I have seen a lot of investors over the past couple years very interested in commercial and multi unit residential properties, which is the best place to be in real estate especially in the end game. The reason that multi tenant buildings are so desirable is that you have multiple streams of income and if you have a vacancy you do not lose out on the whole profit for that month. There are also other great things about multi tenant buildings such as charging for multiple parking spaces as well as laundry and in some cases other amenities such as pools and gyms if they exist in the building. One of the largest barriers to getting into these types of buildings is often the price – I recently saw a 4 unit apartment building in Calgary listed for over 1.2 million dollars! This property has the zoning to build a 12 unit building on the land but this is just an example of how high the prices can be in some of the large markets like Calgary and Edmonton. The standard cap rate that someone should generally be looking for in an apartment building (depending on their goals of course) is around 8% and of course greater where possible. This is impossible in the Calgary market at the current time and most smaller centers near Calgary due to the price increases we have seen over the last 24 months. This causes a dilemma for those trying to make the move into multi tenant properties, now you could look in other provinces to be sure but there is a better bang for your buck if you are willing to open you mind to smaller towns in other parts of Alberta! There are a precious few investors that would even think about buying an apartment building in a “small” town – why? I personally do not understand their objections: its not in a major center, there is no job growth there, what if the factory closes. Now, the factory closing argument has some merit in some cases but only if 40% or greater of the whole town’s population works there and its closing would mean nobody could pay rent. If the numbers make sense and the fundamentals are there such as vacancy rates being low and having more than one industry that fuels the job market then why not take a look at a small town? I know of a deal right now that is off market for a 12 unit building with an 8% cap rate that is only 83000/door and is only 2 hours from Calgary! There are lots of these deals out there just waiting to be snapped up by savvy investors that know a deal is a deal no matter it’s location – not I know it is nice to invest in your backyard or close to a major city in your province but sometimes a major center means major prices that just don’t make sense when compared to some of the other options in the market. That deal I mentioned is off market as well so there are deals that a lot of the conventional world just does not see so keep networking to find those pocket deals that never hit the MLS.
To your success!
Tim R
