22 Multi-Family Units22 Multi-Family Units
Sunday, May 10, 2009
Bob:
Re 22 multi-family units.
I am attaching details and photos on this property, which in my opinion, is exceptional.
It is one minute from a Hwy 401 interchange, with a TTC bus stop at the door.
There are 2 buildings of 11 units each. The Vendor is the second owner (he bought them from the builder), and has owned them for 28 years. He does everything himself and it shows! I have rarely seen multi-family buildings so well maintained.
The owner tells me that the Gross is $216,000, and the Net $138,000, or a Cap Rate on the $1,966,000 asking price of close to 7%.
A neighbour of his sold his identical 11 units for $983,000, 1 1/2 years ago. He would like the same = $1,966,000.
You should insure the mortgage with CMHC. I believe they will go to 85%, and the premium should be 2.9%, which will be added to the mortgage amount.
The interest rate should be between 4 and 5%.
Normally, you are supposed to be scared at the idea of buying $2,000,000 of properties for your first Real Estate foray. In this case, you should not be, because the risk is very minimal. I believe that you should be able to acquire that with $300,000 down.
Remember: At the appreciation rate of 7% per year, your indirect return will be $140,000!
Pierre
May 11, 2009
Pierre
I ran some numbers last night. By my calculations, there would be a positive cash flow but minimal as a % of the size of the building. My concerns would be funding vacancies and capital/repair/maintenance costs going forward. My view has been to have the properties generate enough cash to fund the costs involved in managing a building and not to fund through my personal funds. Your comments are welcome. Thanks
Bob
May 11, 2009
Bob:
You are correct, but only partially. Let me elaborate.
| Price | $1,950,000 | |
| Investment | $300,000 + $55,200 (closing costs) = | $355,200 |
| Mortgage | $1,650,000 + 2.89% = | $1,697,685 |
| Yearly Payments | $115,152 | |
| Cash Flow | $138,000 – $115,152 = | $22,848 |
| Returns | ||
| Interests | $1,697,685 x 5% = | $84,750 |
| $138,000 – $84,750 = | $53,250 | |
| ROI | $53,250 / $350,000 = | 15.21% |
| 7% Appreciation | $136,500 | |
| Total Return | $53,250 + $136,500 = $189,750 / $350,000 = | 54.21% |
Possible sources of funds: Your own; tenants’ last month deposits ($17,600?); VTB; postponing paying property taxes.
Remember that your mortgage interest rate may be lower than 5%, and that you can count on an average legal yearly increase in rentals of 2%.
I know that it is reaching high, but with such buildings and 22 tenants, I do not see any risk. If you can do this deal, you will be laughing for the rest of your life.
Pierre
November 28th, 2009 at 11:46 am
I am trying to get mortgage for 5 units apt. building, and it must be commercial rate. How come you said 11 units apt. for 2.25% interest?