Toronto Mini House Downtown East

The Danforth

Featured this past Friday in Dave Leblanc’s Globe and Mail Architecture column, this pared down not-quite-600 square foot mini house located on Craven Avenue in Toronto’s central east end is one answer to the question “How big a house do you really need?”.

Craven Avenue is a quirky half-laneway-half-street that often appeals to my market, for its eclectic housing stock (and resulting non-conformist occupants) provides greater freedom to be as unique and liberated as one might like. The location, just east of Little India (the land of the best samosas) running north of Gerrard Street East on the portion of Craven that terminates at the east GO-Train rail corridor, is as cheap and cheerful as one can get in proximity to the downtown core. Despite the site being a former condemned meth-lab, I really wouldn’t give the location the scathing lable of being ‘sketchy’… it’s better described as ‘colourful’. Besides, the ability to find a parcel of land for $110,000 (including land transfer taxes!) is extremely rare. In fact it’s almost unheard of. Count on paying closer to $400,000 up plus demolition costs for a lot in most downtown neighbourhoods.

I recall seeing this property come to market in December 2008. It was on the market for six weeks before it sold firm for under the asking price. I remember being quite excited about it, but I instantly knew this site needed a particular buyer. Its compact 16×73 foot dimensions and lack of onsite parking instantly made it a challenge. These limitations would be a deterrent to most builders, whom would deem it too risky to ensure a suitable return on investment. As you can read in the story, the total cost for this property from start to finish ended up being $385,000, which doesn’t include any profit a builder would be seeking nor the costs to resell the property. Even today with the dwelling completed, the seller would be hard-pressed to turn this around and command in excess of $450,000, which would allow him to walk away with a (shall i say ‘paltry’?) ten percent return for a two year endeavour. Not that I’m suggesting profit should be the prinicipal motivation to embark on this kind of project…in fact I celebrate the occasions when sites like this come available not for developers, but for people who want to create their own idea of paradise. It is these little gems that most often become the ‘Special’ amidst a sea of architectural banality. And in time, this ‘labour of love’ will prove profitable, just like all real estate inevitably does.

What I appreciate about Dave Leblanc’s column is how he provides a tally of the costs associated with redeveloping this site. Having spent twenty years in the world of development, let me share the broad rule of thumb for any pro-forma. Try allocate 25% of your total budget on land, 25% on soft costs (legal costs, design fees, planning approvals, building permits), 25% on hard costs (construction) with the remaining 25% allocated to profit. In an expensive city like Toronto this is pretty difficult to achieve, as this article demonstrates. To frustrate further, most people who would really like to build an affordable new house like this don’t have the minimum capital required to achieve it. In Ontario, one would be hard-pressed to place a substantial mortgage on a vacant piece of land plus borrow the funds to build. Typically one would have to put 50% down for the site, have enough available capital to pay for all the pre-construction approvals, legals and permit fees (soft costs), plus at least ten percent of the hard costs before qualifying to borrow the balance through institutional lenders. Alternatively, one may be able to arrange financing from private lenders, though note the interest charges will likely be higher. Plain and simple. it isn’t easy breezy building your dream home. Which makes me tip my hat off in envy and appreciation for all of you who do!

Are you curious to know more on how to develop a property site? Go to my HomeWatch webpage here and download my newsletter ‘Understanding The Development Process’ for a brief synopsis!

~ Steven

Footnote – Some helpful guidance from mortgage broker Jake Abramowicz of

A note on Construction Financing.

Generally speaking Construction Financing is given based on end value of the property. The maximum that most private lenders will finance is to a maximum of 75% of the value on the finished product. To give numbers to this scenario:

Let’s say you have a piece of land that’s worth $600K with a mortgage of $300K (most land financing goes up to maximum of 50%). The project you wish to build will have an end value of $1M. The end value is determined by an appraiser and is based on drawings, plans, permits and cost estimates. A lender may be willing to go to 75% of that total minus the value of the 1st mortgage, so in this scenario that would lend up to $450K to finish your project. However, you never get all the money in one lump sum. Instead, in order to make sure the construction program is being executed appropriately, the money is given in a series of draws with a 10% hold-back each time, based on the appraisal at the time of each draw. In our situation here, the lender would give 33% of $450K each time a phase of the project is finished, and 10% of that is held back until the end. As such, a client must have at least some capital in order to undertake this so they are able to pay their contractors and continue on.

Private lenders may go to 75% of end value, where as institutional lenders such as Credit Unions, Banks or Investment Companies will go to 65%. Private lenders are more expensive but are also able to provide more funds.

Construction financing is also not cheap. Privately, it’ll run you to 9% to 15% in interest (interest-only payments), and 2-4% lender fees. Institutionally would usually be about 3 points less in the rate and lower fees.

In order to apply for construction financing, the lender will require builder permits, cost estimates and proposals from contractors, and architect drawings and plans.


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