Improving multifamily value in Ontario

[Matt Geerts]

I saw a 4-plex that was priced very well for the market it was in. I asked for the pro-forma, plugged in the numbers and it failed miserably. The problem is that the rents are about 80% of what I think that market rent should be. One tenant has been there >30 years, another >20 years, another >10 years and one relatively new guy. The two newer tenants do things like yard work and basic maintenance. They are all paying about the same rent, so I am assuming that the landlord didn't want to bump up the old lady's rent and didn't want disparity between renters so they kept it low. 

So... with the property barely breaking even it isn't a good investment, it has POTENTIAL! Potential is serious value, in my opinion, in multi-family. It isn't like commercial where NOI*Cap=price so if you increase NOI you are literally increasing the price, but it sure makes the price seem less attractive reducing the investor pool and allowing me to get it for lower, then bump it up and make it flow.

However, under the communist rule of the LTB I can't adjust the rents to market. 

One strategy at hand was to move into one apartment for a period of time, which would allow me to rent it out at market rate when I leave. 

What about the other three units? Even if I evict for a major renovation, our comrades at the LTB will allow the renter to return to the newly renovated unit at the same rent! 

LTB is basically telling me that there's no point in investing here, and discouraging me from improving the rental stock.

[Thomas S.]

IN Ontario you can evict to move in to a unit, this is commonly done and once the reno is completed you can do the same for the next unit.You can again evict to do so. The tenant does not have a right to move back in when you evict for personal use.

This is a technicality but can easily work if you do not move from one to the other too quickly.

What you need to do is make an offer to the seller based on the rents. The property value is based only on the NOI, you are wrong is assuming it is not. The property has zero value as a personal home and is therefor commercial. IT is all about cap rates. He will need to lower his price by a considerable amount to allow cash flow.