Multifamily investing help

[E]

Just curious any vancouver island experts here ? Are there 6-7 cap rates there ?

We recently bought in Strathmore at a 7 cap but it's ending up to be closer to 6 with the decrease in rents

 

[Cory Sperle]

A 6 is still okay provided your borrowing at 3 or so.

 

[Rickson9]

Borrow at 3 to get a 6 cap or just dump money into EQ and get 3 with significantly less risk. Not enough for the trouble.

 

[Cory Sperle]

What sort of equity? For me 3 levered by 4 is 12 and I'll take that all day long. 7 cap or higher does not exist in my world (yet). Daryl you will have much more upside in Alberta than trying to go the island for higher cash flow in my opinion.

 

[E]

Thanks Cory, do you know if on the island you can get 6 plus caps ? Why do you think their is no upside on the island ?

 

[Thomas Beyer]

... if on the island you can get 6 plus caps ?

You get 7%+ Caps in weak North Vancouver Island locations, north of Campbell River.

Why do you think their is no upside on the island ?

Vancouver Island is very very weak economically and driven primarily by folks leaving AB and Lower Mainland to retire. V Island is scenic and busy in the summer with tourists and all sorts of seasonal jobs. Very few year round jobs except those by overpaying government agencies: BC government, local governments, BC Ferries and the odd mining job.

If you cater to these job groups AND/OR SENIORS - many of whom own and do not rent - you might be OK.

We used to own in Campbell River close to the hospital and did OK. Not wow. But OK.

The ONLY thing I would do in V Island is build houses for retirees and/or build or own seniors' residences. Owning an apartment buildings at 5% CAP rate with little upside makes no sense to me, although you will do OK with 6% cap rates in Nanaimo, Comox or Campbell River. There is a 53 suiter for sale, for example, in Campbell River for $4.5M at an alleged 5.2% cap, but with real expenses used for underwriting it is a 4.25% cap rate. You can buy that and sit on that for 10 years and get 2-3% rent increases a year with little turnover and you make 6-8% on you money with 50% down. Not great, but OK.

7%+ cap rate exist on paper in rough isolated part of V Island with high vacancy potential. I'd stay away from those.

 

[Cory Sperle]

Thomas beat me to it. Yes for me I prefer to invest in high in migration with workers arriving and small businesses starting. "Island time" is fine for a vacation spot however my investment dollars aren't going there.

 

[Rickson9]

I remember when everybody was telling me how Calgary and Ft Mac had tons of in-migration until it didn't. In-migration camouflages a region's baseline economics.

 

[TrevorW]

Further to Thomas' point, you may make 10 to 12% but by the time you split that with a JV partner (assuming you using one) the returns are relatively weak in my opinion.

I have essentially given up on pursuing my multifamily dream much further. The returns just aren't there over the short term. And lots of capital needed to sustain a <6% cap building which would be essentially break even in my mind.

I'm now looking back to residential SF and multiplexes where I utilize a higher LTV and thus gain a higher ROI

 

[Cory Sperle]

Rickson9 I wouldn't bet against either Calgary or Fort McMurray in the long term, they are just taking a breather right now.

 

[Cory Sperle]

have essentially given up on pursuing my multifamily dream much further. The returns just aren't there over the short term.

If your goal is to make money in real estate short term, then you shouldn't be in real estate at all. 10% to 12% in a flat market is still a decent 60% ROI in 5 years in a FLAT market. Add upside to that with rent increases in thriving areas and you can still quite consistently do 100%++ ROI if you take a 5 or more year outlook.

Yes you can certainly do single family, however when you go to sell the place it is only worth what comparable properties have sold for, regardless of the rental income (rental homes are even harder to sell) or how much effort you have put in. Apply the same grit to improving a multi, getting the rents up up up, and streamlining your expenses on an asset that is essentially worth what it earns and you will see the difference. Most sophisticated investors pursue a multi as soon as they are able to, so I wouldn't write them off quite yet.

 

[Thomas Beyer]

Here is a typical MF asset on V Island, in Campbell River, referenced above: http://macdonaldcommercial.com/sale/2684

53 units at $4.5M or high 80's a door on first glance sounds not too bad. Read the brochure and it is allegedly a 5.2% cap rate. Not too bad, albeit a little low for a tertiary market like CR. But add real expenses, say PM fees of 5%, high property taxes when you acquire it as the city will find out about the new value very quickly or at market insurance rates of $12,000 (not $4000) and it is more like a 4.25% cap rate. Rather than 25% down it is more like 45-50% down or $2.2M. A more realistic price closer to a 6 cap would be low to mid $3'sM but likely the seller will not accept that. That is the new reality in the Lower Mainland and V Island. I am with Trevor W that MF is getting worse and worse as an investment due to too much money chasing too few deals. 6% CAP rates are OK, or even 5% cap rates with upside in AB and SK, but not in BC or ON with rent control in smaller weaker markets. As such, don't count AB or SK out quite yet.

 

[TrevorW]

It's too bad. Multi family is why I started investing. Really resonates with me. I am still keeping my eye open. Too bad there aren't more 4 plexes around. Ever do a search for 4 plexes? Maybe one or two listings in the whole lower mainland. Not many out there. At least in my experience.

 

[E]

Hey Trevor if your looking for higher caps Dallas FW you can still find decent caps, however you'll need to be cautious of higher interest rates and exchange exposure. I've got a solid realtor their if your interested.

 

[Rickson9]

Rickson9 I wouldn't bet against either Calgary or Fort McMurray in the long term, they are just taking a breather right now.

I never bet against Calgary/Ft Mac.
Love those cities. Looking forward to investing in them.

 

[Werner7998]

Hi Micro,

Can you please pm me as well. I live in langley and on the same boat with having hard time finding good MF properties in lower mainland.

my email is pcyrealcorp@gmail.

Thanks

 

[Tina Myrvang]

Try Randy Dyck in Abbotsford: http://www.homes.com/real-estate-agents/randy-dyck/id-10586305/

Randy Dyck - Eximus Realty
http://www.eximus.com/

Brent Roberts - Royal Lepage
http://www.brentroberts.com/

Kelly Fry - Keller Williams
http://www.kellyfry.ca/

 

[TrevorW]

If your goal is to make money in real estate short term, then you shouldn't be in real estate at all. 10% to 12% in a flat market is still a decent 60% ROI in 5 years in a FLAT market. Add upside to that with rent increases in thriving areas and you can still quite consistently do 100%++ ROI if you take a 5 or more year outlook.

Corey - Thanks for the comments. I stand by mine. The JV partners I am working with are not overly attracted by a 6% return. Neither am I . I can do better with a higher LTV. I own a bunch of multi family/plex buildings already...not my first rodeo.

There are many ways to make $$ in real estate. Multifamily is ONE way, not the only way. To suggest otherwise, to downplay other forms of investment or suggest that multifamily is some sort of pinnacle in real estate investment is narrow minded. Ask the folks who are killing it with RTO etc. The idea is to maximize the return on my investment $$. Real estate is but a vehicle to do so. I need returns that reasonably offset risk short AND long term. I have seen down markets (going through it now) and have had some sleepless nights... The last thing I need is low cap, high vacancy nightmare when a commodity price cycles... This has changed my perspective on investing in real estate. particularly in resource communities.

Given the boom in the Lower Mainland right now, I wish I owned more detached houses!

 

[Thomas Beyer]

..The idea is to maximize the return on my investment $$. Real estate is but a vehicle to do so. I need returns that reasonably offset risk short AND long term. I have seen down markets (going through it now) and have had some sleepless nights... The last thing I need is low cap, high vacancy nightmare when a commodity price cycles... This has changed my perspective on investing in real estate. particularly in resource communities.

Given the boom in the Lower Mainland right now, I wish I owned more detached houses!

Well said. The Alberta advantage has turn into the Alberta nightmare for many with the worst yet to come.

Lower Mainland is highly priced with sub 5% CAP rates due to vast Asian money here, cheap mortgage money, lack of supply and a decent economy.