Investing in Apartment Buildings
Have you considered buying a multi-family building as an investment? There are a lot of opportunities around BC and you can find some amazing listings on our site.
As an investment, the multi-family homes make a lot of sense. Pierre-Paul Turgeon from Matterhorn Properties sat down to answer some questions about having a multi-family building as an investment.
What are some of the advantages of investing in large multi-family properties – ones with 20+ units?”
PPT: “Well, let me give you three advantages. First, from a bank’s perspective they are considered low risk assets because multi-family investors rarely default on their mortgages. Second, it can be easier for investors to increase wealth with bigger buildings than with smaller rental properties (one- to four- units) because the value of the property is based on how much income the property is generating. For example, every time an investor increases the net operating income (NOI) by $1.00, the value of the property generally increases by about $16.00 which is something you cannot do with smaller investment properties. Finally, they offer better economies of scale. Specifically, the larger the building, the cheaper it is to operate so you end up with more money in your pocket because your operating expenses are lower.”
TM: “What type of challenges are typically seen by multi-family investors?”
PPT: “The biggest hurdle for most investors has to do with funding their deals. Raising enough capital is the biggest challenge. In order to purchase large multi-family buildings, investors need a greater amount of capital upfront for the down payment and acquisitions costs. There are a lot of variables involved but generally a minimum down payment of 25 per cent to 30 per cent or more is required. When it comes to acquisition costs, investors should budget for costs related to environmental assessments, inspection of the roof, HVAC, mechanical, electrical systems and so on. As you can see the costs can add up quickly. The good news is that there are plenty of people flush with cash looking for a sound asset to invest in and they can be great sources of capital for investors.
Another challenge is that there is also less margin for error with multi-family properties. Investors need to know what they are doing because of the complexity of buying large apartment buildings. Multi-family investing is the big leagues of real estate investing and accordingly a higher degree of professionalism and knowledge is expected from investors. It is for this reason that novice multi-family investors must educate themselves first and plan their moves well in advance of writing their first offer.
A third challenge that readers should know about is that multi-family properties require a longer stabilization period than small rental properties. Stabilizing a property means maximizing the property’s performance by increasing the income and reducing operating expenses in order to increase the Net Operating Income. In order to do this, it might be necessary to improve the condition of the property through renovations before the rents can be increased, and since the property contains more units, this process may take longer because you can only do so during tenant turnover.”
Darcy and Denise would love to set you up on this amazing investment opportunity.