What If You Could Buy Just One Apartment Building in The Next 12 Months?

Multifamily

_{Most real estate investors never purchase an apartment building; instead, they focus on one—to four-unit properties. Some of the reasons I have heard why people don’t buy apartment buildings are misconceptions and stem from inexperience. I asked the question, “What are the reasons that you have purchased one—to four-unit properties instead of apartment buildings?” in the Durham Real Estate Investors Facebook group.

Let’s explore a few of the reasons that were shared:

You need a lot of money to purchase apartment buildings.

This is just not true. It depends on how you go about purchasing the property.

For example, if you attended April’s meeting, the 23-year-old “young gun” presenters purchased 6-unit, 10-unit, and 19-unit buildings using creative financing strategies. They did this without using joint venture partners, instead focusing on creating value, getting projects done quickly, and refinancing their capital.

You could also use joint venture partnerships to bring together interested parties in a co-venture to purchase an apartment building, which would require less capital than buying a single-family house.

Other options include using seller financing to lower the amount of capital required.

You have more credit risk when purchasing an apartment building.

Other than some mortgages in Alberta that don’t have the same collateral requirements as mortgages in Ontario, your credit is always at risk when you invest in real estate. The most important part of the process is underwriting the building properly.

There are always methods to help reduce the need to provide personal guarantees and offer limited recourse mortgages when using specific CMHC Mortgage products on apartment building purchases. Often, depending on the specific loan-to-value, you can limit or remove the personal guarantee. I haven’t really seen this with one—to four-unit property investor mortgages.

You need more income to qualify for financing for apartment buildings.

This is a misconception about how apartment buildings are financed. Apartment buildings are like little businesses, and based on their debt coverage ratio, the building itself does most of the qualifying. There are often net worth requirements for building owners, but having a strong T4 income isn’t necessary to purchase an apartment building.

Apartment buildings are less liquid – harder to sell than 1 to 4 unit properties

This is just isn’t correct.

Any property, whether a single-family home or an apartment building, will sell if it is priced appropriately for the market. I have seen many duplexes sit on the market for months and not sell in all types of markets because they were not priced appropriately or didn’t have a good real estate agent who was willing to tell the owner the truth about their selling price.

It is harder to manage an apartment building.

I would say that a single-family home is the easiest property to manage, but it will always depend on the tenants you have. Let’s use my personal experience of owning 25 apartment buildings and 12 duplexes. At times, the duplexes can be much more work to manage. You can ask a property manager what they think about it.

I know that might surprise some of you, so I will explain, mostly because apartment buildings are usually purpose-built rentals, whereas a duplex is often created after it’s built. You have different tenant perceptions in a duplex versus an apartment building, which leads to different expectations.

It is more complicated to own an apartment building.

Yes, there are more moving parts to an apartment building, and the expenses are much bigger when those systems break down. Having a good team is essential in any investment. I rely on the people around me, and I don’t need to be an expert in every building system to run an apartment building effectively.

Lack of knowledge and out of my comfort zone.

In March, April, May, and June, I have been giving Master Classes on how to buy five—to ten-unit apartment buildings. We are going through the full apartment building process. That can help you to get it into your comfort zone. 🙂

Part 1 – Why 5-10 Units, Examples, and Mistakes (Recording Available)
Part 2 – Property Analysis (Recording Available)
Part 3 – Repositioning (May Meeting)
Part 4 – Refinancing (June Meeting)

We conduct live question and answer sessions after each session and follow-up questions on our monthly Q and A calls. You can also bring a property that you want to review on the Q and A calls. I have been getting really great responses from the members who have attended the classes. This full course, along with the Q and A sessions, is all part of the membership.}