Why Buy a Plex?
12/07/2023
Why buy a multiplex? The real estate market provides great opportunities to invest in the purchase of a 5-unit or larger income property. You just need to be prepared to seize the opportunities that arise. Contrary to what one might think, you don't need to be a real estate expert to make an offer to purchase; you just need to understand the basic mechanics and be accompanied by experts in the field. Owning a multiplex is like running a small business, and having a good network of professionals will make you a successful investor and help you identify what makes a property a "good deal." Why buy a multiplex? The best investors understand the importance of being well surrounded when it comes to real estate.
Building the Right Team. Why buy a multiplex?
If you think that being a property owner simply means collecting rents every month while going solo, I'm sorry to inform you that it doesn't quite work like that! The goal is to maximize the potential of your purchase as quickly as possible. You will likely need the support of a contractor, a notary, an inspector, a mortgage broker, and a real estate broker. Whether it's a complete restructuring of administrative management, renovating certain units, changing the heating system, or investing in common areas, any means to increase your income is worth considering. You just need to establish an action plan and follow it, just as you would for managing a business.
Diversify Your Investment Portfolio. Why buy a multiplex?
Multiplex owners acquire these types of properties because they want to diversify their assets. Moreover, it's a great way to achieve financial freedom. Who doesn't dream of living off the returns from the properties they own? However, it requires patience, even a lot of patience! Unless you're able to pay for your property in cash, you need to consider the long-term potential and establish a strategy that will make your multiplex truly profitable. Your tenants will help you repay your mortgage, highlighting the importance of good management.
Who doesn't dream of living off the returns from the properties they own?
Real Estate Investment, Simpler Than You Think. Why buy a multiplex? In essence, rents reflecting the current market, along with minimal expenses, will increase the economic value of your property. There's a very simple economic rule to keep in mind: more income and fewer expenses mean more profits. I'm not telling you anything new here! It's important to note that financial institutions, as well as the CMHC, will base the financing available on the lesser of the purchase price or the economic value. Make sure you pay the fair value for your property and calculate its profitability, so you don't encounter any surprises when it comes to financing or resale. Your annual return on investment will be determined by dividing your profit by your down payment. For example, if you purchase a 6-unit property with a net annual income of $30,000 and your initial investment was $120,000, it yields a return of 25%. It's much more profitable than investing in guaranteed investment certificates with a 2% annual return. Please note that the return will fluctuate based on the initial down payment and the income generated by the property. It's quite simple, isn't it?
Understanding Economic Ratios.
Economic value is a conservative indicator of the market value of a multiplex, calculated based on the income it generates. Although the required ratios (GRM, NRM, capitalization rate, etc.) may vary from one financial institution to another, they reflect a balanced market context.
The ratios are standardized based on the market, leaving little room for exceptions. If the percentage used for bad debts is 5% for a sector, the same percentage will be used for all other nearby properties. The same goes for the capitalization rate (cap rate). Conversely, it gives you the value of a multiplex. If the cap rate in the Hochelaga-Maisonneuve area is 5.50%, you can take the net income of a property and divide it by this rate. For example, if the income is $28,000/0.0550, it results in a value of $509,090.91. The lower the capitalization rate, the better the profitability. A good analysis is the key to success!
Leveraging the Power of Leverage.
The beauty of it is that in a few years, you may potentially use the equity in your multiplex to purchase another one, known as the leverage effect. Indebting yourself to become wealthy! It's the best way to grow your real estate portfolio. If you dream of owning multiple properties, know that it's more than achievable. Don't buy a multiplex just because it's a love at first sight, as the honeymoon period may be short and challenging. Stay informed about what's happening in the desired neighborhood, surround yourself with professionals, do your calculations, and everything will be fine!
