Toronto is Ranked #1 for single family real estate investments by PWC

[Ahilan Thurairajah]

Check out:
http://www.pwc.com/us/en/asset-management/real-estate/emerging-trends-in-real-estate.html

 

[REInvestors888]

Excellent read...Thanks Ahilan.

Please take note in P-81:
“Government needs to increase the supply,” one interviewee noted. “If there was enough supply, there would be no affordability issue.”

Hoping concerned government authorities can read it as well.

 

[Thomas Beyer]

More supply with high land prices and loads of regulations will not provide affordable housing ! It is a myth.

Only high condo towers with ever smaller condos, SFH further out with low land prices or medium density wood frame in poor locations will be truly affordable !

 

[Ahilan Thurairajah]

I think the government is not ignoring the issue. They want to intensify by encouraging condo buildings in or closer to GTA.

For Multi Family, Toronto is ranked 20th. So I think highest appreciation for investors in Toronto is for single family homes as per PWC.

As Canadian dollar going on sale and/or unemployment rate coming down, more investors may show interest in multifamily home investments.

If the rent goes up due to new mortgage rules that prevent first time buyers, cap rate also could get more attractive in GTA on multifamily buildings.

Also with uncertain markets in U.S. (due to election), Europe (due to economic conditions), India (due to controlling black money) and middle east (due to wars), foreign investment money could poor into multifamily buildings. (Did I missed any other messed up markets?)

If more investors show interest in multifamily buildings, they could potentially appreciate much faster than expected.

 

[Thomas Beyer]

US outlook pretty rosy compared to Canada, unless oil goes up well above $60 soon and sustainably.

Canada overall decent health economically ( but not as good as US) and with a conservative government likely in next provincial election Ontario and GTA certainly a good place to invest. Cash flow tight though even with 30-35% down !

MF buildings like in Vancouver sold for land value and redevelopment potential not on CAP rates !

 

[REInvestors888]

sold for land value and redevelopment potential not on CAP rates !

Doing some research on cap rate for MFs and found this thread. I agree with you, Thomas.

My questions now are:
- Would you still buy the property if cash flow will be breakeven or in negative territory as a result of low cap rate despite 25% down payment? Or buy it from price appreciation or redevelopment potential?
- What would be the best strategy to recoup capital early on - do renos, increase rents as much as possible, re-appraise and refinance?
- What cap rate do most of you use to quickly analyze if MF is a good buy or not?

Thanks for sharing.

 

[Thomas Beyer]

- Would you still buy the property if cash flow will be breakeven or in negative territory as a result of low cap rate despite 25% down payment? Or buy it from price appreciation or redevelopment potential?

Yes I would but only in certain situations where value upside potential is likely due to in-migration, rising rents and/or land scarcity.

- What would be the best strategy to recoup capital early on - do renos, increase rents as much as possible, re-appraise and refinance?

Buy ugly, fix it up, then re-appraise and refi. This works in some instances but not many in short order.

- What cap rate do most of you use to quickly analyze if MF is a good buy or not?

What city ? What would you pay for a car, red, 4 to 6 cyclinders, leather seats ?

What expenses ? Those shown on beautified pro-forma or actuals ? What revenues or vacancies ? Those shown on beautified pro-forma or actuals ?

What size asset ? What condition ? What province ?

People have drowned in rivers one foot deep on average. (TM)

 

[REInvestors888]

It's in KWC, ON CMAs with many amenities surrounding the property.

Revenues and expenses are actuals subject to verification upon acceptance of an offer.

The building is quite old and definitely needs renos but sits on a little over 1/2 acre in downtown central.

For quick analysis, I'm using 5 approaches: local cap rates for similar property/#units/land size/area, etc., 8-10% at a minimum, 40-50% NOI, work backward for targeted $$$ cash flow and ocular survey of subject MF and the surroundings. Not sure if this sounds logical.

Please feel free to share your thoughts and experiences. Thanks Thomas

 

[Matt Crowley]

@REInvestors888 the approach is fine if you verify with actuals and watch the brokers' property sales like a hawk but build out a very strong IRR calculation that looks at the analysis from a cash in to cash out perspective. If you are serious about asset, you may want to invest in getting some solid market multiples assembled by an equity broker like Canada ICI. They can provide comps at stabilization but they will be fairly speculative if there isn't a previous track record of project execution.

If you want to hit +15% IRR you have basically 2 strategies:

• Macro expert: buy a stabilized fully leased asset and ride the wave of economic growth in local economy, rents increase and caps compress
• Value add: find a somewhat broken asset and fix it up, stabilize into current market and determine if worthwhile at that point to exit or continue the hold

Quick analysis is a bit of a bust for real estate because quite frankly there are fantastic deals in any market at the right price. You really have to model it out pretty much every time but here are a few of my bellweathers:

• Development margin 20%+
• Going-in cap rate 6%+ (reached at build completion or lease stabilization)
• IRR 15%, equity multiple 1.3x minimum on 2 year hold

 

[Thomas Beyer]

6% cap rate if pretty .. if ugly deduct 125-150% of repair cost of all items from pristine price. Seller may, or may not accept that. Hard to evict tenants in the socialist republic of Ontario so turn around time intensive.

 

[REInvestors888]

build out a very strong IRR calculation that looks at the analysis from a cash in to cash out perspective

to hit +15% IRR you have basically 2 strategies

here are a few of my bellweathers

Excellent advice. Will adopt them.

6% cap rate if pretty .. if ugly deduct 125-150% of repair cost of all items from pristine price. Seller may, or may not accept that.

Initially sounded this but seller was unperturbed.

Matt and Thomas, thank you very much for unselfishly sharing your expertise and giving advice. We'll keep them handy as we move forward with this project. Much appreciated really.