Chopping a house into as many units as possible -- opinions?

[Jess Chan]

Hey everyone,

I'm posting partially on behalf of myself and partially on behalf of my parents. They've been doing REI for the past ten years by themselves while balancing multiple day jobs, and they're not getting any younger. They crunched some numbers before they started and decided on a magic number of properties that would either (a) provide them with cashflow into retirement or (b) build equity that they could begin to relinquish during retirement. They're finally on the verge of buying their last property, but they're having difficulty securing a mortgage at this point. That's where I come in, except we're having a fundamental difference of opinion in strategy.

I'm trying to insist on a few things, since I'll be both owning a part of it:

1. 1. It needs to be fairly nice, as I'll be moving in to one of the units.
2. 2. It needs to be within or extremely accessible by transit to downtown Toronto.
3. 3. Finally, quality over quantity of units.

The last one is where we're having the biggest difference of opinion. I have this gut feeling that a bright, spacious one-bedroom would be worth more than chopping it in half to two self-contained units, or even as a roomy one-bedroom vs. a squashed two-bedroom -- downtown houses are usually only like 13~20 ft frontage to begin with. And then there's the additional wear and tear when it comes to the partitioning renos or utilities.

All of my folks' previous properties are multi-family 4-plex properties in the suburban parts of the city. Rent is set at a relatively affordable level, since they buy "fixer-uppers" that weren't very large to begin with and chop it up further. Sometimes we have good tenants, often we have bad ones. We've had tenants who refused to pay and forced our hand for eviction, but we've also had tenants with us almost from the very beginning who make virtually no peep aside from a Christmas card every year.

Essentially I'm trying to learn more about whether my inexperienced gut feeling is pulling me in the wrong direction, after seeing a couple of horror stories from some tenants at properties with less, ah, TLC. Is my theory that a 3-plex where each unit goes for $2000+ is a better investment than a 4-plex where each unit goes for $1500+? Where am I guessing these numbers from, anyway? Would a tenant paying top dollar be more of a headache than one trying to skate by and happy to find a "deal" in this intense market? Do I just want to live in a really nice place when it truly would be better to live in a shoebox? We've run some numbers but I'm taking them with a grain of salt so far because they're based on mostly anecdotal data points, and I'd like to learn if I could be more precise in these calculations.

Interested in hearing in anyone's experience who can help compare the pros and cons to "high" vs. "low" volume residential properties.

Jess