A multifamily property makes an excellent investment. When you own a building that contains several units, you’re protecting yourself against the risk of lost rent. If one unit is vacant, you still have rent coming in from all the other units. When you’re thinking about buying a multifamily property in Kelowna, make sure you’re prepared. Today, we’re covering some of the basic things you’ll need to consider when selecting and funding an investment.
Do Your Due Diligence
Make sure you’re buying the right property for your investment goals. Research its maintenance history, and have it inspected so you can be sure you’re buying something that’s in good condition. You don’t want to invest a lot of money getting it ready for the rental market after you’ve purchased it. If there are already tenants in place, make sure you review their lease agreements and their payment histories. The more information you have about the property you’re buying and the tenants in it, the better prepared you’ll be.
It’s also important that you understand the local rental market. Determine what kind of rents you can expect, what the tenant pool will look like, and how long it will take you to place the best tenants in the units. Find out what vendors in the area are like, and how much they charge for standard maintenance and emergency repairs.
Financing a Multifamily Property
You have several options when it comes to finding the money you’ll need to buy a multifamily investment property. There are conventional loans, in which case you’ll get a standard mortgage from a bank or a credit union, and the loan will need to be paid off within 25 or 30 years, depending on your lender’s terms. Expect to put down 25 percent of the amount borrowed.
If you’re planning to live in one of the units in the multifamily property you’re buying, you may qualify for government-backed loan programs similar to the CMHC loan on a single-family property. Your down payment will be smaller and you’re likely to get better terms and rates in exchange for a fee that gets rolled into the mortgage.
Portfolio loans are also a popular way to fund your multifamily purchase. You can finance between four and 10 properties at the same time, and your mortgage will be for anywhere between three and 30 years. These are nonconforming loans, so you’ll have a little more flexibility when it comes to loan terms and down payment amounts.
Understand Your CAP Rate
On your investment, the capitalization rate (CAP rate) represents your rate of return, before debt servicing. This figure is used to determine how much your investment is expected to generate for you, and it may be important when you’re financing your purchase. It definitely makes a difference when you’re choosing an investment. Don’t buy something that will cost you more than you’re earning. There are a few different ways to calculate your cap rate, but the most common equation is to look at the ratio between your net operating income and the property’s market value. Improving that net operating income (NOI) will not only increase your cash flow and result in a better cap rate; it will also increase the overall value of your property.
We love working with investors at all levels, and we’d be happy to answer any questions about multifamily properties. Whether you’re new to Kelowna real estate investing or you’ve been building a portfolio for years, contact us at Vantage West Property Management.