How to find/buy Apartment buildings in Ontario

Question

Hi all,

I just started my research about apartment buildings in Ontario and already got a few surprises....

.7+ Apartment Buildings:

It seems it's very hard to get 15% CMHC financing since they will use a different cape rate than current market. In the end we may have to come up with 20% minimum downpayment and pay the CMHC commission.

A broker told me to get CMHC financing, we have to find a building where the income covers 125% of the costs including mortgage costs.

Most buildings are sold off market, meaning, they will never come on MLS... and... the Buyer will have to be the one paying the agent commission, 5% commission!! auch.....

6- Plexes

RBC offers residential mortages at 80% LTV, so I am considering start with a 6 plex to learn the ropes and later on maybe try a 10Plex.

My funds are very limited , so I might have to stay under 500K purchase price.

According to my calculations, a 10 Plex with 15% down would give me better returns than a 6 plex with 20%, but if CMHC financing is hard to get, I might have to stick with a 6 Plex.

Do you guys know of anything else I should be aware of? I have experience with 3/4 plexes, but none with bigger buildings.

If anyone has knowledge of any building  for sale between 4-6 units up to 500K and from 7 to 12 Units up to 750K,  on a 1hr drive radius from Toronto,, please let me know. My limit is really 1 - 2hr drive so I can "micromanage" the building.

thank you

Filipe

Michael Power · Answer

Filipe / You need to more fully understand the basics of commercial investing.  Same as in the U.S., 5+ units is commercial, not residential.  The minimum down payment is 35%, and there is no Canada Mortgage & Housing Corporation, (CMHC), mortgage insurance requirement.  Also, the seller pays the commissions at 4%-5%.

Further, if you are using a Big 5 bank, they will expect you to have a 2-year working relationship with them as a business owner, (preferably in RE).  Like elsewhere, there is alternate lending available, but there are experience requirements and you will be looking at a higher interest rate.

Your best strategy would be to network and perhaps JV with one or more investors.  There are a few such investor groups in the Toronto area.  Start by looking under Meet-Ups.

As for your price point, you are looking at $150,000+ per unit at the 1-hour radius mark of TO depending on the building condition.  Barrie, Orillia, (North), Cobourg, New Castle (East), or Guelph, Cambridge (West) are the areas you will be looking in.  A 6-plex in reasonable condition is worth about $700k-$900k and are trading in the <5% CAP range.  There is much risk at that level with interest rates so low.

Hope that helps a bit.

Mike P.

Roy N. · Answer

Filipe:

That information contradicts what we did with RBC in October.  I had a chat with our "Mortgage Specialist" today and she indicated no change {and was disappointed I was not bring her another one}.

BTW: One other point about RBC.  They will only allow you to have 5 residential mortgages (not 5 with them, but 5 in total).

Filipe Matos · Answer

CHMC tax deduction for rental properties as seen on several websites, but you should confirm with your accountant:

"The CRA booklet regarding rental income and expenses, states on page 11, that mortgage guarentee /insurance fees are tax deductable at 20 % per year over 5 years."

Filipe Matos · Answer

The "mortgage specialist" I was put in contact with by RBC Online is saying that I need a minimum 25% down and if I want to do at 20% I have to pay CMHC :)

Do you agree with this "mortgage specialist"?

quoted:

"We can finance up to 80% of the value of a 1-4 unit investment property or 85% of the value of a 5-6 unit property which this would apply to you.

If you placed;

1.    15% down the CMHC premium would be 4.5%

2.    20% down the CMHC would be 3.5%

3.    25% down the CMHC premium would be 2.25%

On that note 20% down is considered conventional and if you can place at least 20% down we can ask for an exception. I confirmed the premium with CMHC

Because a 6plex falls under “non-standard” units it will fall under CMHC but once again we can try to ask for an exception.

"

Roy N. · Answer

@Filipe Matos

Any of RBCs "mortgage specialists" who deal with investors on a regular basis should be up-to-speed on the 5-6 unit as residential practice/policy.

Filipe Matos · Answer

Deal! I like drinking :)

Update about RBC 6 Plex mortgages:

Do not contact the branches or RBC online, they may not know or be able to help you on this, I am getting conflicting information all over the place.

The guy that seems to know about this special product is Dan Simpson from RBC:

https://mortgage.rbc.com/dan.simpson

Dave Vogt · Answer

Was a platinum member for two years....good bunch. The basic membership is all you need to go to the meeting etc. They have a great crew and good insight. Don't need to be a platinum member to take advantage of what they offer, but it was a good experience for Steph and I and we really got a lot out of it for our marketing too.

Filipe Matos · Answer

He He, The "Rockstars" really put themselves out there, I was face to face with them a few days ago for the first time. Have been following them and Mr Hamilton for 2 years. Maybe now is the time to use their services, we shall see.

They are really great, all the work they have to give information for free, and now they have a membership club that costs around $38 a month to get more special reporting/meetings...

Filipe

Dave Vogt · Answer

I love your go get em attitude and especially your OPM tactics and your relax a bit, big picture attitude is awesome...you and I could be good friends.

Maybe in a few years we can have some drinks on a beach somewhere with Roy and talk about all our cool stories.

Dave Vogt · Answer

Yikes...that sounds like fun! I heard they are not too bad to deal with, but I would like to hear how this goes. Private money is my main source of funding for my flips. The banks don't like my junkers so private has been my little secret to quick turnovers.

I want to continue to use my private guys to do commercial deals, so knowing the process you are going through would be very helpful. I want to transition some junker apartments like Filipe and then refinance and pull out funds then rinse and repeat until I grow my empire ;-)

How to find/buy Apartment buildings in Ontario

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