Friday, June 5, 2015

Multi-unit building purchase: Is it right for you?

Many real estate gurus in the last 10 years have talked about achieving financial freedom through the purchase of rental property. Although there is some truth to this depending on your investment/return, you have to be sure that owning rental property is right for you. It isn't as glamourous as people think and is often hard work. I will discuss a few benefits, but also a few downfalls, of being a landlord. It isn't just about collecting the rent cheques.

One of the strongest benefits is that you can buy a multi-unit property for as little as 10% down for triplexes and fourplexes and as little as 15% for sixplexes and up. This enables the property owner to keep most of the cash in their pocket, while the rental income covers the mortgage. This allows time for the property to appreciate in value as well....a side benefit.

Another reason to get into real estate is to use it a passive income stream. Is it  SO passive, though? Many people underestimate factors such as repairs/vacancy. If you don't have a contingency fund for emergency expenditures, you could be in trouble. You must be ready to spend hundreds of dollars should something break in one of your apartments. What if your tenant stiffs you for three months’ rent and leaves? Do you know your rights? Since Quebec law generally favours the tenant, it is important to choose your tenants carefully.


Another factor which works against you can be the insurance premium. Let's say you have a $500,000 mortgage while putting the minimum 15% down and want the highest amortization to get the payment as low as possible. The premium added onto a mortgage like this would be almost $25,000, making your mortgage $525,000. If you are planning on holding onto a property as part of a portfolio, the benefit will likely outweigh the downside. If you are planning on reselling your property quickly, that $25,000 will obviously impact you more. You must consider as well that there are usually file-opening fees with the lender and CMHC fees when buying these types of properties. The CMHC will also want to make sure that they calculate whether the property you are buying is a good investment. If not, they will not insure the loan, which will in turn force you into a conventional loan that carries with it higher interest rates.

Multi-unit purchases typically take longer, but if done with the proper real estate agent/mortgage professional, they can be very fruitful. It is essential, however, to be aware of what it takes to buy one, so you don't end up with nasty surprises down the road that discourage you from completing the purchase.

If you have any questions about multi-unit purchasing, I will be happy to assist; Please visit my website to see how I can help you: Mortgageratesmontreal.com