Initial Ontario House Hack: Duplex or Triplex as a target?

Question

Hello Canadian BP community and fellow soon-to-be investors,

I'm searching for my first property to house hack in the Southwestern Ontario market. A duplex has always seemed easiest to grasp, both from a management and affordability perspective. That said, I'm wondering if there are enough 'Pros' in searching for leads on Triplex and/or 4plex deals? Of course, this would take more creativity for obtaining financing (i.e. partnering, etc.). I could always take 50% of the deal if the numbers work for cash flow, CoC%, and ROI%.

Assuming the numbers work, is this simply a preference thing? I've learned a lot via BP, but it's mostly USA based and I want to make sure I'm not overlooking anything regulatory in our fine province of Ontario.

Reaching out to hear any Pros and Cons you may have experienced when considering 3 or 4 unit MFHs vs Duplexes!

Thanks in advance for taking the time to read and respond.

Jacob Perez · Answer

If you're going past a duplex into a triplex or fourplex, just make sure you're getting significant cash flow to justify the purchase.

Duplex will have more appreciation potential as it appeals to investors & house-hackers & regular buyers who can easily convert to a single family resident.

Tri or Fourplex' have potential for more cash flow. So as long as the cash flow numbers are juicy enough they're worth it.

Matt Geerts · Answer

1-2 units: 5% minimum down payment

3-4 units: 10% minimum down payment

If there's a known bad tenant, move into their unit. I would get an N11 (voluntary move-out) from a tenant before I'd ever renovate and offer it back to them at the same price. That's such a stupid law that encourages people to let apartments rot away. You can get the N11 by incentivising, but you'll probably have to do better than last month's rent.

Ideally you could use private money to BRRRR your way into a 4-plex. You'd be well on your way to being set for life.

Claude Boiron · Answer

@Maclean Gordon, if you serve a tenant with an N12 form to move into a unit for your own use, the next laws require you to sign a statutory declaration that you will live there for at least one year. None of the "logic" which us entrepreneurs take for granted applies here - if you don't live there for at least a year, and your former tenant wants to cause you problems, you are in a huge amount of doo doo. I'm not scared of tenants, but the latest tightening of anti-landlord rules is draconian, and I know from insider contacts that a number of landlords are going to be made an example of over the next 6-18 months.

Matt Geerts · Answer

Everybody loves cash for keys. Landlords and tenants.

Kellan P. · Answer

@Maclean Gordon I've done both before/after closing, but generally it's better to wait until after closing when you actually own the property. If the current owner is okay with you contacting their tenants and working on a deal, then that works too. You can also try communicating through the current owner.

Thomas S. · Answer

As the owner you have the right to evict for personal occupancy. Rules have changed resent but still available.

You then do not have to allow first right of refusal to tenant. Renovate and then exercise your right to occupancy on the next unit and so on.

The only risk is having a tenant take you to the board.

Alternately you offer first right to your tenant but do not give a complexation date for the work. Tenant must commit to first right before they move out. You then stay in touch with them and at some point in time they may decide they do not wish to move back in. You get it in writing and market the unit.

If none of these work it is not worth renovating a unit in Ontario if the tenant wants to move back in. You must wait till a tenant leaves voluntarily which can be arranged if you are creative. Tenants will often move if they hate their landlord (wink, wink, nod).

Maclean Gordon · Answer

Alrighty,

@Matt Geerts Good clarification on the DP, although I aim to put 20% regardless. I did know this, but these are exactly the types of regulatory details I originally saught - Thank you!

Re: N11, good point on getting that BEFORE the renovation approach. After all, the reno should yield a more valuable unit with higher rent demand.... so it's kind of a double tactic to stimulate a move-out and value-add. Heard any examples of incentivizing going good/bad?

@Kellan P. Also appreciating the "comes down to situation and preference" advice. You mention speaking with the tenants to gauge willingness and needs for move-out - do you mean before or after closing on the property?

Kellan P. · Answer

Every property is different, and every person is different, therefore I tend to handle each situation uniquely. I would generally speak with the tenants and see if they're willing to move out, and how you can work with them on the date - figure out what they want, and find a way to offer it to them. Maybe offer to pay for moving expenses, and then sign an N11 together, mutually. If you really need them out and they will still not work with you, you can offer a larger cash incentive.

If they still don't agree, you can move into one of the units and pay them last-month's rent to move out in 60 days.

That being said - if the existing tenants seem like they are respectful and pay rent on time, it may not be a rush to have them move out right away, and you can cash flow while slowly turning the building around.

Maclean Gordon · Answer

Going to press on and be a bit forward here with the community:

@Matt McKee

@Kellan P.

@Thomas S

@Roy N.

@Matt Geerts

@Jacob Perez

@Cameron Andrews

I've been looking at 4-plexes recently as opposed to duplexes. One of my paramount practices is going to be tenant screening, so I prefer vacant purchases, but in most cases, I'll need to adopt existing tenants in 2/4 or 3/4 units - I'm wondering what strategies you have taken to assess risk on existing tenants? How can you question the seller?

E.g.s I've heard/read about:

-I can move into one unit short-term. Easy. Done.

-Do repairs that make a unit uninhabitable. The tenant has first right of refusal for moving back in, but I could incentivize moving out by gifting the last months rent.

Initial Ontario House Hack: Duplex or Triplex as a target?

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