Investing in Apartment Buildings

Discover the differences between investing in Multi-Family properties & Residential Homes

There are 4 very important differences between investing in Single Family homes and Investing in Multi-Family properties, and these differences are described below:

Difference #1 – Trial & Error

You can ‘attempt’ to invest in single family homes, and if you make mistakes they are, in most cases, not very costly (on the grand scale). In fact, ‘attempting’ to invest in single family properties is how you learn the process.

With multi-family properties, the universe is not very large. This means that there are substantially fewer players in the game (realtors, bankers, vendors, investors). There are also not nearly as many properties. What this means is that you will earn a reputation in your target market very quickly and this reputation (right or wrong) will precede you as you attempt to enter into transactions and look to close your deals. So you will need to be prepared and knowledgeable about your market BEFORE you make your first offer. And more importantly you will need…

Difference #2 – Money

In 99% of cases involving multi-family investing, you will require a substantial amount of liquid investment capital and a strong net worth statement. This can come from a combination of you and a joint venture partner or from yourself alone.

With single family property investing, it is quite easy to find the money AFTER you have found the deal. In fact, some of these transactions require little or no money to complete. In addition, when investing in a single family condo or house, the down payment and closing costs are quite low. This is very different from the multi-family investing world – you have to multiply the complexity.

Due to the tighter time lines in doing your due diligence and the approval process, it is extremely difficult to start hunting for a financial partner after you have found a building.

Meaning, in order to keep your reputation and to ensure that you are getting the best deals possible, you will need to have all of your partners and finances arranged up front. You (and your partner, if there is one) must have your Sophisticated Investor Binder in place, you must know your financing ability, and you must know that you can close on the property on time. If you do not and you end up failing to close on a couple of properties because you really didn’t have your financial ducks in a row, you will be hard pressed to see another good deal come across your plate in the future.

Now some good news:

Difference #3 – No Real Limit

Often, when investing in single family properties, an investor will hit the ‘financing wall.’ This artificial wall is created by lending institutions and is put there to limit their ‘risk’ with each investor. These rules have changed within the past 18 months and have become tighter, so being up to date is critical. It is a basic financial calculation that tells them when they believe you are at your limit for borrowing and it doesn’t matter how good the property is that you are bringing them.

If you’d like to hear an audio interview with and investor who has seen these profits by building a portfolio of over 1,200 properties, click here.

The good news is that when investing in multi-family property, the wall is not in place. The lenders look mostly at the financial performance and potential of the building, with the lender being secondary to the equation. As long as the property fits their system, you stand a good chance to get your approval. There isn’t any artificial wall – it is completely a financial transaction. Which leads to…

Difference #4 – Business Transaction

With single family homes you are often dealing directly with someone who lives in the property and has an emotional attachment. The sale of the property is often one of the largest financial transactions they will ever undertake, and most don’t have very much experience in the ‘business side’ of real estate.

When dealing with the majority of multi-family vendors and more experienced realtors, you will find that the discussions follow a more business-like pattern. Numbers are the key elements in the transaction and your ability to justify your offer and your terms will all boil down to business and the discussion of what is reasonable and what the banks will finance. There are many more prevailing facts available in the multi-family investing world which help to reduce risk.

Conclusion

These are just four of the many key differences between investing in single family homes/condos and multi-family investing. Each style of investing has its pros and cons, each has its risks and rewards. It is often stated that an investor should really complete between 7 and 10 single family transactions before they even attempt multi-family investing. This will give the investor the foundation of knowledge, confidence, and relationships from which to build a successful multi-family portfolio.

If you’re worried about how the recent changes in Canadian mortgage rules will impact your real estate investing…looking for a safe, proven way to make the banks work for you…or even just ready to take your game to the next level…

Then it’s time to consider a jump into multi-family investing.

Multi-family investing is one of the fastest, safest ways to accelerate your portfolio for huge monthly cash flow and massive profit pay-outs — even in tight lending climates like ours — if you know how to do it right. Be sure to visit the ongoing real estate discussion on Canada’s Premier Real Estate Community and Discussion forums >> www.myREINspace.com.

If you think Multi-Family investing is the right means to boost your long-term wealth strategy, be sure to check out all the details on REIN™’s Multi-Family Investing Bootcamp coming up on June 18 & 19 at the International Centre in Toronto. Cheers!

–

Don R. Campbell is a Canadian-based real estate investor, researcher, author and educator. He is president of the Real Estate Investment Network™, and Cutting Edge Research Inc. He and his experienced team are leaders in providing Canada’s most current real estate investment education programs and economic research materials.

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I spoke with CTV at the Keller Williams office yesterday morning, and they also spoke with a client, Stephen Litt on site at the Arrow Lofts development.  They ran the segment on the 6pm news, and again at 11.

Here is the (shorter) clip from the 11pm news:

(thx Mike Hagedorn for getting this for me!)

If anyone was able to capture the clip that ran on the 6pm news, I’d be eternally grateful for a link.  Thanks!

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Kitchener Waterloo is Ontario’s top Real Estate Investment Destination, again.

Well, it’s that time of year again. Kitchener Waterloo is getting some more much deserved attention from Canadian Real Estate Investors all across the country.

KW has been named the top real estate investment destination in Ontario by the Real Estate Investment Network for a couple years in a row (see: Kitchener Waterloo Real Estate ranked #1 again), and this year the trend continues.

REIN released the REIN Top 10 list that named Kitchener Waterloo the #2 investment destination in Canada, and tops in Ontario again.

From CTV News:

The Record reports:
REIN “refers to Waterloo Region as the “economic Alberta of Ontario.”
That means Waterloo Region is seen not only as the economic engine of the new Ontario economy, but also that it “will outperform all other major regions in eastern Canada,” says REIN president Don Campbell
For indicators, he points to job growth, student growth and a new light rapid-transit system.”

Why are real estate investors focused on our city?  Let’s take a look at the reasons why people like buying investment property in Kitchener Waterloo

Top 9 Reasons People Are Investing in Kitchener Waterloo Real Estate Now

1. Top Area to Invest – The Real Estate Investment Network named Kitchener Waterloo & Cambridge (“the Technology Triangle”) the #1 city to invest in Ontario and #2 in Canada, behind Calgary.

2. Low Interest Rates. currently we have very low interest rates – although there is a slight upward trend right now – which makes NOW a great time to invest.  Rates will be going up in the future. It’s a matter of how soon, and how much.  Smart real estate investors are taking advantage of historically affordable cost of borrowing money.

3. Great prices – Investors love Kitchener Waterloo because it has a booming economy, without big city property prices.  Our clients invest in condos ranging from $120,000 on up, and there are opportunities to buy multi-family housing with cap rates of 7%, leaving room for healthy cash flow with today’s low interest rates.

You can buy good quality new construction rental units here, for much less than you’d pay for an older condo in Toronto.  (That’s what our cilents from Toronto happily do, over and over again).

4. Growth – Kitchener Waterloo is growing at a rapid rate. If you haven’t been here in a few years, just drive down King St! There are mulitple mega million dollar developments that are underway or have been completed recently – The Bauer Lofts, The Barrel Yards, the Arrow Lofts, Kaufman Lofts, the new McMaster medical school and University of Waterloo Pharmacy school, the new King St streetscape in downtown, the new Uptown Waterloo, the Kitchener Market, Market lofts; and LOTS of development in the university areas as well.

Also, the University of Waterloo has recently announced plans to double it’s footprint over the next 40 years. See Is Waterloo’s Student Housing Market Being Over Built?
5. Stable, Diverse Economy – Kitchener Waterloo is a market supported by strong fundamentals – world class high tech companies, universities and NGOs; a strong manufacturing sector; proximity to Toronto and the United States; an international airport; continued job growth etc.

In the July 2010 figures released by Stats Canada, the jobless rate of the KW area fell, while national unemployment rose.

6. Access to Property Management – all of our clients have access to world class property management for a very reasonable rate. Contact me for more details !

7. Great Business Community – Major companies and organizations call the Technology Triangle home including RIM (makers of the blackberry), Toyota, OpenText, Manulife, Sunlife, the Perimetere Institute, the Centre for International Governance Innovation, and a host of world class local companies.

8. Awesome, Smart People: Kitchener Waterloo is the MOST INTELLIGENT COMMUNITY IN THE WORLD. Take that Toronto

9. Great Resource – You have found a real estate agent and Wealth Building team that is focused on building your wealth!

What are some of the reasons you like investing in Kitchener Waterloo? Let us know in the comments!

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Apartment construction boosts housing starts
WATERLOO REGION — Fuelled by a surge in apartment building construction, housing starts in Waterloo Region rose 165 per cent in June compared to the same month last year.

Ground was broken on 388 units, up from 146 a year ago, Canada Mortgage and Housing Corp. reported Friday.

June was a good month, but the first half of this year was also a busy one for builders in the region. Foundations have been poured for 1,566 units, the highest total in the past five years and 88 per cent more than the 831 units started for the first half of 2009, the agency said.

Of the units started last month, 175 were concentrated in two multi-unit projects, a 61-unit condo complex in Cambridge and a 114-unit apartment complex in Kitchener.

Construction of single-detached dwellings rose to 135 from 77 a year ago, townhouse starts increased to 64 from 25 while semis held steady at 14.

Kitchener and Cambridge were the busiest with 228 and 125 starts respectively. Waterloo was quiet with only 10 starts.

For the year to date, 692 detached homes have been launched in the region, up from 447 in 2009. Foundations have been poured for 572 apartment units compared to 831 last year.

“The strong level of apartment construction, as well as the increased demand for new homes in the latter part of 2009 and early 2010 were responsible for the strength of new residential construction this year,” Erica McLerie, an analyst with the housing corporation, said in a news release.

Nationally, the seasonally adjusted annual rate of housing starts was 189,300 in June, down 3.1 per cent from May.

The decline was largely due to fewer multiple-unit starts — condos and semi-detached homes — in Ontario, though most of the country has seen a softening in demand for residential construction permits in recent months.

The June figures support economists’ view that housing activity has peaked for the time being, says BMO Capital Markets economist Robert Kavcic.

“Despite recent softness, overall starts still remain above the estimated 175,000 rate of household formation, helping to build the case for further weakness in the coming months,” Kavcic wrote in a note.

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Here is a video with some more information:

To recap, the investment property in Cambride, Ontario was purchased at a 5.7% cap rate.

Between both apartment buildings there are 225 units, and the average rent is above $1500 per month.

High valuation, but the properties generate premium income, are prestigious assets, and are very recent (6 years and 1 year) construction.

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$46,710,000 to be exact.

Waterloo Region Apartment Buildings Fetch $46 million

Killam Properties has announced the purchase of two river front Waterloo Region apartment buildings in Cambridge, totalling 225 recently built residential units.  This is one of the largest recent Multi-Family transactions in the Kitchener Waterloo area recently.

“Killam has acquired 100 and 200 Eagle Street North in Cambridge, Ontario, in the Kitchener-Waterloo Region. The luxury apartment buildings are of newer concrete construction and include spacious units ranging from 1,000 to 1,400 square feet, modern features and five appliances. The buildings’ amenities include a fitness centre, guest suite, air conditioning and underground parking.

100 Eagle Street, constructed in 2008, has 119 units with 9-foot ceilings, including 3 one-bedroom units, 59 two-bedroom units and 57 two-bedroom units with a den. The average rent is $1,523 per month. 200 Eagle Street, constructed in 2004 and located directly beside 100 Eagle Street, has 106 units, including 25 one-bedroom units and 81 two-bedroom units. The average rent is $1,351 per month.

The purchase price for the two river-front properties of $46.7 million ($207,600 per suite) was satisfied with a combination of the assumption of a 20-year mortgage for $10.1 million at 5.15%, a new mortgage for $16.0 million at 4.5%, and the balance in cash.

“We are pleased to report progress on our apartment acquisition program in Ontario” noted Philip Fraser, Killam’s President and CEO. “Closing these two Cambridge assets increases Killam’s apartment ownership in Ontario to 362 luxury apartment units. We have continued our acquisition focus on newer, high quality assets. These two assets meet this standard and are among the highest quality assets in Cambridge.

Valuations of Waterloo Region Apartment Buildings

The cap rate on the acquisition is approximately 5.7%, reflecting the buildings’ age, location and quality of construction.”

Both the cap rate and the price per suite are rich for the region, reflecting the quality of the asset, as well as the cheap financing that REITs and other institutional investors have access to right now.  (CMHC is happy to loan on Multi Family properties, as it is a secure asset class.  Rents continue to come in, in both good and bad economic times – not the case with retail, office and industrial properties, which are much more sensitive to swings in the economy.)

Looking to invest in Waterloo Region apartment buildings?

We have helped lots of investors invest in high quality investment properties, and would love to help you as well.

There are several apartment buildings available in Kitchener Waterloo between $1 million and $10 million.   Due to the nature of the Multi-Family market, we’re unable to provide a full list of available listings on our website.

For a full list of investment property currently available, contact us using the form on the right (click the red button)

Own a Kitchener Waterloo Apartment Building?

We have many qualified real estate investors looking to buy apartment buildings now – if you own one, contact us to arrange for a quick sale.  You’ll likely be pleased with what buyers are willing to pay for a quality building!

The Globe Advisor expands on the lack of available supply of apartment buildings in Canada:

Apartment buildings - there are about 100,000 of them across Canada, with the majority of them clustered along the Windsor-Quebec City corridor – may not return as much to their investors as shopping centres or office buildings, but they offer a lower-risk way to own income-generating properties.

They held their value through the recession for one main reason – there were no distress sales because owners could refinance their debt inexpensively through Canada Mortgage and Housing Corp. This ensured them access to credit at a time when other property owners found debt markets completely closed.

And with mortgage rates almost certain to move higher in coming months, buyers are scrambling to make purchases while rates sit near all-time lows.RealNet Canada, which tracks sales, shows first-quarter sales volumes actually decreased in most of the country at a time when other commercial sectors were showing sharp signs of recovery.

It has nothing to do with a lack of confidence in the sector, but rather illustrates how reluctant sellers are to part with their income-generating properties.

“What’s happening is people who own them are quite happy and those who want to buy really have to spend a bit more than they may like,” said RealNet president George Carras. “The most dominant owner profile in the sector is the private investors, and they tend not to want to trade.”

…

“You can get money at ridiculously low rates and the big challenge is just finding quality product,” Mr. Greer said. “There is no low-balling, and when something comes around, you see a ton of interest.”

Halifax-based Killam Properties started the year with a goal to spend up to $150-million on Ontario apartment buildings, and passed the $100-million threshold with the Cambridge deal earlier this week.

Chief executive officer Philip Fraser said it has become increasingly difficult to find relatively new buildings that met the company’s criteria, and indeed there were never any “for sale” signs planted on the front lawn in Cambridge.

If you have a building, and you have thought of selling in the next ten years, I strongly recommend we talk today; with interest rates as low as they are (but heading up fast!) you will likely get more for it today then when rates are higher.  There is strong demand for Waterloo Region Apartment Buildings, making it a great time to bring assets to market.

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There are a few stories out today about how the Greek Debt Crisis (update: now known as the European Spending Crisis) is affecting mortgage rates, and the problems in the Eurozone have also complicated the plans of an investor we represent in the acquisition of a Kitchener apartment building. 

How is the Greek Tragedy connected to individual transactions and personal mortgages in Kitchener Waterloo?

The effect on Mortgage Rates

CTV: EU crisis a boon to Canadian homeowners

The financial instability in Europe is giving Canadian homeowners a slight reprieve from rising mortgage rates.

Banks began a series of swift mortgage rate hikes in early April, and both bankers and economists said that rates would continue to rise.

But in the last week a number of banks have cut their rates by between 10 and 15 basis points, effectively undoing the last in a series of three successive rate hikes.

That’s because the situation in Europe caused investors to lap up U.S. and Canadian bonds – which are seen as a safe haven – pushing down yields, said TD economist Craig Alexander.

The yield on five-year government of Canada bonds peaked on April 21, and fell as low as 2.764 per cent on Thursday, he noted. For banks, that yield has a large impact on the cost of funding their fixed-rate five-year mortgage loans. With the cost of funds falling Toronto-Dominion Bank decided to cut its rates and, as competition kicked in, other banks began following suit.

“Greece is clearly the story here,” said CIBC economist Benjamin Tal.

CBC: Mortgage hunters get temporary reprieve

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One of things I find myself talk to real estate investors about these days is how to value a Kitchener Waterloo Apartment Building.  Seems there are lots of people looking to acquire high quality apartment buildings, but there is small supply of these buildings for sale, especially when we start talking about more than 50 units.

Most owners are happy to hold their buildings now  – multi family real estate is a notoriously stable investment during good times and bad (and stable investments are held in higher regard during recessionary times), but buyers are eager to deploy their capital into a stable asset.

This spread between available supply and current demand makes it a great time to sell your Kitchener Waterloo apartment building; case in point, we have recently seen quality multi family investment properties come to market and receive multiple offers in the first few days.

How to Price a Kitchener Waterloo Apartment Building

If you were going to sell your Kitchener Waterloo Apartment Building, how would you price it?

Right now, there is a large difference in ‘per suite’ asking prices for comparable apartment buildings online, with several active multi-family listings being priced considerably higher than comparable recent sales.

(Note: there are some properties, like brand new buildings or luxury apartment buildings, that sell for outside the normal range. For example, see: Two Waterloo Region Apartment Buildings Sell For $45+ million)

Click play to watch this quick video we put together looking at the prices of apartment buildings in Kitchener Waterloo

If you own a Kitchener Waterloo Apartment Building

If you have any questions about the multi-family investment market in Waterloo Region, call me directly at 519-772-4376 or email me at Benjamin@BenjaminBach.com

KW Commercial is your one stop shop for commercial, investment, retail and multi family advice and brokerage in Waterloo Region.  

We have buyers currently looking for a large Kitchener Waterloo Apartment Building – call us to discuss the sale of your property.

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Global Players looking at Canadian Commercial Real Estate

Big international players are looking at Canada for profitable commercial real estate investments.  Kuwait Finance House just announced a JV with Killam Properties to pick up north of $400 mil of Canadian multi family residential real estate

Kuwait Finance House establishes a joint venture with Killam Properties Inc.

The initial program is to acquire CDN$250 million of multi-family residential properties within the next 24 months. The partners will contribute equity of $100 million with a $75 million contribution from KFH and $25 million by Killam for a holding period of up to seven years.

Sigma Real Estate Advisors assisted in arranging the joint venture, which intends to be fully invested over a two year period, subject to market conditions. Killam will receive asset and property management fees from the joint venture.

“We are very pleased to be making our first investment in the Canadian real estate sector,” stated Abdul Naser A. Al-Subaih, Assistant General Manager for the Investment Sector of KFH. “The investment is a continuation of our strategy to add value for our partners, our clients and our shareholders. We believe the Canadian market offers exceptional value, and we intend to make further investments in the country going forward. We look forward to working with Killam and their experienced management team.”

Homburg Invest plans Canadian REIT spinoff

Homburg Invest (HIIa.TO), which owns and operates real estate in Canada, the United States and Europe, said on Friday it plans an initial public offering of its Canadian real estate investment trust.

Halifax, Nova Scotia-based Homburg said the IPO was the first step in executing its previously announced plan to spin off its real estate assets into five geographically based companies.

Homburg did not say how much it plans to raise with the offering or when it was expected to close.

The proposed offering is being handled by a syndicate of underwriters led by TD Securities Inc, and including National Bank Financial Inc, Desjardins Securities Inc, CIBC World Markets Inc, Scotia Capital Inc, Canaccord Financial Ltd, HSBC Securities (Canada) Inc, Dundee Securities Corp and Beacon Securities Ltd.

Homburg owns a portfolio of real estate including office, retail, industrial and residential apartment buildings and townhouse properties.

TransGlobe aims to raise $250M in IPO

KW Commercial is your one stop shop for commercial, investment, retail and multi family advice and brokerage in Waterloo Region.

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What is a cap rate?  Is it a good indicator for the return you hope to generate on your return? Is there a better figure to look at?

This video takes a look at these questions, so we can better understand some commercial real estate terms

Cap Rate, or capitalization, expresses the ratio between the net operating income a property produces, and the value.  It shows up, based on income, what a typical investor (or ‘the market’) is willing to pay for the income the apartment building  produces. 

Cap rate = Net Operating Income / Price (or value)

When we’re evaluating properties and we want to determine what we’ll pay for a certain apartment building, we will rework the formula to look like this:

Value = Net Operating Income / Market (or desired) Cap Rate

Cap rate does not take into the financing available, so unless you are buying a property in CASH, that is, without a mortgage, you’re going to want to factor in the cost of debt into your return calculations.

That brings us to Cash on Cash return, which is:

Cash Flow Before Taxes / initial investment

We calculate Cash Flow Before Taxes by:

Gross Rent – owner’s operating expenses – mortgage payments = Cash Flow Before Taxes.

Cash on Cash gives you a more precise return, because it accounts for the cost of the debt we use to purchase the property

If you have any questions about commercial and investment real estate in Kitchener Waterloo, Ontario, send me an email to Benjamin AT BenjaminBach.com, call me at 519 772 4376, or @benjaminbach on twitter. I’d love to connect with you!

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