Illegal off market four plex yay or nay?

Myron Bas

Inspired Forum Member
REIN Member
Looking at small town 4 plex.. They are willing to sell for $515k.. 3/4 full.. They don't seem to want to show me 2016 financials though lol.. I believe it is not legal 4 plex.. Would you do an inspection on it for sure? I know the building decently.. Plus side is its in my main area of business, can have worker housing capacity, and I can do 5% down payment on it.. With 100% occupancy building would produce $4600/ m.. What do you see here?
 

Martin1968

Frequent Forum Member
Registered
What i see here is that it would be beneficial for you to have a realtor. Even though off market, I would gladly pay my realtor a small fee (agreed upon between the 2 off you) to pull old listings, title, run comparables etc. And, if you will, write up an offer etc. Small upfront cost might prevent you from making costly mistakes.

About the 5 % DP that could possibly work if you would make it owner occupied. Any other then that you would require 20% DP. The rental income seems to be good @$55200 annually but make sure you calculate all your expenses, mtg-PT-Ins-Mtc-vacancy
After all that, also read your home inspection report well, as based on that is where you will spend your positive cash flow in the first 4 to 5 years to do capital investments to prop (not to confuse with regular maintenance) such as windows, roofs, siding or paint, and last but not least complete apartment remodelling.

For the rest it's hard to comment on the market this 4 plex is in. Same as with the 6 PLEX (previous post)you have had all the ins and outs on small markets.
 

dpeacock

Frequent Forum Member
REIN Member
Since it may be an illegal 4 plex you want to consider what the rents would be if you had to rent it out as a legal duplex, and what would the math look like then? In Ab many duplexes are offered as illegal four plexes, until the city shuts it down. Take a look at what the actual zoning for that property is.


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Michel Lafleur

Frequent Forum Member
REIN Member
I agree with the couple comments above. Connect with a Realtor for some basic homework & due diligence on the property. This will help get you a current market value on the property (so you don't over pay) and shed some light on whether its actually a legal 4plex, or a duplex with illegal basement suites.
And speaking of using 5% down - are you planning to move into this place (to fill the 4th unit?) I don't know of any lenders allowing 5% down payments on rental units. And even if there are lenders, does the property still cashflow with a high ratio mortgage and CMHC fees? ANd does that still cashflow if 2/4 of these suites are deemed as illegal and shut down?
 

Tina Myrvang

Client Care Lead
Staff member
REIN Member
I agree, analyze not just the cash flow, but make sure it's a good city. Know the economics and the GDP for the city.
 

alaas

Frequent Forum Member
REIN Member
I agree with the above comments, ensure it cash flows if the other suites get shut down and also budget for repairs should you need to decommission the suite.

Lisa
 

Thomas Beyer

Senior Forum Member
REIN Member
High risk as some cities shut down illegal suites. Small towns even higher risk. Over 100/door seems very high as you can buy legal multi-plexes at these prices in Lower Mainland, Edmonton, outside of GTA in ON, Saskatoon or Regina. So why pay this in a small town with high city AND high asset risk ?
 

Martin1968

Frequent Forum Member
Registered
I would not want to own props with illegal suites for all the above mentioned reasons.

4 plexes come in all kinds of different configurations. As far as purchase price at about 128.500 per door it depends on what that configurations is and what shape the asset is in. (And yes, the market it is in)

The most common configurations:
* 4 PLEX with up and down units 2&1 beds
* 4 PLEX with up and down units 2&2 beds
* 4 PLEX with up and down units 3&2 beds
* 4 PLEX corner style (BiLevel) 2 bed
* 4 PLEX corner style (BiLevel) 3 bed

Then in any type of combination you may have 1,1.5 or 2 bath. There is the difference of some 4 plexes having a shared entrance and common space and shared laundry, while others (corner style) have separate entrance and in suite laundry.

Also in any type of combination you can have utilities such as gas and water at landlord expense or just water at landlords expense, while others may have ALL utilities at tenants expense. So a price per door (Alberta) on 4 plexes isn't as cookie cutter as (older style) apartment building acquisition, where often you find the same 1 or 2 bed, 1 bath configuration with gas and water at landlords expense.

My question would be, how do you compare a price per door on a 4 PLEX corner style, with Let's say 3 bed, 1.5 bath, all utilities separately metered, as opposed to a larger multiplex price per door with 2 bed, 1 bath and only electrical separately metered.
The 4 PLEX is bringing in $1100.00 per month per door (utilities seperate ) and the larger multiplex $850 per month minus 150-200 in utilities expense. At a minimum difference of $400.00 per door per month. (19200.00 annually)

Looking forward to your answers.
 

Myron Bas

Inspired Forum Member
REIN Member
I look at what kind of rents can each unit get, how hard is it to find tenants, how much cash will I put in initially.. My main decision is based on cash on cash return and the fundamentals that support the return.. Well actually this one would just be ROI because of the low down payment option vs how much debt is paid down per year..

Myron Bas
 

Myron Bas

Inspired Forum Member
REIN Member
Main driver of this deal would be the 5% down, owner occupy.. The equity being built from debt pay down is $8000, total initial cash would be around $40,000.. 20% ROI from that alone.. If fully occupied..


Myron Bas
 

Myron Bas

Inspired Forum Member
REIN Member
I agree with the couple comments above. Connect with a Realtor for some basic homework & due diligence on the property. This will help get you a current market value on the property (so you don't over pay) and shed some light on whether its actually a legal 4plex, or a duplex with illegal basement suites.
And speaking of using 5% down - are you planning to move into this place (to fill the 4th unit?) I don't know of any lenders allowing 5% down payments on rental units. And even if there are lenders, does the property still cashflow with a high ratio mortgage and CMHC fees? ANd does that still cashflow if 2/4 of these suites are deemed as illegal and shut down?
Mortgage broker said it would be around 2600$ a month mortgage, would he be including CMHC fees already?

Myron Bas
 

Brad Redekopp

Inspired Forum Member
Registered
Main driver of this deal would be the 5% down, owner occupy.. The equity being built from debt pay down is $8000, total initial cash would be around $40,000.. 20% ROI from that alone.. If fully occupied..


Myron Bas

5% down isn't a plus, you pay 40k into it but you CMHC fee"s will collect half that effectively making your equity at 98%, if your looking at purchasing more properties in the future the debt on this would kill your ratio and stump your growth


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