Hey everyone, my brother and I are looking at purchasing a 4 plex in Ontario and I was wondering what all I should be looking into? There`s obviously the financials and general condition of the building but is there any other important factors people might not consider when purchasing a 4 plex? Thanks for the advice
Due diligence for 4 plex
- Thread starter cailmoney
- Start date
- Joined
- Aug 30, 2007
- Messages
- 13,879
1) Ensure that rents, vacancies and expenses are ACTUAL (based on 2 or better 3 years of documentation)
2) Ensure that you know what major items, if any, have to be fixed (roof, boiler, hallway carpets, ..)
3) Knowing these two items know if the price is appropriate.
4) Know who will be managing the property impeccably and take that person on a walkthrough with you before you waive conditions !
5) Know what cash you have and what kind of mortgage you can get !
More on my blog .. and also have a look at 26+ influencers of items to consider when buying an apartment building: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-14548-Buy_vs_Build.html
Multi-Family Primer in May 2009 Issue of Canadian RE Magazine:
http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-10996-Multi-Family_Primer_-_May_2009_Issue.html
2) Ensure that you know what major items, if any, have to be fixed (roof, boiler, hallway carpets, ..)
3) Knowing these two items know if the price is appropriate.
4) Know who will be managing the property impeccably and take that person on a walkthrough with you before you waive conditions !
5) Know what cash you have and what kind of mortgage you can get !
More on my blog .. and also have a look at 26+ influencers of items to consider when buying an apartment building: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-14548-Buy_vs_Build.html
Multi-Family Primer in May 2009 Issue of Canadian RE Magazine:
http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-10996-Multi-Family_Primer_-_May_2009_Issue.html
QUOTE (ThomasBeyer @ Sep 22 2010, 04:57 PM)
1) Ensure that rents, vacancies and expenses are ACTUAL (based on 2 or better 3 years of documentation)
2) Ensure that you know what major items, if any, have to be fixed (roof, boiler, hallway carpets, ..)
3) Knowing these two items know if the price is appropriate.
4) Know who will be managing the property impeccably and take that person on a walkthrough with you before you waive conditions !
5) Know what cash you have and what kind of mortgage you can get !
More on my blog .. and also have a look at 26+ influencers of items to consider when buying an apartment building: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-14548-Buy_vs_Build.html
Multi-Family Primer in May 2009 Issue of Canadian RE Magazine:
http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-10996-Multi-Family_Primer_-_May_2009_Issue.html/a>
Thanks for the quick reply Thomas! Definitely some good tips and Ill look into your blog.
1) Ensure that rents, vacancies and expenses are ACTUAL (based on 2 or better 3 years of documentation)
2) Ensure that you know what major items, if any, have to be fixed (roof, boiler, hallway carpets, ..)
3) Knowing these two items know if the price is appropriate.
4) Know who will be managing the property impeccably and take that person on a walkthrough with you before you waive conditions !
5) Know what cash you have and what kind of mortgage you can get !
More on my blog .. and also have a look at 26+ influencers of items to consider when buying an apartment building: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-14548-Buy_vs_Build.html
Multi-Family Primer in May 2009 Issue of Canadian RE Magazine:
http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-10996-Multi-Family_Primer_-_May_2009_Issue.html/a>
Thanks for the quick reply Thomas! Definitely some good tips and Ill look into your blog.
- Joined
- Mar 26, 2009
- Messages
- 12
QUOTE (cailmoney @ Sep 22 2010, 04:29 PM) Hey everyone, my brother and I are looking at purchasing a 4 plex in Ontario and I was wondering what all I should be looking into? There`s obviously the financials and general condition of the building but is there any other important factors people might not consider when purchasing a 4 plex? Thanks for the advice
One component to be aware of is the motivation of the seller. Why are they selling? I know of an investor who bought a four-plex and inherited a significant plumbing problem that was missed by his inspector and he was looking at a costly repair that he could not cover and loss of rental income during the repair period. Get a good inspection and look at the property carefully.
There is no short cut to good diligence including deferred maintenance as Thomas noted.
I would look at the existing tenants, length of tenancies and rent levels and compare to market rents in the area. One of my colleagues bought a large apartment building and found out that a large percentage of their tenants were delinquent on their rents. The first step they took was to fire the property manager and they re-positioned their tenant mix by deliberately attracting a better tenant type. Always consider how you will manage the property.
Another area is zoning and whether any of the suites are considered illegal or non-conforming by the civic authorities.
You don`t want to wake up the next day after completion and find out that the bylaw officer is at your door telling you that you own a duplex.
Recently I sold a foreclosed four-plex in Surrey, B.C. one of the best investment areas in Canada as identified by REIN. This building had no tenants, a hole in the roof, bullet holes in the car parked outside and required significant updates in every suite, but my client purchased for $150K below it`s market value with the repairs. The land is zoned high-density residential and he has turned it around.
Problems don`t necessarily mean that you should stay away as you may be able to leverage them to your advantage through negotiation and create equity on the first day of ownership.
One last piece of advice is to try and focus in on an area that is growing and REIN has many references you can utilize. Your strategy or plan may include the desire to own multiple properties so become an expert in a specific area and know everything about that market. It will be much easier in the future to manage several properties within close proximity and there are many advantages.
Good luck and great to see that you are looking for a multi-family property!
One component to be aware of is the motivation of the seller. Why are they selling? I know of an investor who bought a four-plex and inherited a significant plumbing problem that was missed by his inspector and he was looking at a costly repair that he could not cover and loss of rental income during the repair period. Get a good inspection and look at the property carefully.
There is no short cut to good diligence including deferred maintenance as Thomas noted.
I would look at the existing tenants, length of tenancies and rent levels and compare to market rents in the area. One of my colleagues bought a large apartment building and found out that a large percentage of their tenants were delinquent on their rents. The first step they took was to fire the property manager and they re-positioned their tenant mix by deliberately attracting a better tenant type. Always consider how you will manage the property.
Another area is zoning and whether any of the suites are considered illegal or non-conforming by the civic authorities.
You don`t want to wake up the next day after completion and find out that the bylaw officer is at your door telling you that you own a duplex.
Recently I sold a foreclosed four-plex in Surrey, B.C. one of the best investment areas in Canada as identified by REIN. This building had no tenants, a hole in the roof, bullet holes in the car parked outside and required significant updates in every suite, but my client purchased for $150K below it`s market value with the repairs. The land is zoned high-density residential and he has turned it around.
Problems don`t necessarily mean that you should stay away as you may be able to leverage them to your advantage through negotiation and create equity on the first day of ownership.
One last piece of advice is to try and focus in on an area that is growing and REIN has many references you can utilize. Your strategy or plan may include the desire to own multiple properties so become an expert in a specific area and know everything about that market. It will be much easier in the future to manage several properties within close proximity and there are many advantages.
Good luck and great to see that you are looking for a multi-family property!
- Joined
- Oct 7, 2009
- Messages
- 83
You should also look into the Residential Tenancy laws in your jurisdiction. You may find that a 4-plex has different rules and regulations then a single family home or duplex. For example here in Manitoba any property larger than a 3-plex you cannot raise the rent by more then the RTB guideline of 1% even to a new tenant.
Fire codes can be significantly different also. Bottom line you need to know the laws in your area.
Fire codes can be significantly different also. Bottom line you need to know the laws in your area.