Investing in apartment buildings

Apartment Buildings have been a great investment in Canada, especially giving the fact that they have always held their value up through recession periods. But as type of investment, apartment buildings is often overlooked by residential investors. Many beginner investors focus on homes and multiple properties, when an apartment building may yield a much higher return. If you have the capital to afford the initial upfront investment of apartment buildings , they are a great option.

Types of Apartment Buildings

Apartment buildings can vary in size from 7 to 500 suites. Purchasing large-scale apartment buildings require a lot of capital, so for a new investor it is best to start with small apartment blocks that are 8-12 units.

Costs

Costs of investing in apartment buildings also need to be taken into consideration. There are both upfront costs and also maintenance costs over the long term. In a large metropolitan area such as Vancouver, it is reasonable to expect to pay $1 million for a small 8 suite building. Some costs to take into account are the property taxes, legal fees, property appraisal, environmental impact study, property inspection and the engineer inspection, land transfer tax.

Selection Process

The principles behind selecting al location for purchasing an apartment building are the same as for residential real estate. The location is a big factor which will determine the amount of capital growth and return you will get. An ideal location for an apartment is near transportation and employment nodes.

It is important to carefully plan things out before purchasing apartment buildings . It is best to specialize in a specific niche market, such as student housing, seniors, hospital staff, etc. The expected investment for small investments is typically a half of the purchase price down and the rest can be financed.

Responsibilities of Owning Apartment buildings

For a small investor just starting out, it is best to delegate all management of the apartment building until you are comfortable you can do it on your own. This includes, maintaining the building, landscaping, the tenants, the policy, the building code regulations, etc. If you hire a property management company, there are many things that should be taken into consideration such as the type of real estate the property management company specializes in, the geographical locations they have experience in, management fees, their qualifications, etc. Maintenance of the apartment is often neglected by new investors, especially for new buildings and this can be a big problem in the long term. Neglecting building maintenance can cost a lot of money in the long term.

When Should You Buy?

Now is a great time to invest in apartment buildings because the market is performing well and interest rates are currently low. Long term 5 or 10 year mortgage can be obtained under the cap rate or the rate of return. Getting a return on investment of 4-6% is not much difficult for most areas in Canada, making apartment buildings a great investment.

Daniela Peeva, B.A.(hons), LLB

Commercial Mortgage Specialist

2005 Sheppard Avenue East, Suite #200

Toronto, ON M2J 5B4

Tel: (416) 499-5454 ext. 101 | Toll free: (866) 705-4447 ext. 101 | Cell: (416) 879-7404

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