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October 18, 2023 Addy Saeed Comments Off on Effects of Interest Rate on Investing a Multi-Family Property Profitability, Seller's Guide

Effects of Interest Rate on Investing a Multi-Family Property

In the ever-changing realm of real estate investing, grasping the influence of interest rates is vital, particularly for multi-family properties. With solid demand in the multifamily market amid economic uncertainty, it’s crucial to comprehend the short-term and long-term consequences of interest rate hikes. Let’s first explore the concept of inflation to get a clearer picture of how an interest rate hike affects the multifamily market. Inflation is the gradual increase in the overall price level of goods and services within an economy over time. It erodes the purchasing power of money, leading to increased expenses for investors and developers. The Bank of Canada employs interest rates as a tool to manage inflation. When interest rates go up, the BoC’s goal is to reduce consumer spending and borrowing, thereby slowing economic growth, and curbing inflationary pressures. These rates can influence the overall profitability, financing options, and investment strategies for multifamily properties.

Negative Impact of rising interest rates on the multifamily investment landscape

Costly Debt Dynamics

When interest rates rise, debt becomes pricier, influencing investor returns and property prices. This shift in market dynamics might lead to decreased transaction volume or investors opting to hold onto properties, awaiting a more favorable seller’s market.

Variable-Rate Debt Dilemma

Investors with variable-rate debt may face challenges during resets. A property generating positive cash flow at 3% interest may not be sustainable at 6%. This could lead to negative cash flow, potentially resulting in loan defaults and foreclosures as operational reserves run dry or loan covenants are breached.

Job Market Jitters

Rising interest rates often correlate with job layoffs. According to a recent PwC survey, half of industry executives are reducing headcount or planning to, with 52% implementing hiring freezes. In the multifamily market, anticipating slower growth, investors and property managers might trim staff in response to operational challenges. While a short-term fix, job losses can trigger late payments and collection costs, further impacting property profitability.

However, while high-interest rates are generally perceived as a challenge in the realm of investments, there are scenarios where they can bring about positive impacts in multifamily real estate:

Enhanced Returns for Lenders

Higher interest rates mean that lenders, such as banks or financial institutions, earn more from the interest charged on loans. This can make lending to multifamily property investors more attractive, potentially leading to increased loan availability.

Stability in Market Conditions

High-interest rates can contribute to a more stable real estate market. When interest rates are high, property values may be less prone to rapid and unpredictable fluctuations. This stability can be beneficial for long-term investors looking for predictability in their investment returns.

Reduced Speculative Activity

High-interest rates may discourage speculative investment behavior, where investors buy properties with the sole intent of selling them quickly for a profit. This reduction in speculative activity can contribute to a more sustainable and balanced market, preventing the formation of property bubbles that can lead to market crashes.

Discourages Overleveraging

High-interest rates act as a natural deterrent against excessive borrowing or overleveraging. This can be positive for the overall health of the multifamily investment sector, as it encourages investors to use a more cautious approach in financing their acquisitions, reducing the risk of financial instability.

Attractive Yields for Fixed-Income Investors

High-interest rates make real estate investments more appealing to fixed-income investors seeking stable and attractive yields. Multifamily properties, known for their reliable cash flow, become a more attractive option compared to other investment vehicles in a high-interest-rate environment.

Potential for Bargain Purchases

High-interest-rate environments may lead to a decline in property prices as demand softens. For investors with sufficient capital and a long-term perspective, this presents an opportunity to acquire properties at more favorable prices, with the potential for significant appreciation when interest rates eventually decrease.

In conclusion, high interest rates in multifamily investments can have some silver linings. They might bring stability to the market, making property values less jumpy. Also, they discourage risky behaviors like buying and selling properties quickly, making the market more reliable. High rates could mean fewer people taking big loans, preventing financial troubles down the road. For those looking to invest for the long haul, high rates might mean a chance to buy properties at lower prices. Remember, while high rates pose challenges, they can also create opportunities for savvy investors willing to navigate the market wisely.

If you’re interested in finding out more about investing in Multi-family properties, please make sure to leave a comment or contact us

October 13, 2023 Krystal Lee Ponte Comments Off on What is a Cap Rate? Operations

What is a Cap Rate?

Investing in real estate can be a rewarding venture, but it comes with its own jargon that can confuse beginners. One such term you’ll often encounter is “Cap Rate.” But what exactly is the Cap Rate, and why is it crucial for investors? Let’s break it down in simple terms.

A Cap Rate is short for Capitalization Rate, a fundamental metric used in real estate to evaluate a property’s potential return on investment. In simpler terms, it’s a way to measure the profitability of a real estate investment.

Cap Rate is a percentage that indicates the potential return on an investment. A higher Cap Rate generally suggests a higher potential return but may also come with higher risk. Conversely, a lower Cap Rate may indicate a safer investment with lower returns.

Cap rate is calculated using a straightforward formula, it is equal to Net Operating Income (NOI) divided by the current market value of the asset. (see the photo below for the graphic illustration)

A situational example:

Addy is an investor looking to buy an investment property. From taking real estate courses, he remembers that the capitalization rate is an effective metric in evaluating real estate properties. Addy identifies and compares two properties with their annual income and market values:

After calculating the properties’ cap rates, Addy realizes that Property B has the highest cap rate of 10%.

Addy may base his purchase on the rate alone in a straightforward scenario. However, it is just one of many metrics that can be used to assess the return on commercial real estate property. While it provides a good estimate of a property’s potential return, it’s not the only metric to consider. In fact, various other metrics like the gross rent multiplier, internal rate of return, debt coverage ratio and many more should also be considered. So, when assessing a real estate opportunity, it’s wise to consider a combination of these metrics, not just the Cap Rate, to get a more comprehensive picture of its attractiveness.

Terminologies explained:

  • Net Operating Income (NOI): This is the total income generated by a property minus the operating expenses. It includes rental income but excludes mortgage payments and income taxes.
  • Current Market Value or Acquisition Cost: This represents the property’s current value or the cost at which it was acquired.

While Cap Rate provides a quick snapshot of a property’s potential return, it does have limitations. It doesn’t consider financing costs, future capital expenditures, or changes in property value over time. Investors should use the Cap Rate alongside other metrics for a comprehensive analysis.

In conclusion, Cap Rate is a valuable tool for real estate investors, offering a quick assessment of a property’s potential return on investment. However, it’s crucial to consider it in conjunction with other factors to make well-informed investment decisions. Whether you’re a seasoned investor or a novice exploring real estate, understanding Cap Rate is a key step in navigating the world of property investment.

October 12, 2023 Addy Saeed Comments Off on What is turnover? How do you capture the cost? Operations, Seller's Guide

What is turnover? How do you capture the cost?

According to the National Apartment Association, Turnover measures how many apartment units had residents move out during a 12-month period, shown as a percentage of the total rented units in the building. Essentially, it indicates the percentage of tenants who choose not to renew their leases.

For property managers and landlords, the tenant turnover rate is a crucial metric for planning their budget in advance. You can easily find your turnover rate by dividing the number of tenants who moved out in a year by the total number of tenants you had during that time.

This rate helps property managers estimate how many leases are likely to change each year, allowing them to plan and budget for renovations. It also gives insights into potential rent increases, helping them make informed decisions about their property’s financial outlook.

For example, A residential building has a total of 120 units and all occupied throughout the year of 2022 and the number of moveouts at the end of the year is 20. We simply calculate Turnover Rate using the illustration above. The calculation resulted with a 16% Turnover Rate.

Practical Steps for Long-Term Tenancies to Reduce Turnover:

If you’re grappling with a high turnover rate and eager to cut down on associated costs, consider implementing these effective strategies. Each approach has proven successful, and depending on your property type, one may be more suitable for your situation than the others.

  • Rigorous Tenant Screening:

Enhance your tenant screening process to minimize turnover. Engage a trustworthy tenant screening service to guide you in identifying ideal applicants. Opting for tenants with a track record of property upkeep can significantly decrease repair expenses. Additionally, selecting tenants with a propensity for longer stays contributes to lowering turnover rates and associated costs.

  • Enhance Lease Agreements:

Acknowledge that turnover is inevitable, but you can mitigate its financial impact by refining your lease agreements. Clearly outline terms related to move-out cleaning fees, security deposits, damages, and other potential expenses. Informing tenants about these details empowers them to return the property in good condition, ultimately saving you money during turnovers.

  • Cultivate Relationships and Encourage Renewals:

Building positive relationships with tenants fosters a sense of home, increasing the likelihood they’ll want to stay longer. Establish trust by demonstrating a genuine concern for their well-being. Keep open lines of communication about lease renewals, incorporating regular conversations into your management process. Consider offering reduced administrative rates for lease renewals to incentivize tenants to stay for extended periods.

By combining these strategies, you can create a tenant-centric approach that not only reduces turnover rates but also enhances the overall stability and profitability of your property management endeavors.

September 30, 2023 Addy Saeed Comments Off on What is ESG and why is it important to Investors? Buyer's Guide, Operations, Seller's Guide

What is ESG and why is it important to Investors?

ESG stands for Environmental, Social, and Governance. It refers to a set of standards used by investors and organizations to evaluate a company’s performance and behavior in various sustainability and ethical issues.

In recent years, there has been a notable shift in the investment landscape as environmental, social, and governance (ESG) factors have gained prominence. This shift has extended beyond traditional sectors and is now significantly impacting the world of commercial real estate investments. Investors, stakeholders, and even governments are placing increased importance on sustainable and responsible business practices, driving the integration of ESG considerations into various industries, including the lucrative realm of commercial real estate.

The 3 aspects of ESG are:

Environmental (E): This aspect focuses on a company’s impact on the environment. It involves assessing how the company manages its use of natural resources, its carbon footprint, its commitment to reducing greenhouse gas emissions, waste management practices, and adherence to environmental regulations. Additionally, it considers the company’s efforts towards sustainability and the development of environmentally friendly products and services.

Social (S): The social aspect looks at a company’s treatment of its employees, customers, suppliers, and communities where it operates. It evaluates factors such as labor practices, employee relations, diversity and inclusion, customer satisfaction, community engagement, and philanthropy. Companies that prioritize fair labor practices and have a positive social impact often score well in this category.

Governance (G): Governance refers to the company’s internal policies, leadership structure, and adherence to ethical standards. This includes evaluating the independence and expertise of the board of directors, executive compensation, transparency in financial reporting, and measures to prevent corruption and unethical practices.

ESG factors have gained significant importance for investors due to several reasons:

Risk management: ESG factors can help investors identify and mitigate potential risks associated with their investments. Environmental risks, such as climate change impacts or regulatory changes, can affect the value and longevity of a property. Social risks, like community relations or labor practices, can impact a property’s reputation and operational stability. Strong governance practices help ensure proper management and transparency, reducing the risk of fraud or mismanagement.

Long-term performance: Commercial real estate investments are often long-term endeavors. Considering ESG factors ensures that properties are built, managed, and operated with an eye toward long-term sustainability. This can lead to reduced operational costs, increased tenant satisfaction, and enhanced property value over time.

Market Demand: ESG considerations are becoming increasingly important to tenants, investors, and regulators. Investors who prioritize ESG factors are likely to attract more socially conscious tenants and may also experience increased demand from institutional investors who incorporate ESG criteria into their investment decisions.

Regulatory Compliance: Many regions and jurisdictions are implementing stricter environmental regulations and building codes. Investors who account for ESG factors are better positioned to comply with these regulations, avoiding potential fines or operational disruptions.

Stakeholder relations: Investors that prioritize ESG factors are likely to have better relations with their stakeholders, including customers, employees, suppliers, and regulators. This can lead to enhanced brand reputation and increased customer loyalty.

Enhanced Reputation: Incorporating ESG principles can improve a real estate investor’s reputation. Demonstrating commitment to environmental and social responsibility can lead to positive public relations and better community relationships.

Future-Proofing Investments: By considering ESG factors, investors can future-proof their investments against changing market dynamics. As sustainability practices become more mainstream, properties that lag behind in ESG performance could face lower demand and potentially depreciating value.

As a result of these benefits, ESG considerations have become an essential part of investment strategies for many investors who seek not only financial returns but also sustainable and socially responsible outcomes.

August 10, 2023 Krystal Lee Ponte Comments Off on Canada Mortgage and Housing Corporation (CMHC) Operations

Canada Mortgage and Housing Corporation (CMHC)

The Canada Mortgage and Housing Corporation (CMHC) plays a pivotal role in shaping the country’s housing landscape. CMHC, a crown corporation founded in 1946, fosters secure homeownership, supports affordable housing development, and preserves the general health and stability of the Canadian housing market. It was initially founded following World War II to assist returning service members in finding homes, but over time, its mission has expanded to include providing access to housing in general. Millions of Canadians benefit from CMHC’s critical contributions to society, which include giving them a stable foundation. CMHC operates under the purview of the Government of Canada, and various legislative and regulatory frameworks guide its activities.

CMHC offers various services for home buyers, the government, and the housing sector. Its primary functions include providing mortgage loan insurance to potential homebuyers, bundling insured mortgages into securities, promoting affordable housing, research and market analysis, housing programs and initiatives, fostering sustainable housing practices, and addressing challenges in the housing market.

New neighbourhood in the suburbs

Mortgage Loan Insurance:

Some of CMHC’s core functions are discussed below:

One of CMHC’s core functions is providing mortgage loan insurance, which protects lenders if borrowers default on their loans. This insurance enables aspiring homeowners to purchase properties with down payments of as little as 5%, making homeownership more achievable for Canadians. CMHC fosters a stable and robust housing market by reducing the risk for lenders. CMHC has helped thousands of first-time homebuyers enter the real estate market by reducing the down payment required for purchasing a home. CMHC provides mortgage loan insurance for affordable and market rental housing, including standard rental housing, retirement housing, supportive housing, student housing, and single-room occupancy.

Affordable Housing Initiatives:

CMHC actively works to ensure that Canadians have access to affordable rental accommodations. CMHC supports the construction and renovation of affordable housing projects nationwide through various programs and funding initiatives. These initiatives generally target low and moderate-income households, seniors, students, and vulnerable populations and help alleviate housing affordability challenges.

Sustainable Housing Practices:

CMHC actively encourages green and energy-saving housing initiatives per international guidelines to combat climate change and promote sustainability. These initiatives enable the building of eco-friendly structures and their repair, which helps reduce carbon footprints and lower household utility costs.

Research and Market Analysis:

CMHC extensively researches housing market trends, demographics, and housing needs. By providing comprehensive data and analysis, CMHC aids in evidence-based policymaking and market regulation.

Through its various programs, research, and policy advocacy, CMHC continues to address the challenges of housing affordability, accessibility, and market functionality in today’s housing market.

Thanks for reading our blog and checking out our website. If you would like more information, please feel free to message us by clicking here or connecting with us via chat.

March 22, 2023 Addy Saeed Comments Off on Apartment buildings for sale under $500K Listings Broadcast

Apartment buildings for sale under $500K

I occasionally get asked if there are any opportunities to invest in real estate for under $500K. While there aren’t many opportunities close to the city, there are ample opportunities if you’re willing to travel and invest in smaller towns to get started on your real estate investing journey.

In this video, I show you what is available in the market and go through a couple of opportunities for your review. If you’re interested in finding out more or signing up for the email alert, please feel free to reach out by filling out the contact us form.

Thanks and happy investing!

June 22, 2022 Addy Saeed Comments Off on How to evaluate Multi-Family properties in Ontario Buyer's Guide, Profitability

How to evaluate Multi-Family properties in Ontario

Today, we will be reviewing different levers used when reviewing multi-family properties in Ontario. The property being used is an actual property that is currently for sale in Mississauga that I’m using as an example.

We are now offering services to investors who are interested in investing in real estate without the hassle of managing it. We would invest along side any investors looking to invest in multi-family properties and would asset manage the asset to ensure the asset can achieve the target value creation projected at acquisition. Our compensation is tied to the property achieving those targets hence aligning us along with the clients long term goals.

If you’re interested in finding out more, please feel free to reach out directly.

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    April 17, 2019 Addy Saeed Comments Off on Looking for a large investment? Operations

    Looking for a large investment?

    We’ve been working diligently on couple of projects including a large project with 70+ units. Please make sure to check out the projects we have listed on our website below

    We do have other larger portfolios coming soon too. If you’re interested please make sure to reach out and be part of our list.

    February 8, 2019 Addy Saeed Comments Off on What do we have for sale? Listings Broadcast

    What do we have for sale?

    Long time no talk! Happy new year to you all!

    We’ve been busy at BuildingsForSaleToronto.com working on new listings to bring to you. Following are couple of properties that we thought warranted your review.

    Please take a look and let us know if you have any questions. We also have access to other properties that aren’t posted on our website and available for your review upon request.

    Talk soon!

    October 19, 2018 Addy Saeed Comments Off on Investment properties for sale in and around Toronto Listings Broadcast

    Investment properties for sale in and around Toronto

    I wanted to take a quick moment and point out some new listings that we are working on that are available for sale.  We were working on an 84 unit portfolio that was recently sold but is coming back to the market.  If you’re interested in it, please reach out as I haven’t prepared a video for it yet and can send you info on it.  Here are some others we are working on:

    Following are the listings that we have coming in the near future:

    • 2 Properties with institutional zoning allow for uses such as places of worship in Toronto

    Our residential team is also busy and has two new listings coming as well

    • 5 bedroom detached property hosting over 2500 square feet in Brampton
    • 4 bedroom bungalow on a large 50×120 foot lot that could be rented till ready for development

    Can’t see what you’re looking for?  Reach out and we can help find the property for you.

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