Our first multi-family building

[theastrophysicist]

Hello:

My friend and I are looking to buy our first small (6 or 8plex) multi-family building. Other than the usual DD research, we`re wondering about the age of the building. For those who have experience, how old would you say is too old to buy, or maybe put better, to sell?

We would most likely keep the building for 5-10 years. If it`s newer, reducing operating expenses and then re-financing down the line would be a good option, but if it`s getting too old, perhaps selling it would be safer, before too many maintnance issues come up? How long do people hold these kind of properties for
typically (in Ontario)?

Also, other than the roof, boiler, windows and electrical, are there any other serious maintnance issues to look out for, something that would pass the inspecions but could end up costing in the long run?

Thanks a lot!
Waldemar

 

[Thomas Beyer]

QUOTE (theastrophysicist @ Nov 10 2008, 02:46 PM) Hello:

My friend and I are looking to buy our first small (6 or 8plex) multi-family building. Other than the usual DD research, we`re wondering about the age of the building. For those who have experience, how old would you say is too old to buy, or maybe put better, to sell?
There is no rule .. it is a function of price. Of course, an 80 year old building may need a lot more upgrades than one built in the 80`s .. newer is better, but usually more expensive for the same rent than older ..
QUOTE (theastrophysicist @ Nov 10 2008, 02:46 PM) We would most likely keep the building for 5-10 years. If it`s newer, reducing operating expenses and then re-financing down the line would be a good option, but if it`s getting too old, perhaps selling it would be safer, before too many maintnance issues come up? How long do people hold these kind of properties for typically (in Ontario)?
There is no "typical". We have done: one flip in 2 weeks, some holds for 1-3 years, many many 4+ years .. and I am not old enough to claim decades . but I know of many folks who bought 30+ years ago .. why ever sell ?
QUOTE (theastrophysicist @ Nov 10 2008, 02:46 PM) Also, other than the roof, boiler, windows and electrical, are there any other serious maintnance issues to look out for, something that would pass the inspecions but could end up costing in the long run?
structural, windows, boiler, pipes (lead !!), wires (brittle !! aluminum !!), elevator (we had one 40+ years old .. yikes !!), but any decent inspector would cover this in their report ..

I would not buy right now in Ontario as you can`t raise rents by more than 1.7% / year .. unless it is a 9 or 10% CAP rate or in a high turnover area like universities with a decent enough price (say 7.5% to 8% CAP rate) !!

 

[greg12]

Don`t forget the "Subject to confirming insurability" clause. The Rental Insurance companies do not like 30+yrs buildings unless the electrical, wiring, plumbing & roof have been updated to their specs since then. They will not bother to verify this until you try to file a claim...yikes.

 

[theastrophysicist]

Hello Thomas:

Thank you for the useful info! I understand that selling is the LAST option. However, at some point if an old building starts to kill my cash flow because of maintnance/repair issues, does that not say it`s time to part with it?

Of course, we`ll try to get something that is not very old, that we can afford. Just looking for ideas and information, so thanks! Our goal is to buy a 6plex probably, and then try to get something larger, like a 40 unit building, once we figure out how we can get some OPM (we have a good broker that should help us with this). I see RRSPs being mentioned, however I`m just starting out and the value of my RRSP would not help me in any way. Can I use a hard money loan for the downpayment? Otherwise, me and my JV partner will have to save for many many years to buy such a large building.

Waldemar