Many first time home buyers as well as seasoned investors consider buying a multiplex to generate equity and passive income on a monthly basis. A multiplex is a building that has been divided into two, three or more separate units. Anything larger than a fourplex is classified as a commercial property, and may incur higher interest rates and taxes. Investors may choose to live in the building themselves, and use the rent paid by tenants to offset their own mortgage costs, or in some cases they might choose to lease out the entire building. Owning and operating a large building involves more work than just collecting rent every month, so investors should understand the financial and lifestyle ramifications before committing to multiplex homeownership.
What does owning a multiplex entail?
As the landlord of a multiplex, you’ll need to oversee renovations and maintenance of the building, and manage the day to day needs of your tenants. This might include, among other responsibilities:
- Marketing the building to find new tenants
- Collecting rent every month
- Managing the contingency fund
- Noise complaints
- Roof, wall and floor renovations
- Structural renovations
- Maintenance of the common areas
- Repairing or replacing appliances
- Plumbing and lighting repairs
- Insulation and window maintenance
- Fees for concierges, property managers, and handy-men
- Paying property taxes and revenue taxes
Choosing a profitable multiplex
When searching for a multiplex, capitalization rate is one of the first criteria to use in your financial calculations.
- Low cap rate: Although most people associate low cap rate with a bad investment, this isn’t always the case. Low cap rates can be a result of poor management in the past, or may indicate that the building needs renovation work to reach its full financial potential. Investors should therefore consider existing cap rate as well as potential/projected cap rate.
- High cap rate: A building with a high existing cap rate is already generating healthy income in respect to its market value. Buying into a building with a high cap rate ensures a healthy return son your investment, without a huge amount of renovation work.
Along with cap rates, you’ll want to look into the 1, 5 and 10 year ROI of the building, which is determined by the rental values and vacancy rates in the area, and the monthly carrying costs of the property. You can easily calculate the ROI on any multiplex using our Investor’s Calculator.
Lastly, keep in mind the buying criteria for revenue properties:
- Look for properties which have a garage or are very close to public transportation, as they are easier to rent out.
- Location, Location, Location! Invest in a part of Montreal where tenants are easy to come by.
- Stage your rental investment according to mass market preferences, to secure the best profit margins and occupancy rates.
- Look into the urban planning around your potential investment and most importantly,
- Work with an experienced broker with good knowledge about the investment market as well as the rental market.
How to find multiplexes in Montreal
There are several ways that investors can find good opportunities in Montreal.
There are two key points to look out for when scanning the market for promising opportunities:
1. Look for properties that are listed below market value.
- Look for repossessed properties
- Find properties listed below their municipal evaluation.
- Consider joining a mailing list for investors to receive handpicked deals in high-demand neighbourhoods.
- Find a knowledgeable investment specialist who can manually browse new listings and send you promising deals.
- Ask your broker for pre-market listings and off-market listings.