Any Feedback From Downtown Hamilton Multi-Family Property Investors?

[ClintL]

I know that Hamilton mountain is a great place for single family properties but I'm wondering if any of you who have already invested in multi-family properties (duplex/triplex/fourplex) located in downtown Hamilton can offer some feedback on how their investments are going so far? Some downtown areas are still a bit sketchy so just want to get what your experiences have been so far as landlord investors down there.

 

[housingrental]

I have clients who invest in Hamilton, feedback I've heard from investors:



Hard to find good tenants

Landlords often need to accept less than ideal applicants or keep units vacant for long periods of time

Lots of LTB action + bailing tenants + damages

Lots of demand for all suite type

Places without parking are a lot easier to rent than most other areas



Purchasing at a cheaper enough rent to purchase price is key to absorb extra R&M / uncollected rent / ltb and paralegal fees + need for PM with area specific expertise - a in theory 8% CAP might really be closer to, or less than, another city's quality area 5% cap rate unless you have the property management in order

 

[GaryMcGowan]

Pretty good advice above



We have purchased 4 buildings in the last number of months in Hamilton in the Gage Park area. ALL the buildings required improvements. You need to be willing to spend money today on the units. The rent to purchase price ratio is very attractive but it comes with work. You will most likely be removing tenants - renovating - and then choosing a better tenant profile. You must also know that the tenant profile is what it is and to improve on it can take time. If you have a good system or property manager in place it will/cam work for you.

This area of Hamilton is a long term play while providing great cash flow.

 

[ClintL]

Thanks for the responses so far. Saw a triplex, actually a legal duplex with a basement suite. The basement suite was leaking and the existing tenant was unemployed. So I see what you mean.

 

[biancahamiltonrealtor]

Hi, I`m an agent in Hamilton.


Location is key and streets may vary block by block. Your agent should be well versed in the area.


And last and not least, basement apartments in hundred year old houses are just creepy, yeah they boost the net income but bring a bag of trouble.


The tenant profile is generally subpar, the unit may have dampness/water issues, there is little sunlight, the unit limits access to mechanicals and so on. Turnover is huge and imho simply not worth the trouble.

 

[Nir]

[quote user=biancahamiltonrealtor]

Hi, I`m an agent in Hamilton.


Location is key and streets may vary block by block. Your agent should be well versed in the area.


And last and not least, basement apartments in hundred year old houses are just creepy, yeah they boost the net income but bring a bag of trouble.


The tenant profile is generally subpar, the unit may have dampness/water issues, there is little sunlight, the unit limits access to mechanicals and so on. Turnover is huge and imho simply not worth the trouble.




Hi Bianca,

so you wouldn't buy any 100 yrs old with a basement? what about 100 yrs old without a basement?

I mean you can always decide not to rent the basement In other words what I'm trying to say is as usual..

it depends on the price.

Regards,

N.

 

[Nir]

[quote user=housingrental] in theory 8% CAP might really be closer to, or less than, another city's quality area 5% cap rate unless you have the property management in order



Hi Adam, I think there is some terminology confusion. 8%CAP is 8% in any city as CAP by definition already includes expenses. what I think you meant is just that Hamilton expenses are higher. Even though expenses are higher, 8% CAP building already includes these higher expenses which, while not intuitive, do go together with higher expected net income. The reason is the additional risk and work dictates higher expected compensation. and indeed Hamilton has higher CAP bldgs due to the additional work/risk.

Regards,

Nir

 

[Thomas Beyer]

[quote user=Nir]8% CAP building already includes these higher expenses
In any crappy area (not just Hamilton, but also Edmonton, vancouver, Montreal, ..) with high turnover you will incur higher vacancies, higher non-collections and much higher repair and legal bills .. thus pushing an 8% CAP rate building on paper easily to a 4-5% CAP rate. Run the numbers with a 12-15% vacancy (aka non-collection) and expensesof $4200 to $4800/unit/yr and see what the CAP rate is.



It is tough to make money in C areas, unless you buy super cheap, cut costs to the bone and reduce turnover through low rents and tight tenant control. A business I used to be in but decided to exit. Pay the extra price for a better area and your retrun on $s and time invested vastly improves.

 

[Nir]

[quote user=ThomasBeyer]In any crappy area .. you will incur higher vacancies, higher non-collections .. thus pushing an 8% CAP rate building on paper easily to a 4-5% CAP rate.



Hello,



so you think/what you are really saying is that crappy buildings or crappy area buildings are sold for the wrong price. I don't think so in fact as a generalization that's impossible/illogical as they are supposed to be sold for a better real CAP on average to justify/compensate for their crappiness. just an arbitrage related economic rule.



Sincerely, Nir

 

[biancahamiltonrealtor]

Hi Nir, I love century homes and they really make for great rentals (duplex/triplex) because they can be spacious with 3,4 or even five room main floor lay outs. These houses are still standing solid and most likely will be after cheaply glued together sub divisions start to crumble.



The basements in these homes, although amazing in structure because they were constructed of one foot deep stone, are seldom water proofed, or waterproofed to the extent that you can have a nice apartment.


Yeah you can install weeping tile inside or around the parameter, but you still have a sub terrain dwelling, which, hmm, only a certain type of tenant is willing to pay for.


And of course there are exceptions, although some days I do feel I`ve seen every house in Hamilton.


All i`m saying is that effort, vacancy, loss of income, clean up and re renting is worth $$ and there is easier ways to go about it.


I like to sell (and buy for myself) without the basement unit, attic units can be nice, if access is good and not built for mountain goats, but i also like to show clients homes built in the 40` and newer, they can have great basement suites with good height, decent windows etc.

bianca

 

[Thomas Beyer]

[quote user=Nir]

so you think/what you are really saying is that crappy buildings or crappy area buildings are sold for the wrong price. I don't think so in fact as a generalization that's impossible/illogical as they are supposed to be sold for a better real CAP on average to justify/compensate for their crappiness. just an arbitrage related economic rule.
We're saying the same thing.



But use actual expenses and actual rents collected, not just realtor imagined pro-forma numbers please !

 

[ClintL]

From what I've seen so far, some of these units have been fixed up decent and in the case of basement units, I'm not even going to factor them into my calculations if they are not legal. They won't count in the financing anyway. I've met some of the typical tenant profiles. The disability cases seem to be quite stable but those just on welfare may not be. Don't know what others' experiences have been so far.

 

[housingrental]

Hi Nir



My perspective is the CAP rate is often marketing material of a best case scenario using operating income from a single time period.



Actual operating income when taken in to account vacancy, uncollected rent, LTB fees not re-couped, paralegal fees, capital expenditures, getting the stairwell cleaned extra times during the month because someone puked, and for many other reasons will over time often be less.



Your perspective might vary.



[quote user=Nir][quote user=housingrental] in theory 8% CAP might really be closer to, or less than, another city's quality area 5% cap rate unless you have the property management in order



Hi Adam, I think there is some terminology confusion. 8%CAP is 8% in any city as CAP by definition already includes expenses. what I think you meant is just that Hamilton expenses are higher. Even though expenses are higher, 8% CAP building already includes these higher expenses which, while not intuitive, do go together with higher expected net income. The reason is the additional risk and work dictates higher expected compensation. and indeed Hamilton has higher CAP bldgs due to the additional work/risk.

Regards,

Nir