Cmhc`s Market rents?

[reedharris]

I was just thinking about how CMHC and economists in general calculate market rent. Like most places we (BC) have some form of rent control, which means `average` rents may be lower than acutal current rents that a new tenant would receive.

Does anyone know how rents are calculated in that scenario?

I`m thinking its particularly important for multi-family debt service calculations, where CMHC tells you how much the property will support....

Any thoughts?

 

[Thomas Beyer]

QUOTE (reedharris @ Apr 6 2009, 12:25 PM) I was just thinking about how CMHC and economists in general calculate market rent. Like most places we (BC) have some form of rent control, which means `average` rents may be lower than acutal current rents that a new tenant would receive.

Does anyone know how rents are calculated in that scenario?

I`m thinking its particularly important for multi-family debt service calculations, where CMHC tells you how much the property will support....

Any thoughts?
we have a ton of CMHC insured mortgages.

CMHC underwrites on AS IS rents .. and uses their own (very conservative) expenses and vacancy assumptions. So if your rent shows a 2% vacancy .. they may use 5% instead.

They have gotten much more conservative lately .. so try, as a rule of thumb: 5% vacancy and expenses of $3300 to $3500/suite/yr (slightly less in BC if tenant pays for his own electric heat)

DCR is usually 1.2 in big cities, 1.3 in small cities and 1.5 in towns .. using a 4% or even a 4.5% mortgage rate for underwriting purposes.

Send me some details and I`ll give you a rough estimate of loan amount to be expected.

of course their fees are based on their value, not the purchase price. So you may get a 70% loan-to-price mortgage but pay for an 85% LTV mortgage (i.e. 4.5%)

 

[brentdavies]

CMHC does an intensive rental survey in the fall in Edmonton, and I am sure it is the same in other cities.

CMHC staff calls the owner or manager of EACH multifamily project in Edmonton, and asks for the detailed rental information and vacancy. The data fairly represents the multi family market in Edmonton.

Every fall ( And it used to be every spring too), we would receive 20 plus calls on different projects we were managing. IF the project is sold, they would go after the new owner for information.

Problems with average rent in district with CMHC data,
- does not give a break down of rent based on quality of project, such as new properties, highrises, high quality or low quality walk up.
- Older walkup apartments in Oliver in downtown Edmonton do not get the same rents as some of the new high rise towers. Different tenant profiles.
- CMHC survey historically only tracks projects with 6 units or more. 4 plexes, duplexes are not in survey
- Total rental universe in Edmonton is about 120,000 units, and the CMHC survey universe is now less than 80,0000. Less than 65% of the universe is counted.
- the survey is dependent on property owners providing accurate data. This does not always happen.
- House rentals are not in the data collected. Fall of 2007, Edmonton had a fast rise in vacancy and soften rental rates due to the large number of homes put on the resale market. Properties that rented for $2000 in the summer rented for $1700 4 months later. You won`t find this bump in the market on any survey.

In conclusion, CMHC numbers are fairly good, but must be adjusted to the property and the neighborhood.

 

[Thomas Beyer]

QUOTE (brentdavies @ Apr 7 2009, 04:49 PM) ...
... The data fairly represents the multi family market in Edmonton. ..
It is a best-guess estimate !

Have you considered that owners are lieing or do not know actually ?

Example: A smaller town we own in had a lot of layoffs lately .. we have quite a few vacancies .. the CMHC guy tried to tell us we were the only property with vacancies in that town .. although we know quite a few owners and many have vacancies too !

So, proceed with caution and use your OWN research .. CMHC is the government .. and where is the real incentive to be accurate or work hard for the CMHC interviewer with 300+ property names to phone in a week ???

 

[brentdavies]

Yes Thomas, many owners are not truthful on their rental information to outsiders.

My experiance doing rent surveys for my properties, is that many Private Owners treat their rental information as the great secret. I have had to pose as a renter to get information on the competition many times.

It may be embaressing to say "I have 20% vacant today".

Most property will freely pass on truthful information to other professionals, such as appraisers, some realtors, other property managers, City Assessment Dept and CMHC.

Internet ads are great for finding out the rents of the competition. These great websites were not readily available 5 years ago. Go to Boardwalk, Mainstreet, and Midwest to name a few.