Investing in a multi-unit home is a safe bet

by Vince LaFiura22 Sep 2014
Aside from the obvious, the reason so many real estate investors are opting for a multi-unit property versus other real estate investment opportunities is academic: multi-unit homes have a safe and steady return on investment. On average, a typical capitalization rate when buying these types of properties in the downtown core of Toronto is between four and five per cent per annum. Let’s not forget about the other and maybe most important reason why investors are scooping these up like hot cakes, the annual appreciation rate in downtown Toronto is more than 10 per cent per year! That’s incredibly attractive. Not only do investors have the joy of collecting positive cash flow each and every month they also enjoy a rapid and effective way to build equity.

The power of equity build-up allows the investor over a short period of time to borrow against the asset and acquire another income-producing property. Before they know it, most prudent investors could have a substantial number of units that are producing monthly cash flow.

One of the most common questions I’m asked by prospective investors who have never invested in this type of product is whether it’s self-run or if they’ll have to quit their day job to manage the portfolio.  The simple answer to this type of concern is it all depends how big your portfolio has grown. If your portfolio has grown to an enormous rate then why wouldn’t you quit your day job? That’s a problem that most of us would love to have. Having said that, most newbie investors consider real estate investment a self-sufficient venture. The toughest part is starting and acquiring the first property. It’s actually very easy to be a landlord! A prospective investor does not require any special knowledge unlike, say, a stock investor.

This product is also great for the first-time homebuyer who would like to achieve home ownership while living in a portion of the property and renting out the rest to help cover the monthly expenses. In some cases first-time homebuyers who qualify opt to purchase a home that houses three or more units. In this scenario, the homeowner can easily have the prospective tenants finance the majority or even the whole financial burden and live stress-free. No other real estate investment opportunity can offer a first-time homebuyer this opportunity.

A savvy investor is always searching for other means to generate a retirement fund that can help them sustain a lifestyle of their choosing, and multi-unit investing can provide a wealth of passive income regardless how early or late the investor actively begins.

Did I mention the tax benefits that an investor can take advantage of? Yes, not only does a nester have the ability to leverage their portfolio but in doing so they have some pretty nice tax benefits.

It all begins with the big three questions that must be answered prior to jumping on board:
1 - What is the annual cap rate?
2 - What are the annual or monthly cash flows?
3 - Location, Location, Location

The third question – or statement, rather – is more than likely the most important when annualizing a real estate investment opportunity as it’s the catalyst to building equity at a rapid pace, which in turn helps the investor borrow against the property without having to use his/her own funds.

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