When you’re working in the world of real estate investment in Canada, one of the most common long-term goals for investors is the purchase of an apartment building or complex. That’s entirely understandable. Apartment buildings can be incredibly lucrative opportunities if you go about it the right way.
Table of Contents - Step-By-Step Guide to Buying an Apartment Building
Take your time, do your homework, and maybe apartment building owners will be in your future.
Decide if an Apartment Building is right for you
Don’t be blinded by the potential for making money when you purchase an apartment building in Canada. There are certainly rewards to reap, but it’s critical to remember that owning and operating a multi-unit building takes a lot of work.
In the plus column, owning a building with several units means that you will always have some kind of income month-after-month. Apartment buildings also allow you to supplement your rental income by adding stuff like vending machines and coin-op laundries to the property.
On the other hand, a lot of apartment buildings will see consistent tenant turnover, which means you will spend time (and money) advertising for vacancies. You will also need to make sure your tenants are happy. That means almost daily interactions with them. In the end, those tenants are likely to take poor care of their unit (since it’s not theirs).
If you’ve got the people skills and the determination required, then owning an apartment building is a wonderful way to invest.
Apartment Building expenses go beyond the mortgage
Once you’ve decided to purchase a multi-unit building, it’s essential to understand the added expenses. When you buy a rental home, for example, your most significant expense is likely your mortgage on that property, plus occasional maintenance services when something breaks down or a tenant moves out.
After you sign your name on the dotted line of apartment building ownership, you will quickly discover that it is borderline impossible to run an apartment without backup. For example, most apartment landlords find it helpful to have a full or part-time maintenance tech, plus someone on-site to handle emergencies and address tenant concerns.
Remember that it’s critical to have the financial flexibility to employ all the people you’ll need to keep your tenants happy (and maintain your sanity).
Network to get work
The next step in purchasing an apartment building is finding the right property for your needs. One of the easiest ways to begin this process is to consult with local real estate networks. By merely engaging with professionals from all corners of the real estate industry, you will steadily build your cache within the community. That could lead to the discovery of a magnificent building before the competition can hear about it.
While you’re on the hunt, you might also consider seeking out a for-sale-by-owner. Because an FSBO operates without an intermediary, it’s entirely possible to save five percent or more off the purchase price. When you’re talking about apartment buildings, that is no small amount of money.
Add a ‘commercial’ pro to your entourage
When you first set about building a real estate investment portfolio, you undoubtedly learned to engage the help of several real estate professionals. A mortgage broker and real estate agent are integral to any good team, for example. When you make the leap to an apartment building, however, you might want to add another professional to the crew.
Any time that you purchase a building in Canada that is larger than four units, you will exit the world of residential real estate and leap into the commercial market. When that occurs, your best bet is to secure the services of a veteran commercial real estate agent. These pros will understand the distinctions between a residential and commercial real estate that could make or break your deal.
Know the neighbourhood
At least one thing remains the same, whether you’re looking for a single-occupancy rental home or a towering apartment building. To make the most of your investment, you have to know the neighbourhood. For starters, research the average local rents in your area. This will give you an idea of a starting price point when you’re purchasing your building.
Another critical reason to investigate the neighbourhood is to search for signs of new construction or renovation. These are signs that your community is on an upward economic trend, which could mean you’re getting in on the ground floor of a neighbourhood revival.
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What kind of apartment are you getting?
Now that you understand the kind of neighbourhood you’re working with, you can levy that knowledge into purchasing the right type of building. For example, if you purchase property near a college campus (of which there are plenty in Canada) or notice an abundance of bars and restaurants moving in, you might be best served by choosing a building made up mostly of the studio and single-bedroom units.
Meanwhile, multi-unit buildings surrounded by schools and grocery stores will find more success if they include mostly two-bedroom units and larger. Research on demographic details can go a long way toward helping you decide.
Look at the numbers
When you’ve finally pinpointed a potential building to purchase, the next thing to look for is the triad of important numbers:
- Occupancy Rate refers to the number of tenants currently living in the building.
- Cost Per Unit indicates the individual cost per unit in the building based on your buying price.
- Rent Per Tenant, as you might expect, is the average monthly rent you can expect to accrue.
These three figures combined will give you some basic idea of the health of your purchase. They will also factor into the interest rates you can secure for a commercial mortgage. A building with a high consistent occupancy rate, rental fees that are adequate to their neighbourhood and an average-to-low cost per unit are considered safer bets for banks, and that’s nothing but good news for you.
When you follow this step-by-step guide to buying an apartment building, you can ensure you’re well prepared for this type of investment.
How To Invest in Apartment Buildings
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