Multi-residential Investment
This article is originally from the Montréal Gazette.
Over the last few years, real estate has become one of the best-performing asset classes, and this has mainly been driven by multi-residential buildings. Whether you’re looking for long term appreciation in the building’s value, or passive income in the form of rental payments, wading into the multi-residential market can be a lucrative undertaking for all types of investors. That said, the multi-residential market is not without risk, and definitely not without work; that’s why seeking the right guidance is essential.
There are many factors to consider before deciding to invest in a multi-residential property. Affordability, responsibilities, time-commitments, financial goals in the short and long term, and available resources are just a few of the elements to address before investing.
“The market is certainly strong but there’s a substantial amount of client education involved in investing in a multi-residential for the first time, for everything from down payments to calculating potential revenue,” said Jonathan Gagnon, commercial mortgage broker and vice-president, Orbis Commercial Lending. “That’s why investors need to consult with the right professionals working in their best interest.”
With the recent rise in prices, resulting in a higher price-per-door for a relatively constant rental revenue, down payments are not a set percentage anymore.
“Investors typically expect to pay a 15 or 25 per cent down payment for a CMHC or conventional loan, respectively, but this is no longer the case,” Gagnon said. “In fact this is the most common misconception from investors in this current environment.”
Ultimately, the loan amount will be based on the debt servicing capacity of the property itself and not the purchase price.
“That being said, more and more investors will purchase properties not meeting the traditional requirements but knowing that they will be able to create a lot of value down the road by bringing the rents up to market,” Gagnon said. “There are some very interesting financing options available to those investors.”
Other investors chose to go the opposite route. Christopher Chbat, a Montreal real estate investor who recently purchased his first multi-residential property through Orbis Commercial, opted for a relatively new building as his first investment.
“Even though new buildings are a little more expensive than the older ones there are so many advantages, to name a few: less maintenance, less cash down, and hopefully a long time before any major repairs have to be done,” Chbat said. “They start generating cash flow right away since only regular maintenance is required, and you’re receiving today’s value in rent.”
A mortgage broker who specializes in commercial property is in the best possible position to assess an investor’s financial capacity and the loan amount on a given project. A real estate broker specializing in commercial property is essential as well, as is a trusted appraiser, and an accountant or fiscalist who specializes in real estate, especially if the plan is to acquire a lot of doors.
Beyond crunching the numbers, several intangible factors are important to consider as well when gauging the ability to invest in a multi-residential property.
“The market is absolutely booming and there are always opportunities for investors who want to put in the time,” Gagnon said. “But it takes effort, people skills and the ability to negotiate to attract quality tenants, unless you plan on hiring a management company which is not typical when you only own a few doors.”
Understanding your personal motivation for investing is important as well. Every investor is unique and as such will have distinct objectives in owning real estate.
“My goal in owning multi-residential units is to build intergenerational wealth,” Chbat said. “It’s important to invest and teach your children how to invest, and it’s equally important to secure your own future. Real estate has proven year after year to be one of the most reliable and safe investments.”
In terms of identifying an appropriate property to purchase, an investor’s budget, experience, resources, and the ability to delegate all come into play.
“Get to know your market, educate yourself, and explore options online,” Gagnon said. “But mostly surround yourself with a team of professionals; this isn’t something you can do alone, especially without adequate experience.”
Also, keep in mind that timing is key, even in a hot market.
“The advice I would give is to stay patient, it’s a marathon not a race,” Chbat said. “You need to have the right team in place, in my case working with Jonathan Gagnon and his team made the financing experience a walk in the park; the right property for you will come as long as you are looking and have the right guidance and support.”
