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Investing in residential multi- family vs commerical multi- family

R

Runman

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Oct 22, 2009
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Hi everyone,

I am just wondering what everyone`s opinion is regarding investing in residential multi- family (1- 4 units) vs commercial multi- family (5+ units)? Specifically, I am quite new to real estate investing. I have read alot regarding the literature and feel like it`s time to take the leap of faith
. However, I do lack the experience. That said, I am thinking of investing in a multi- family in winnipeg. I don`t plan on managing the property myself as I live in Edmonton and therfore hope to hire a good property manager and do my own regular due dilligence. Regarding capital, I have roughly 100,000 cash or so to invest so should I stick with a residential loan (4 units or less) or go for a commercial (5 units or more). Am I getting ahead of myself? I was thinking of buying a fourplex or two. However, I was also thinking of focusing on maybe something bigger (8 units with more cash flow). I have heard differing theories on this.

Please let me know your opinions

Thanks alot

Josh
 
QUOTE (Runman @ Nov 11 2009, 12:58 AM) Hi everyone,

I am just wondering what everyone`s opinion is regarding investing in residential multi- family (1- 4 units) vs commercial multi- family (5+ units)? Specifically, I am quite new to real estate investing. I have read alot regarding the literature and feel like it`s time to take the leap of faith
. However, I do lack the experience. That said, I am thinking of investing in a multi- family in winnipeg. I don`t plan on managing the property myself as I live in Edmonton and therfore hope to hire a good property manager and do my own regular due dilligence. Regarding capital, I have roughly 100,000 cash or so to invest so should I stick with a residential loan (4 units or less) or go for a commercial (5 units or more). Am I getting ahead of myself? I was thinking of buying a fourplex or two. However, I was also thinking of focusing on maybe something bigger (8 units with more cash flow). I have heard differing theories on this.

Please let me know your opinions

Thanks alot

Josh

Hi Josh I live and am actively invested in the Winnipeg market specifically in multi-family (6 plex & 22 unit). I`m interested in your search and acquisition strategy. The Wpg market has been hot the last couple years with little or no opportunities currently available in any of the "good rental areas".

I think your idea of multi-unit is the right way to go but it may be difficult to find a good PM on anything less than 8 or 10 units.

Keep in mind that cash flow is only one of the many criteria when analyzing a multi-unit investment.
 
QUOTE (Runman @ Nov 10 2009, 11:58 PM)
..Regarding capital, I have roughly 100,000 cash or so to invest so should I stick with a residential loan (4 units or less) or go for a commercial (5 units or more). ..


bigger is better i.e. more economical !



In Winnipeg a property might cost 40/door IN A ROUGH AREA .. or 80/door in a primo area ..



so with 100K to invest you can maybe get 5 doors in a better location .. or 10 doors and headaches and thus a desire to never do it again in a rough area !



Winnipeg has rent control, so you might be stuck with that $400/month bumm tenant for a while !!



Related posts worthwhile a read related to getting started and multi-family especially !



5 ways to make money http://myreinspace.com/public_forums/General_Discussion/61-3347-5_ways_to_make_money.html



How to get started http://myreinspace.com/public_forums/General_Discussion/61-4391-How_to_get_started_.html



Multi-Family Primer in May 2009 Issue of Canadian RE Magazine:

http://myreinspace.com/rein_members_only/Members-Only_Discussion/81-10996-Multi-Family_Primer_-_May_2009_Issue.html



Equity Gain not the only way to make money in RE: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-10711-Equity_is_not_the_only_way_to_make_money_in_real_estate.html
 
Thanks guys for your expertise.

I am currently still in the research phase of my search. My ultimate goal is to eventually get into big property but I am still just learning the ropes. I have really developed a passion for multi- family real estate. I am looking to take this very seriously as I am ready to make a full commitment. I`m not looking to get rich quick but rather to develop some real solid long term wealth. I do have some time as I am 27 years old and have a great job. Anyways, here is my strategy:

BUY (hopefully at a discount, but I know this is easier said then done), REPAIR (Hopefully just cosmetically), INCREASE THE RENTS (just a little bit to increase the NOI), HOLD (for a few years and manage well), REFINACE (hopefully I have some equity), or SELL depending on the property and circumstance of course), Then BUY AGAIN or PYRAMID (and repeat the process in good solid investment areas untill I am sick of it!
. Just kidding.

Anyways, Do you guys think it is a good idea to buy away from home. I don`t mind flying to Winnipeg and the like to check up on things and make sure the property managment company is doing a good job. It seems like I am going to have a hard time finding good property management. I live in Edmonton and it is really at the top of the market and getting into something bigger would be so expensive as a 6 plex here can cost up to 850,000 to 900,000.

Also, do you guys know anyone that could serve as a mentor to me regarding multi- family properties (eg. for questions and advice).

This is such a great resource. Where else could you find such experts to talk to and for FREE too!
.

Thanks a million

Josh
 
QUOTE (Runman @ Nov 11 2009, 05:35 PM) ... here is my strategy:

BUY (hopefully at a discount, but I know this is easier said then done), REPAIR (Hopefully just cosmetically), INCREASE THE RENTS (just a little bit to increase the NOI), HOLD (for a few years and manage well), REFINACE (hopefully I have some equity), or SELL depending on the property and circumstance of course), Then BUY AGAIN or PYRAMID (and repeat the process in good solid investment areas untill I am sick of it!
. Just kidding.

..
yes .. this is a realistic strategy but do NOT expect discounts unless you can close quickly and with cash (i.e. no mortgage) .. also getting rents UP works well only in SK or AB due to lack of rent control .. BC, MB or ON have rent control that limits increases on existing tenants !

QUOTE (Runman @ Nov 11 2009, 05:35 PM) ... I live in Edmonton and it is really at the top of the market and getting into something bigger would be so expensive as a 6 plex here can cost up to 850,000 to 900,000.
Edmonton is NOT at the top of the market .. it has corrected downwards 20-30% and is now fairly priced again .. you get stuff from low 70`s to 120`s/door depending on area, suite size, suite mix, quality ..
QUOTE (Runman @ Nov 11 2009, 05:35 PM) ...

Also, do you guys know anyone that could serve as a mentor to me regarding multi- family properties (eg. for questions and advice).

I can be your mentor if you wish .. let`s talk ..
 
QUOTE (jeffjas @ Nov 11 2009, 12:44 PM) Hi Josh I live and am actively invested in the Winnipeg market specifically in multi-family (6 plex & 22 unit). I`m interested in your search and acquisition strategy. The Wpg market has been hot the last couple years with little or no opportunities currently available in any of the "good rental areas".

I think your idea of multi-unit is the right way to go but it may be difficult to find a good PM on anything less than 8 or 10 units.

Keep in mind that cash flow is only one of the many criteria when analyzing a multi-unit investment.

I agree with Jeff.  There is very little in the Winnipeg market at this present time.  Take a look at the ICX.ca site.  Most, if not all are in the central area of the city, which is not a very desirable area.





As Thomas mentioned there are rent controls in place in Winnipeg.  There are benefits to owning duplexes and three plexes as you are free to set the rent at whatever level you would like (although this policy is coming to an end shortly).  Anything with 4 suite and above, you can only raise the rent to a max of the average of all the other suites in the building.  There are rental exemptions for renovation schemes, but units have to be voluntarily vacated and you can only do one or two per year per building. Rental controls are not in effect for newer buildings.

All that to say, be careful with Winnipeg.  Yes, prices are relatively low, but so is supply. 
 
Thanks alot again for everyone`s responses.
With regards to Winnipeg, I`ll keep all that in mind. Hamilton was another location I have been contemplating. However, I don`t believe that Ontario has great landlord laws, I could be wrong.

Thomas thankyou very much. I`ll really appreciate that. I`ll be in touch.

Thanks
Josh
 
QUOTE (Runman @ Nov 11 2009, 09:07 PM) Thanks alot again for everyone`s responses.
With regards to Winnipeg, I`ll keep all that in mind. Hamilton was another location I have been contemplating. However, I don`t believe that Ontario has great landlord laws, I could be wrong.

Thomas thankyou very much. I`ll really appreciate that. I`ll be in touch.
Getting rents UP works well only in SK or AB due to lack of rent control .. BC, MB or ON have rent control that limits increases on existing tenants !

Getting rents up is the only way to re-finance and pull initial equity out .. as the value is a function of the NOI .. and NOI is mainly a function of revenue as expense are tough to influence downwards !

This is part of my road from 80K to 80M .. for the first 3-5 years anyway !

For example, we just bought a 8 plex in Yorkton, SK for under $340,000 that will be worth over 500K in about a year with some modest upgrades !

So keep looking .. you`ll find a 6-plex to start .. usually in a smaller town
 
Thanks Thomas for the information.

I wrote you a quick little email.

talk to you later.

Josh
 
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