ROUGH DRAFT:

That famous adage "buy the ugliest house on the best street" does ring true and can provide a potential lucrative investment and development option.

Many areas, specifically in Toronto, have seen substantial growth in the value of single family detached dwellings. Both as older homes in great areas as well as newly built homes on properties with inhabitable or older homes.

One of the major things to consider before you do anything is know the area well. The absolute first thing you should do is:

1. Find the last 10 sales for newly built homes in the immediate area
2. Find the last 10 sales of older homes that have more value as land

Let's assume the average price of a newly built home, on a 25 ft lot, in the area you have chosen is $1,650,000.

Tear down, older homes in the area are averaging $700,000.

The benefit of tearing down a single family home and replacing it with a newly built home is you will likely save any development charges (you should confirm yourself). Note: raw land that is not improved with a residential dwelling is different than buying a tear-down. raw land, even though it may be zoned for a single family home will more than likely be subject to development charges. The exceptions that come to mind would be in the event of a fire where the house was knocked down previously. This scenario however would have time limits imposed to ensure a new home is built within a certain amount of time (I digress).

So you send your REALTOR door knocking, cold-calling and networking to find you a tear down. He/she finds you one for $700,000. You purchase it.

Let's figure out your COA (Cost of Acquisition):

Purchase Price:	$700,000
Down Payment (25%):	$175,000
Mortgaged Amount (75%):	$525,000
Cost Of Acquisition:
Down Payment:	$175,000
Land Transfer Tax (Toronto):	$20,200
Lawyer Fee's:	$1,500
Financing Costs:	$2,500
Inspection Costs:	$450
Appraisal:	$350
Miscellaneous:	$1,000
Total:	$201,000

So the day you close your property; you will have already spent approximately $201,000 of liquid cash (real money readily available).

Now that you own this property; you will have typical carry costs each and every month including mortgage, insurance, property taxes, hydro/water/utilities, etc.

Assuming your mortgage broker got you approved for a rate of 2.5% and an amortisation period of 25 years; you would have a monthly mortgage payment (Principal and Interest) of: $2,351.83.

Carry Costs:		Monthly:		Annually:
Mortgage Payment:		$2,351.83		$28,221.96
Property Taxes:		$291.67		$3,500
Property Insurance:		$150		$1,800
Utilities:		$250		$3,000
Miscellaneous:		$500		$6,000
Total:		$3,543.50		$42,521.96

Early in the process; you've had all of your plans completed, you've received all the necessary approvals, you've obtained a demolition and building permit.