What’s All The Fuss About Multi-Family Real Estate?

apartment-building-blog


By Kyle Pulis

It’s an asset class that has long been considered out-of-reach and too challenging for many investors. But, as new research shows, it is quickly becoming a popular investment choice for the real estate inclined baby boomer. And that means big rewards for those investing in the multi-family marketplace.

First, let’s look at the data. The demand for multi-family real estate in Canada is strong across various sectors of the population; however, it’s the baby boomers leading the charge. With the baby boomers approaching retirement they are looking for investment vehicles that offer low maintenance, stability, and cash flow. Over the past few years many have begun to shy away from the public markets and have moved towards asset-backed investments that they can count on to be there throughout their retirement. With this in mind, it’s no wonder many are turning to multi-family real estate. Apartment buildings have been the preferred choice of many of the nation’s wealthiest families for all of the same reasons baby boomers are looking towards them now. So what is it that makes apartment buildings so attractive to investors? What makes them better than owning a portfolio of single family homes?

Due Diligence
Doing your due diligence on any investment is the key to its success, especially in real estate. However, with the banks not requiring anything more than an appraisal most of the time, many investors of single family homes feel that they can save costs by skipping or cheaping-out on some essential steps. Repairs and maintenance of crucial elements of the property such as commercial HVAC systems should be prioritized, which property managers may not always do. This is usually the cause of your local rumor mill’s latest real estate investor horror story. In contrast, when applying for a commercial mortgage in the multi-family world, the banks are very involved in the due diligence, often acting as if they are buying it themselves. And considering they are providing you 75% of the purchase price, they pretty much are!

Upon purchase, they will often provide you with a checklist of required due diligence that includes a list of vetted professionals you must use to carry out the work. This ensures all of the work is going to be done right and everyone is made aware of any potential issues early. Additionally, the banks will often do their own financial breakdown of the property and do their own walk-through of the building. With banks acting as your second pair of eyes and making sure all necessary steps are being taken, the risk of a potential landmine not being spotted greatly diminishes. This stops investors from becoming their own worst enemy and decreases the purchase risk dramatically.

Economies of Scale
This one is really simple to understand. Imagine being the owner of multiple properties. You own multiple roofs, furnaces, driveways and yards. If one of these items needs to be replaced, the cost per door is enormous and the payback could take years! Not to mention the cost of your time and vehicle wear and tear driving across the city checking on all of these different properties. It’s just plain inefficient. Multi-family properties solve this issue. Having more units in one building allows you to consolidate resources and efforts to ensure your investment money is working as efficiently and profitably as possible. Your 20 units spread across the city now fit into a single stop. Leaky roof you need roofers Winston Salem in to fix? No problem. The cost per unit just dropped considerably. Since you now have the cash flow of 20 units paying for it, the payback time is much shorter.

Predictable Building Values
Most real estate investments, while much less volatile than the public markets, still follow market trends that are based on consumer emotion and sometimes consumer ignorance. This can often drive prices sky-high, causing bubbles, or downswings based on economic rumours. Multi-family properties, however, are valued based on their ability to generate profit and rely a lot less on the fluctuating emotions of a marketplace. Regardless of the current economic state, a multi-family building will retain its value as long as its ability to generate its profitableness remains.

This makes them a much more stable investment than most other forms of real estate. The added bonus is that, because they are valued based on financials, your ability to predict their future value is much simpler. For example, if you know that within the next couple of years you will be able to increase your rent (income) by 30%, then plug that new income number into your cap rate multiplier and you will have arrived at your new approximate value. As long as you’re investing in a city that has a steady stream of renters and your property management team is reliable and effective, then I would dare to say that your multi-family property is the closest thing to a recession-proof investment you will find.

Constant Exit Strategy
The exit strategies for multi-family properties are seemingly endless. These properties are always in strong demand, especially when they are performing well and located in an economically strong city. Assuming this is the case and depending on the size of your building, there are two big players in this industry that will without-a-doubt buy up your building in a heartbeat. For smaller multi-family properties, potential buyers include the soon to be retired ‘ma and pa’ baby boomers, mentioned at the beginning of this article, who are swarming the market in search of turnkey buildings that are low maintenance and running like a Swiss watch to act as their personal pension.

These buildings kick out great cash flow, are low maintenance and they can typically run them with the help of a management company from their beach house in Florida. For larger buildings, there are REIT’s and foreign investment companies. The advantages of multi-family real estate are no secret to these guys and they are investing billions into the Canadian markets to prove it. They know these buildings will generate great cash flow for their investor base and will provide a strong steady growth of capital year-after-year for generations. For them, the stable Canadian economy and the strong growth of its larger cities mean a safe haven for their starving investment capital.

Time to Capitalize on a Rare Opportunity
It’s a great investment opportunity that is getting more difficult to ignore as time passes. With a quickly growing number of renters swarming the marketplace searching for affordable living, and an investment environment that supports strong asset value in the long-term, it’s time to pull the trigger on that multifamily opportunity. Simple research shows you that all the marketplace ingredients are there to give you the cash flow performance and future security that few other investments can provide within the evolving Canadian economy.

Kyle is the Co-Founder of Pulis Investment Group which offers investors a Hands-Free, RRSP eligible opportunity to invest in apartment buildings. Winner of REIN’s Rookie of the Year, Multi-Family Player of the Year, Leslie Cluff Memorial Player of the Year and Top 10 Player of the Year awards. Kyle can be reached at: kyle@pulisinvestments.com.

Keep up to date with the latest REIN news and events! Subscribe now:

Stay Connected

All Access

Twitter Feed