ce $1,150,000 The whole property was sold in December 1969 Financing 696,000 Sale equity 454,000 YIELDS 1967 J968 1969 Cash flow $ 19,741 $ 20,789 $28,179 P r i nc i pa l repayment 15,750 18,000 19,500 Market gain ( loss ) '92,000 155,500 (15,500) $127,491 $194,289 $32,179 Return on i n i t i a l equi ty of $168,000 75.9% 115.6% 19.2% Return on year ' s equi ty 75.9% 70.4% 7.2% ALLOCATION OF TOTAL YIELD Cash flow $ 68,709 19.4% P r inc ipa l repayment 53,250 15.1% Market gain 232,000 65.5% $353,959 100.0% RETURNS Average rate of return excluding market gain 21.0% Internal rate of return 3 7 . 9 % FRAME - SURREY 190 #151 PURCHASE / S A L E DATA #4 - (the 50$ por t ion so ld in January 1968) Purchase p r i c e $505,000 Financing 367,000 Purchase equi ty 138,000 Sale p r i c e $575,000 Financing 348,000 Sale equi ty 227,000 YIELDS 1968 1969 Cash flow $10,395 $14,090 P r i n c i p a l repayment 9,000 9,750 Market gain ( loss) 77,750 (7,750) $97,145 $16,090 Return on i n i t i a l equi ty of $138,000 70.4$ I I.7$ Return on y e a r ' s equi ty 70.4$ 7.2$ ALLOCATION OF TOTAL YIELD Cash flow $ 24,485 21.6$ P r i n c i p a l repayment 18,750 16.6$ Market gain 70,000 61.8$ $113,235 100.0$ RETURNS Average rate of return • exc luding market gain 14.6$ Internal rate of return 3 1 . 1 % 191 FRAME - SURREY s 1 #151 PURCHASE/SALE DATA #5 - ( The 33.3% port ion sold in March 1969) Purchase p r i c e $388,500 F inancing 238,500 Purchase equi ty 150,000 Sale p r i c e $383,300 Financing 232,000 Sale equi ty 151,300 YIELDS 1969 Cash flow $ 9,393 87.6% P r i n c i p a l repayment 6,500 60.6% Market loss (5,167) (48.2%) $10,726 100.0% RETURNS Average rate of return exc luding market loss 10.6% Internal rate of r e t u r n . 7 . 1 % 192 #156 CLASS 1 rarae ANALYSIS PERIOD: .1969, 1970 AGE 5 years LOCATION G u i l d f o r d area, Surrey SIZE Two 3 storey and Two 2 storey b u i l d i n g s . 89 s u i t e s ; approximately 65 three bedroom and 24 two bedroom. GENERAL Close to freeway, shopping, schools. Indoor p o o l , sauna. Playgrounds Two and three storey b u i l d i n g s w i t h no hallways; stairways and landings only. Below average c o n s t r u c t i o n . Hardwood and c a r p e t i n g . Considerable funds have been spent on upgrading the property since i t was purchased new. P r o p e r t i e s such as t h i s are r e c e i v i n g more and more competition from C.M.H.C. financed l i m i t e d d i v i d e n d and low cost condominium housing. I t would appear that t h i s competition w i l l i n c r e a s e . FINANCING $667,000, 7 3/47°, $6,108 per month, 20 years ($765,000), PURCHASE PRICE : December 1968 - $1,047,000 SALE VALUE A Sale value r e f l e c t i n g a r e t u r n of 11% to 127. would be probable. FRAME - SURREY #156 AGE : 5 years SUITES : 89 AVERAGE SUITE INCOME PER MONTH (1970) : $ 161 TOTAL INCOME (1970) : $171,963 EXPENSES 1969 1970 Operat ing U t i 1 i t i e s 8.0 10.1 Cab lev is ion 1,1 1 .1 Other - .3 Repairs 12.8 8.0 Admin is t ra t ion S a l a r i e s 6.7 5.0 A d v e r t i s i n g .1 .1 1nsurance 1 .2 .,9 Other .3 .1 Taxes 17.9 18.8 TOTAL EXPENSES 48.1 44.4 PROPERTY TAX RATIOS Tax to gross income 17.9 18.8 Tax to net income 34,6 33.9 Tax to t o t a l expenses 37.3 42.4 Rat io of Year 2 to Year I 100.0% 119.2% 194 FRAME - SURREY #156 PURCHASE DATA Purchase p r i c e $1,047,000 F inanc ing 690,000 Purchase equi ty 357,000 SALE EXPECTATION Because of the severe competi t ion in t h i s area from condominium sa les and from l imi ted div idend rental un i ts there w i l l be cont inu ing d i f f i c u l t i e s in running pro jec ts of t h i s type because of the market pressures on r e n t s . It should be expected that operat ional cos ts w i l l continue to run at 42$ to 44$ of gross income. Using a " normalized " cash flow of $22,350 and a c a p i t a l i z a t i o n rate of I I.5$ a sa le value of $1,062,000 with an ending equi ty of $395,000 would be expected. YIELDS \969_ 1970 Cash flow $ 5,214 $22,350 P r i n c i p a l repayment 20,655 22,950 Expected market gain 7,500 7,500 $33,369 $52,800 Return on i n i t i a l equi ty of $357,000 9.3$ 14.8$ Return on y e a r ' s equi ty 9.3$ 13.7$ ALLOCATION OF TOTAL YIELD Cash flow $27,564 32,0$ P r i n c i p a l repayment 43,605 50.6$ Expected market gain 15 ,000 17.4$ $86,169 100.0$ RETURNS Average rate of return ex -c l u d i n g expected market gain 9.4$ Internal rate of return i n -c l u d i n g expected market gain 11 .5% #107 CLASS : Frame ANALYSIS PERIOD: 1969 and 1970 AGE : 8 years LOCATION : North Vancouver, n o r t h of Upper L e v e l s , west of Lonsdale. SIZE : 93 s u i t e s - 2 bachelor 9 one bedroom 41 two bedroom 21 three bedroom GENERAL : Garden type complex made up of many separate b u i l d i n g s d i v i d e d by paths, landscaping, p o o l . Open a i r pool Smaller c h i l d r e n seem to be segregated i n t o one area. Hardwood f l o o r s Leased c o i n laundry No e l e v a t o r s Quiet l o c a t i o n c l o s e to conveniences The property appears to be i n reasonable shape given the age. However, extensive o u t l a y s may be probable f o r modernization i f rents begin to s u f f e r or vacancies occur No vacancies e x i s t now and r e n t s appear to be very good but replacement allowances should be made. FINANCING : F i r s t Mortgage -Second Mortgage -T h i r d Mortgage $728,500 at 8%, $6,503 per month, 19 year a m o r t i z a t i o n . The o r i g i n a l b a l -ance was $770,000. $105,500 at 8%, 17 years, $1,000 per month. The o r i g i n a l balance was $112,500. $80,000 at 5%, i n t e r e s t o n l y , $333 per month. PURCHASE PRICE : $1,182,500 SALE VALUE : A s a l e p r i c e to r e f l e c t a r e t u r n of approximately 11/° would be probable. 196 FRAME = NORTH - VANCOUVER # 1 0 7 . AGE : 8 years SUITES : 93 AVERAGE SUITE INCOME PER MONTH (1970) : $158 TOTAL INCOME $176,641 EXPENSES 1969 1970 Operati ng U t i 1 i t i e s 5.4 4.1 C a b l e v i s i o n .8 .8 Repa i rs 8,3 6.1 Admin is t ra t ion Sa1aries 4.5 5.3 Management 5.0 4.1 A d v e r t i s i n g .2 -Insurance 1 .5 — Taxes Water and Sewer 1 .2 I.I Dues and Licenses .3 .3 Taxes 10.7 10.8 TOTAL EXPENSES 37.8 32.6 PROPERTY TAX RATIOS Tax to gross income 10.7 10.8 Tax to net income 17.1 16.0 Tax to totaI expenses .28.2 33.1 Rat io Year 2 to Year I 100.0$ 106.9$ 197 FRAME - NORTH VANCOUVER #107 PURCHASE DATA Purchase p r i c e F i n a n c i n g Purchase e q u i t y SALE EXPECTATION $1,182,500 $ 962,500 $ 220,000 A s a l e v a l u e r e f l e c t i n g a r e t u r n of approximately 11% w i t h about $62,500 f o r expenses should be expected. In t h i s b a s i s the p r o p e r t y would y i e l d an o v e r a l l p r i c e of $1,305,000 and an e g u i t y of $390,000. However, i f the $80,000 at 5% i s excluded from the f i n a n c i n g then the r e t u r n of 11% would y i e l d a v a l u e of $1,265,000 f o r a r e d u c t i o n i n e g u i t y of $40,000. Si n c e the $80,000 at 5% i s a r e l a t i v e l y s h o r t term advantage t h e n . i t would be expected t h a t the v a l u e o f the p r o p e r t y would be approximately $1,275,000 f o r an e g u i t y of $360,000. In l i g h t of the magnitude of the expected c a p i t a l a p p r e c i a t i o n a v a r i a t i o n of + $10,000 r e g a r d i n g the 5% f i n a n c i n g i s not s i g n i f i c a n t . YIELDS Cash f l o w P r i n c i p a l repayment Expected market g a i n 1969 $ 10,105 $ 21,700 $ 70,000 1970 $ 25,107 $ 23,300 $ 70,000 $101,800 $125,400 Return on i n i t i a l i n -vestment of $220,000 46.3% Return on year's e q u i t y 46.3% ALLOCATION OF TOTAL YIELD Cash f l o w P r i n c i p a l repayment Expected market g a i n $ 35,200 $ 45,000 $ 92,000 $172,000 57.0% 40.2% 20.5% 26.2% 53.3% 100.0% RETURNS Average r a t e o f r e t u r n e x c l u d i n g market g a i n I n t e r n a l r a t e of r e t u r n i n c l u d i n g market g a i n 16.5% 29.7% COMMENTS The lower than average o p e r a t i o n a l c o s t s can be a t t r i b u t e d p a r t i a l l y t o economies of s c a l e but more so t o the low over-a l l p r o p e r t y t a x e s . 198 #122 Frame 1969 and 1970 New, F a l l 1968 C e n t r a l L o n s d a l e , N o r t h Vancouver 17 s u i t e s - 5 one bedroom 11 two bedroom 1 t h r e e bedroom Q u i e t a r e a , e x c e l l e n t r e n t a l l o c a t i o n No e l e v a t o r E x c e l l e n t c o n d i t i o n D i f f e r e n t d e s i g n and s e t t i n g add v i s u a l a p p e a l C a r p e t e d s u i t e s L e a s e d l a u n d r y C o n s t r u c t i o n a p p e a r s t o be b e t t e r t h a n a v e r a g e and m a i n t e n a n c e a p p e a r s good. F i r s t M o rtgage - $120,800 a t 9%%, 27 y e a r s , $1,039 p e r month. The o r i g i n a l b a l a n c e was $125,000. Second Mortgage - $40,000 a t 9%%, 15 y e a r s , $406 p e r month. November, 1968 - $217,500 A s a l e p r i c e r e f l e c t i n g a r e t u r n o f a p p r o x i m a t e l y 10.5% woul d be p r o b a b l e . FRAME - NORTH VANCOUVER #122 AGE : 1968 SUITES : 17 AVERAGE SUITE INCOME PER MONTH (1970) : $153 TOTAL INCOME (1970) : $31,275 EXPENSES 1969 \910 Operati ng U t i 1 i t i e s 9.4 5.6 C a b l e v i s i o n 1 .5 1 .5 Repai rs 3.1 2.8 Admin is t ra t ion Sa1aries 6.0 5.7 A d v e r t i s i n g .8 .5 1nsurance 1 .6 1 .4 Other .1 — Taxes Dues and Licences .4 .3 Taxes 14.2 18.7 EXPENSES 37.2 36.6 PROPERTY TAX RATIOS Tax to gross income 14,2 18.7 Tax to net income 22.7 29.5 Tax to t o t a l expenses 38.3 51,2 Rat io Year 2 to Year I 100.0% 143.1% 200 FRAME - NORTH VANCOUVER #122 PURCHASE DATA Purchase p r i c e $217,500 Financing 165,000 Purchase equi ty 52,500 SALE EXPECTATION A sa le p r i c e r e f l e c t i n g a c a p i t a l i z a t i o n rate of about 10.5$ is expected. Th is would y i e l d a p r i c e of $210,000 and an ending equi ty of $50,000. YIELDS 1969 1970 Cash flow $ 718 $ 2,495 P r i n c i p a l repayment 2,450 2,690 Expected market loss (3,750) (3,750) $ (600) $ I,450 Return on i n i t i a l i n -vestment of $52,500 -1.1$ 2.8$ Return o n ' y e a r ' s equi ty -1 .1$ 2.8$ ALLOCATION OF TOTAL YIELD Cash flow $3,213 P r i n c i p a l repayment 5,140 Expected market loss (7,500) $ 853 RETURNS Average rate of return ex -c l u d i n g expected market loss 7.9$ Internal rate of return i n -c l u d i n g expected market loss .8% 201 #165 CLASS : Frame ANALYSIS PERIOD: 1970 ( o p e r a t i o n a l c o s t s o n l y ) AGE : 4 y e a r s LOCATION : N o r t h Vancouver SIZE : 18 s u i t e s - 12 t h r e e bedroom 6 two bedroom GENERAL : Owner o p e r a t e d V e r y l a r g e s u i t e s (3 bedroom 1,100 t o 1,400 square f e e t and 2 bedroom 900 t o 1,000 square f e e t ) . C l o s e t o s h o p p i n g and t r a n s p o r t a t i o n . Hardwood f l o o r s No basement o r u n d e r c o v e r p a r k i n g No e l e v a t o r S e l f - o w n e d l a u n d r y R e p a i r s r e f l e c t m a t e r i a l s o n l y M a r k e t r e n t s , no v a c a n c i e s FINANCING •. : F i r s t M o r t g a g e : $117,000, 8%%, $1,082 p e r month Second M o r t g a g e : $52,000, 8%%, $590 p e r month SALE PRICE : J a n u a r y 1971 - $263,000 202 FRAME - NORTH VANCOUVER #165 AGE : 4 years SUITES : 18 AVERAGE SUITE INCOME PER MONTH (1970) : $184 TOTAL INCOME (1970) : $39,637 EXPENSES: 1970  Operati ng U t i l i t i e s 5,5 C a b l e v i s i o n 1.2 Garbage ,5 Other .5 Repa i rs 2 .0 Admin is t ra t ion S a l a r i e s 5,1 Insurance .6 Taxes Water,Sewer 1.2 Dues and Licenses ,3 Taxes 11.3 TOTAL EXPENSES . 28.2 PROPERTY TAX RATIOS Tax to gross income 11,3 Tax to net income 15,7 Tax to t o t a l expenses 40.2 Rat io 203 FRAME - NORTH VANCOUVER #165 Th is is an a n a l y s i s of operat ional cos ts only #110 CLASS 1 rame ANALYSIS PERIOD: 1970 AGE Approximately 4 years LOCATION Coquitlam SIZE 311 suites 163 two bedroom at $165 91 three bedroom at $188 57 one bedroom at $125 to $135 GENERAL About 50% underground parking Pool, saunas No elevator Self-owned laundry 5 separate buildings and 5 separate caretakers Playgrounds with varied equipment Considerable funds have been spent bringing the property back to new condition. Carpeted suites, short hallways FINANCING F i r s t Mortgage - $2,448,000, 8 3/4%, 25 years, $20,290 per month ($2,500,000) Second Mortgage - $300,000, 11%, 25 years, $2,900 per month. PURCHASE PRICE : The property was developed and built by the present owners. The analysis is for the purpose of operational costs only. FRAME - COOUITLAM AGE : 4 years SUITES : 31 I AVERAGE SUITE INCOME PER MONTH (1970) : $165 TOTAL INCOME : $615,069 EXPENSES 1970 Operati ng U t i 1 i t i e s 4.5 C a b l e v i s i o n 1 .1 Garbage .7 Te1ephone .1 Other . 1 Repai rs 3.3 Admin is t ra t ion S a l a r i e s 7.7 A d v e r t i s i n g .7 Insurance 1 .0 Taxes Water and Sewer 1 .6 Dues and Licenses .3 Taxes • 1 1 .3 TOTAL EXPENSES 32.5 • PROPERTY TAX RATIOS Tax to gross income 11.3 Tax to net income 16.8 Tax to t o t a l expenses 34.9 Rat io 2 0 6 FRAME - COQUITLAM ' #110 PURCHASE DATA: Th i s property was constructed by the present owners f o r t h e i r own p o r t f o l i o . The ana ly s i s i s of operat iona l costs on ly . 2 0 7 #144 CLASS Frame ANALYSIS PERIOD: 1970 AGE 10 years LOCATION Coquitlam (Brunette) SIZE 22 two bedroom at $140 to $145 GENERAL The building was purchased in 1969 in a f a i r l y run-down condition. Each unit had i t s own washer and dryer (free) but these are in poor shape and as they break down they are being dismantled for parts. One set of equipment (self-owned coin-operated) has been installed for those tenants with-out their own machines. Gas space heaters in each unit. Individual gas hot water heaters. Ground floor units have grassed areas (patios). Second floor units have balconies Hardwood floors This property has just come under professional management and now has no vacancies. Seven vacancies existed in March 1971. Separate entrances to a l l units. Outside parking Small play area Family type block FINANCING F i r s t Mortgage Second Mortgage: Third Mortgage $76,000 (originally $120,000 and $85,500 at purchase), 7%%, 20 years, $941 per month. $51,000 ($52,500 at purchase), 7%%, $400 per month (vendor). $17,500 (originally $20,000), 12%, 9 year amortization, $300 per month (vendor). PURCHASE PRICE : May, 1969 $227,500 SALE VALUE A sale value reflecting an overall return of 12%% to 1 3 % % would be probable. 208 FRAME - COQUITLAM #144 AGE . : 10 years SUITES : 22 AVERAGE SUITE INCOME PER MONTH (1970) : $136 TOTAL INCOME (1970) : $35,814 EXPENSES 1970 Operati ng U t i l i t i e s 1.6* C a b l e v i s i o n I.4 Other . I Repai rs 7.4 Admin is t ra t ion S a l a r i e s 3,9 A d v e r t i s i n g .1 Insurance I,4 Taxes Water, Sewer I.4 Dues and Licenses ,5 Taxes 15.1 TOTAL EXPENSES 33.5 PROPERTY TAX RATIOS Tax to gross income 15.7 Tax to net income 23.7 Tax to t o t a l expenses 50.0 Rat io •COMMENTS An approximate 10$ vacancy s i t u a t i o n ex is ted in 1970. Th is b u i l d i n g has ind iv idua l furnaces and hot water tanks in each u n i t . FRAME - COOUITLAM 209 #144 PURCHASE DATA Purchase p r i c e F inancing Purchase equi ty $227,500 158,000 69,500 SALE EXPECTATION The income/expense r a t i o does not r e f l e c t the need fo r the extensive c a p i t a l replacements that v/i I I be necessary in the near f u t u r e . The 1970 cash flow was $4,132. However, a more "normal" cash flow that would al low fo r a 10$ r e p a i r and replacement allowance would reduce t h i s f igure to $3,416 which, c a p i t a l i z e d at 13$, would y i e l d a p r i c e of $241,500 with an ending equi ty of $92,000. YIELDS 1970 Cash flow P r i n c i p a l repayment Expected market gain $ 4,132 8,517 17,000 $29,649 13.9$ 28.7$ 57.4$ 100.0$ RETURNS Rate of return excluding expected market gain 18.2$ Rate of return inc lud ing expected market gain 42.7$ 2 1 0 #145 CLASS : Frame ANALYSIS PERIOD: 1970 AGE : Approximately 1 year LOCATION : Mission SIZE : 26 suites 6 bachelor ($105 to $110) 7 one bedroom <§L16 to $127) 13 two bedroom ($140 to $150) GENERAL : The rental area appears good but the rental population is so small that any additions to the supply would have a very large effect on the demand/supply relationship. This is the best and newest block in Mission Free laundry Gas heat and hot water A l l suites have balconies and carpeting Suites are of average size and quality FINANCING : F i r s t Mortgage : $182,000, 20 years,. 9%%, $1,629 per month Second Mortgage: $20,000, 10 years, 9%%, $254 per month. PURCHASE PRICE : December 1969 - $282,000 SALE PRICE : December 1970 - $292,000 FRAME - MISSION #5:4 5 AGE : I year SUITES : 26 AVERAGE SUITE INCOME PER MONTH (1970) : $ 130 TOTAL INCOME (1970) : $40,461 EXPENSES 1970 Operati ng U t i l i t i e s 6.5 Garbage .I Telephone .2 Other I . I Repai rs 1.3 Admin is t ra t ion S a l a r i e s 7.1 A d v e r t i s i n g .2 Insurance .9 Taxes Water, Sewer I ,2 Dues arid Licenses .1 Taxes 14.9 TOTAL EXPENSES 33,4 PROPERTY TAX RATIOS Tax t o gross income 14.9 Tax to net income 22,4 Tax to to ta l expenses 44,5 Rat io FRAME - MISSION 212 #145 PURCHASE / SALE DATA Purchase p r i c e $282,000 Financing 202,000 Purchase equi ty 80,000 Sale p r ice 292,000 F inancing 197,000 Sale equi ty 95,000 YIELDS Cash flow P r i n c i p a l repayment Market gain 1970 $ 7,817 34.7$ 4,738 21.0$ 10,000 44.5$ $22,555 100,0$-RETURNS Average rate of return exc lud ing market gain 15.7$ Internal rate of return inc lud ing market gain 2 8 . 2 % 213 #166 CLASS : Concrete ANALYSIS PERIOD: October 1966, 1967, 1968, 1969, 1970 AGE : 5 years LOCATION : B ellevue, West Vancouver SIZE : 62 suites GENERAL : A l l suites face the ocean Close to shopping, transportation, beach Underground and surface parking Self-owned laundry Carpeting Not a luxury building but only average by local standards. FINANCING : $628,000 ($660,000), 7%, 30 years, $4,413 per month. PURCHASE PRICE : October 1966 - $840,000 SALE VALUE A sale value reflecting a return of approximately 10"/° would be probable. CONCRETE - WEST VANCOUVER 2 1 4 #166 AGE •SUITES AVERAGE SUITE INCOME PER MONTH (1970) TOTAL INCOME (1970) 5 years 62 $175 $129,945 EXPENSES Opera t ing U t i l i t i e s C a b l e v i s i o n E l e v a t o r Other Repa i r s A d m i n i s t r a t i o n S a l a r i e s A d v e r t i s i n g Insurance Other Taxes 1966* 2.7 .9 .1 I .9 2 .6 .3 .7 2 .0 16.4 1967 6 .9 I .2 .2 6 .0 5.5 .2 .7 18.2 1968 6.6 .9 .6 4 .0 5.4 .1 .8 19.4 1969 5.7 I .0 .9 6.6 4 .9 .1 .9 .4 16.6 1970 5 .3 .9 .5 7.8 5 .3 .4 13.4 TOTAL EXPENSES 27.6 38.9 37.8 37.1 33.6 PROPERTY TAX RATIOS Tax t o gross income 16.4 18.2 19,4 16.6 13,4 Tax t o net income 22.6 29.7 31 ,3 26.4 20.1 Tax t o t o t a l expenses 59.3 46.5 51.5 44.9 39.8 R a t i o Year 2 t o Year 1 N/A 100.0% 105.6% 93.2% 85.1% •COMMENTS 1966 represents th ree months o n l y , 1969 represents e leven months o n l y because o f a change in year end. The p roper ty t ax r a t i o s have been adjus ted f o r 1969 so t ha t they are s t i l l v a l i d . 2 1 5 CONCRETE - WEST VANCOUVER #166 PURCHASE DATA Purchase p r i c e $840,000 F i n a n c i n g $660,000 Purchase e q u i t y $180,000 ^ SALE EXPECTATION Based upon a "no rma l i zed" cash flow of $30,000 (36% expenses ins tead of the 33.6% g iven ) and a c a p i t a l i z a t i o n ra te of 9.5% a s a l e p r i c e of approx imate ly $1,034,000 wi th an ending e q u i t y of $406,000 would be o b t a i n e d . If the cap -i t a l i z a t i o n r a t e was increased to 10% both f i g u r e s would decrease by $20,000 t o $1,014,000 and $386,000. YIELDS 1966* J967 1968 1969 1970 Cash flow $ 9,048 $16,875 $16,995 $22,331 $33,160 P r i n c i p a l repayment 1,980 6,600 7,260 7,920 8,580 Market ga in I I ,400 46,000 46,000 46,000 44,6*00 $22,428 $69,475 $70,255 $76,251 $86,340 Return on i n i t i a l i n -vestment of $180,000 50.0% 38.6% 39.0% 46.3% 48.0% Return on y e a r ' s e q u i t y 50.0% 36.0% 28.6% 27.8% 24.5% ALLOCATION OF TOTAL YIELD Cash f low $ 98,409 30.4% P r i n c i p a l repayment 32,340 9.9% Market ga in 194,000 59.7% $324,749 100.0% RETURNS Average ra te of r e tu rn e x c l u d i n g expected market ga in 16.0% Interna l r a te of r e tu rn i n c l u d i n g expected market ga in 2 6 . 6 % •COMMENTS-1966 represents th ree months and 1969 represents e leven months. The t o t a l pe r iod of a n a l y s i s i s f i f t y months. 216 155 RONALD 1966 PAGE 2 STATEMENT 3 OPERATING STAT EM EN T CURRENT MONTH YEAR TO DAT E LAST YEAR TO DATE INCOME 1 S U I T E INCOME 7 7 8 4 1 . 0 0 100 .0 5 1 6 2 8 7 . 4 4 100. 0 0 . 0 0 . 0 V 2 PARKING 0 . 0 0 . 0 0 . 0 0 . 0 0 . 0 0 . 0 J f 3 LAUNDRY 0 . 0 0 . 0 0 . 0 0 . 0 0 .0 0 . 0 4 OTHER 0 . 0 0 . 0 0 . 0 0 . 0 0. o 0 . 0 5 TOTAL INCOME 7 7 8 4 1 . 0 0 1 0 0 . 0 5 1 6 2 8 7 . 4 4 1 0 0 . 0 0 . 0 0 . 0 6 VACANCY 0 . 0 0 . 0 0 . 0 0 . 0 0 . 0 0 . 0 7 P O T E N T I A L INCOME 7 7 8 4 1 . 0 0 100 .0 5 1 6 2 8 7 . 4 4 1 0 0 . 0 0. 0 0 . 0 OPERATING EXPENSES 8 HEAT 4 5 2 6 . 0 0 5 . 8 4 1 4 6 5 . 0 0 8 . 0 0 . 0 0 . 0 9 E L E C T R I C I T Y 0 . 0 0 . 0 0 . 0 0 . 0 0 . 0 0 . 0 10 C A B L E VI SI ON 998 .00 1 . 3 4 0 9 1 . 0 0 0 . 8 0 . 0 0 . 0 11 GARAGE 0 . 0 0 . 0 0 . 0 0 . 8 0 . 0 0 . 0 12 WATER AND SEWER 0 .0 0 . 0 0 . 0 0 . 8 0 . 0 0 .0 13 TELEPHONE 0 . 0 0 . 0 4 2 5 . 0 0 0 . 8 0 . 0 0 . 0 14 OTHER 0 . 0 0 . 0 0 . 0 0 . 0 0 . 0 0 . 0 15 ELEVATOR 4 4 6 . 0 0 0 . 6 1 6 0 3 . 5 6 0 . 0 0. 0 0 . 0 16 TOTAL OPERATING 59 7 0 . 0 0 7 . 7 4 7 5 8 4 . 5 6 9 . 2 0 . 0 0 . 0 R E P A I R S AND MAINTENANCE 17 REDECORATE 0 . 0 0 . 0 0 . 0 0 . 0 0 . 0 0 . 0 18 HEATING AND PLUMBING 0 . 0 0 .0 0 . 0 0 . 0 0 . 0 0. 0 19 E L E C T R I C A L AND INTERCOM 0 . 0 0 . 0 0 . 0 0 . 0 0 . 0 0 .0 20 LAUNDRY 0 . 0 0 . 0 0 . 0 0 . 0 0 . 0 0 . 0 21 CLEANING 4 0 9 . 0 0 0 . 5 3 6 5 0 . 0 0 0 . 7 0 . 0 0 .0 22 FLOORS AND CARPETS 0 . 0 0 . 0 0 . 0 0 . 0 0 . 0 0 . 0 23 BLDG AND SUITE GENERAL 6058 .00 7 . 8 2 9 0 0 6 . 0 0 5 . 6 0 . 0 0 . 0 24 STRUCTURAL AND ROOF 0 . 0 0 .0 0 . 0 0 .0 0 . 0 0 . 0 25 OTHER 0 . 0 0 . 0 1 5 0 . 0 0 o . o 0 . 0 0 . 0 26 OTHER 0 .0 0 . 0 0 .0 0 . 0 0 . 0 0 . 0 .. . 2 7 TOTAL REPAIRS 6 4 6 7 . 0 0 8 .3 3 2 8 0 6 . 0 0 6 . 4 0 . 0 0 . 0 F I X E D AND ADMINISTRATIVE 28 S A L A R I E S AND BENEFITS 3 5 0 8 . 0 0 4 . 5 2 1 6 2 4 . 00 4 . 2 0 . 0 0 . 0 29 MANAGEMENT 0 . 0 0 . 0 1 4 0 0 . 0 0 0 . 3 . 0 . 0 0 . 0 30 ADVERT.IS ING 0 . 0 0 . 0 2 2 1 2 . 6 9 0 . 4 0 . 0 0 . 0 31 DUES AND L I C E N S E S 0 .0 0 . 0 0 . 0 0 . 0 0. 0 0 . 0 3 2 TAXES 10 3 0 0 . 0 0 13 .2 6 2 4 8 1 . 0 0 1 2 . 1 0 . 0 0 . 0 33 INSURANCE 5 3 3 . 0 0 0 . 7 4 4 6 8 . 0 0 0 . 9 0 . 0 0 . 0 34 ARREARS TO EXPENSE 0 .0 0 . 0 0 . 0 0 . 0 0 . 0 0 . 0 35 OTHER 1 4 8 . 0 0 0 .2 3 2 3 7 . 0 0 0 . 6 0 . 0 0 . 0 36 TOTAL ADMIN ISTRATIVE 1 4 4 8 9 . 0 0 1 8 . 6 9 5 4 2 2 . 6 9 18 . 5 0 . 0 0 . 0 37 TOTAL A L L EXPENSES 2 6 9 2 6 . 0 0 3 4 . 6 1 7 5 8 1 3 . 1 9 3 4 . 1 0 . 0 0 . 0 38 TOTAL C A S H - C A P I T A L 5 0 9 1 5 . 0 0 6 5 .4 340474 . 19 6 6 . 0 0 . 0 0 . 0 C A P I T A L 39 ADVANCE FROM OWNERS 0 .0 0 . 0 0 . 0 40 PAYMENTS TO OWNERS 0 . 0 0 .0 0 . 0 41 C A P I T A L EXPENDITURE 0 . 0 0 . 0 0 . 0 42 MORTGAGE PAYMENT 1 2 7 1 2 8 . 4 0 2 0 3 4 6 2 . 8 1 0 . 0 43 MORTGAGE PAYMENT 2 0 . 0 0 .0 0 . 0 44 MORTGAGE PAYMENT 3 0 . 0 0 . 0 0 . 0 45 OTHER 0 . 0 1 0 8 0 2 . 0 0 0 . 0 46 TOTAL C A P I T A L 2 7 1 2 8 . 4 0 2 1 4 2 6 4 . 8 1 0 . 0 47 TOTAL MONTHLY CASH 23786 . 6 0 1 2 6 2 0 9 . 0 6 0 . 0 '48 CASH FORWARD 5 1 7 5 . 8 0 3 6 2 3 0 . 5 8 0 . 0 49 NEW CASH BALANCE 2 8 9 6 2 . 4 0 1 6 2 4 3 9 . 6 9 0 . 0 5 217 155 RONALD 1965 PAGE STATEMENT 1 CASH BALANCE FORWARD 5 1 7 5 . 8 0 ADJUSTMENT TO INCOME 0 . 0 TOTAL ARREARS 0 . 0 LESS ^COLLECTIONS 0 . 0 0 . 0 L E S S LOSSES TO EXPENSE 0 . 0 A R R F A R S F O R W A R D 0_«_Q 5 1 7 5 . 8 0 T O T A L PREVIOUS MONTH VACANCY 0 . 0 L E S S PART RENTAL TO .INCOME . 0 . 0 0 . 0 ADJUSTED PREVIOUS MONTH VACANCY 0 . 0 CORRECTED PREVIOUS MONTH CASH 5 1 7 5 . 8 0 STATEMENT 2 POTENTIAL REVENUES 6 9 4 9 8 . 44 L E S S VACANCY AS OF F IRST 0^0 R E C E I P T S DUE 6 9 4 9 8 . 4 4 LESS ARREARS FORWARD 0 . 0 L E S S CURRENT ARREARS 0 . 0 0 . 0 TOTAL ARREARS 0 . 0 6 9 4 9 8 . 4 4 PLUS PREPAYMENT OEPOSIT .. . . .0.0 SUITE INCOME 6 9 4 9 8 . 4 4 POTENTIAL PARKING 0 . 0 L E S S VACANCY 0 . 0 L E S S ARREARS . .. . . 0 . 0 . TOTAL PARKING 0 . 0 LAUNDRY 0 . 0 OTHER INCOME 0 . 0 TOTAL INCOME 6 9 4 9 8 . 4 4 

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