# Multifamily Investing



## opal (Feb 12, 2019)

Hi everyone, I'm thinking about transitioning into the multifamily real estate investing at some point, is there anyone you know who you think could lend some helpful advice? 
Thank you


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## Just a Guy (Mar 27, 2012)

Do you have any idea what you are getting into?


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## Rusty O'Toole (Feb 1, 2012)

I did it for years. What do you want to know?


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## themortgageguy (Jun 28, 2012)

if you have any questions about financing let me know


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## Rusty O'Toole (Feb 1, 2012)

2 principles that served me well. First you must know that real estate is as much a business as an investment. And a business should be run in a businesslike way. The second is, I wouldn't buy a property unless it had positive cash flow. In this day of low interest rates some of the old rules like cap rate are not holding water the way they used to but, I would still be leery of any negative cash flow, or even break even property especially multi family.


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## themortgageguy (Jun 28, 2012)

very sound advice. Never buy with negative cashflow projection


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## opal (Feb 12, 2019)

Just a Guy said:


> Do you have any idea what you are getting into?


In theory, yes I do. But I don't have practical knowledge. I have experience working with residential properties.


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## Just a Guy (Mar 27, 2012)

Well then you should be aware you’ll need an environmental impact report to get financing. Rates are going to be higher as it’ll be small business rates. You should be very careful about due diligence check out the roof, HVAC, windows, doors, stay away from cantilevered balconies, electric, plumbing, building envelope, etc. Less repairs needed the better. 

If you pay around 100K/door (which seems to be the going rate to start) you aren’t going to cash flow in the long term.


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## opal (Feb 12, 2019)

Rusty O'Toole said:


> I did it for years. What do you want to know?


As was mention before, positive cashflow (not appreciation) is crucial to survive in business when you invest in multifamily. For good or bad, but today's cap rate is very low, I'm talking about MLS listing of South Ontario. My question is, if you guys already in business, how did you find properties with positive cashflow? Did you use the agent or networking? Thank you


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## Just a Guy (Mar 27, 2012)

For me I set up a notification list. I tell my realtor the criteria I’m looking for and I get listings that match it as they hit mls. I haven’t seen a lot of cash flowing properties hit the market in years.


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## opal (Feb 12, 2019)

Just a Guy said:


> Well then you should be aware you’ll need an environmental impact report to get financing. Rates are going to be higher as it’ll be small business rates. You should be very careful about due diligence check out the roof, HVAC, windows, doors, stay away from cantilevered balconies, electric, plumbing, building envelope, etc. Less repairs needed the better.
> 
> If you pay around 100K/door (which seems to be the going rate to start) you aren’t going to cash flow in the long term.


Thank you for the prompt answer. How did you find the number 100k/door? Are you talking about a specific market? What do you think would be a good start to find a good deal?


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## Just a Guy (Mar 27, 2012)

It the number I use. In most major markets a bachelor suite rents for around $800/month, a one bed $900-1000, two bed 11-1200, a three 1300 ish. With these numbers, I want to run at at least the 1% rule (rents generate 1% of the purchase price) so a 1M building has to generate at least 10000/month.


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## Rusty O'Toole (Feb 1, 2012)

opal said:


> As was mention before, positive cashflow (not appreciation) is crucial to survive in business when you invest in multifamily. For good or bad, but today's cap rate is very low, I'm talking about MLS listing of South Ontario. My question is, if you guys already in business, how did you find properties with positive cashflow? Did you use the agent or networking? Thank you


This rule kept me out of the market for years. And for years I looked like a fool as others made money as prices climbed higher and higher. Then when prices collapsed I suddenly looked very smart.

Investing is the only market where people rush to buy at high prices, and run away when they have a bargain sale. Lowest price I ever paid was $137,000 for a six unit apartment house, 4 2 bed and 2 1 bed, this was in 1995. The 2 beds were renting for $650 and the 1 beds for $450 and $550. When I say lowest I mean in relation to the market rent at the time.

I still like real estate as an investment I just got burned out dealing with tenants. I tried hiring property managers, what a fiasco that was.

Do you know about the GRM and cap rate?


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## opal (Feb 12, 2019)

Rusty O'Toole said:


> This rule kept me out of the market for years. And for years I looked like a fool as others made money as prices climbed higher and higher. Then when prices collapsed I suddenly looked very smart.
> 
> Investing is the only market where people rush to buy at high prices, and run away when they have a bargain sale. Lowest price I ever paid was $137,000 for a six unit apartment house, 4 2 bed and 2 1 bed, this was in 1995. The 2 beds were renting for $650 and the 1 beds for $450 and $550. When I say lowest I mean in relation to the market rent at the time.
> 
> ...


Yes i'm familiar with the basic ratios. 
Are you talking about crisis in 89-92 when the market collapsed?
What happened with that property? Are you still investing in real estate?


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## Just a Guy (Mar 27, 2012)

Rusty makes an excellent point, being a landlord is much more than just finding a cash flowing property. Dealing with tenants is much harder than you think. You need to be in real control of your emotions. You have to be able to look at things solely as a businesss. Many times, when you get started, you’ll need all the skills of a contractors, plumber, lawyer, electrician, psychologist, bouncer, etc. To deal with the various things that come up.

This isn’t an investment for everyone.


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## themortgageguy (Jun 28, 2012)

Actually environmental Phase 1 are not always needed depending on property and lender and rates for a multi unit (lets define those above 5 units as this is never defined during discussions and its where the financing rules diverge) are as low as single family dwelling principle residences if insured....

If a phase one is needed its always good to put conditions into the offer to cover your ***. I always suggest this but no one does it. Last time it was ignored and cost the buyer 25K for furnace oil tank remediation.


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## Rusty O'Toole (Feb 1, 2012)

Just a Guy said:


> Yes i'm familiar with the basic ratios.
> Are you talking about crisis in 89-92 when the market collapsed?
> What happened with that property? Are you still investing in real estate?


I was out of the market in the 80s boom. I know one guy who bought a triplex for 16 times income at the peak of the boom. Couldn't talk him out of it. Got back in after RE collapsed in 1990. At one point in the early 90s one listing in four was power of sale in our area. I did what I could but couldn't get financing, all the banks were burned out on RE and none of my friends would listen. If I recall right, the six plex I bought for 3.17 times income. I financed out on it, and once it was fixed up and fully rented covered all expenses, including mortgage payment and made me $1000 a month clear. There were other deals almost as good but no one was interested. I kept that property until it doubled in value, about 10 years. Then sold it to buy more properties in a lower cost area. Made some money there, got burned out on tenants bullshit, and sold all but one house about 5 years ago. Now I'm figuring out how to beat the stock market. I've got some good ideas there but once again, no one is interested.


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## Rusty O'Toole (Feb 1, 2012)

Dealing with tenants doesn't have to be a nightmare. There are systems you can use to keep problems to a minimum.

First rule is, your property has to be clean and in good repair. It doesn't have to be Buckingham Palace, but the standard of cleanliness you would expect in a good hotel.

Then the rent has to be reasonable. Everyone is a hanging judge of rent. If you are not getting enough qualified applicants, lower the rent. $100 or even $50 below market rent is enough. You should be getting 15 or 20 applicants to choose from. If you are only getting 2 or 3 the rent is too high or there is something the matter. Don't kid yourself that you will make more money charging higher rent. Charging is one thing, collecting it is another.

Be very choosy about who you rent to. No more than 32% of their income should be going to housing costs. You want a good credit report and good references from previous landlords. Not only the one they are leaving, the one before that. The one they are leaving may praise them just to get rid of them. Some landlords don't want to talk about ex tenants over the phone. In that case I ask if they will talk about the weather. If they say the weather stinks and they hope it changes be warned.

Then, you need a lease and you need to enforce the rules. If you don't make your car payment, or don't pay your electric bill or credit card bill what happens? You get in trouble that's what happens. Same goes for rent. If someone doesn't pay send them an N4 as provided by law. You don't have to follow up if you don't want to but it is important to get on the record, first so the tenant knows you mean business. Second if they are chronic non payers you need to keep a record of it. You may find yourself in court trying to evict them for non payment, if you can show they failed to pay on time 5 or 6 times before, that may be the clincher you need to get an eviction. In all fairness, a tenant has the right to assume they don't need to pay on time if you let them slide time after time. If it doesn't matter to you why should it matter to them?

On the other side of the scale, you have to live up to your responsibilities. Keep the place clean and in good repair, follow up on complaints and fix things promptly, basically do your job. Don't be one of those hit or miss guys that gives landlords a bad name.

And if you get a good tenant show some appreciation. It is easy enough to crab about the bad ones, how about the good ones. I send my good tenants a nice Christmas card thanking them for taking good care of their apartment, and enclose a $50 Tim Horton's gift card. A little bit of appreciation can go a long way.


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## opal (Feb 12, 2019)

Thank you guys for all those advices you shared.


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## tavogl (Oct 1, 2014)

I have been watching these guys for a while now, seems like they focus on multi family RE. https://youtu.be/QEzkxGwjip0


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## peterk (May 16, 2010)

Rusty O'Toole said:


> Be very choosy about who you rent to. No more than 32% of their income should be going to housing costs. You want a good credit report and good references from previous landlords. Not only the one they are leaving, the one before that. The one they are leaving may praise them just to get rid of them. Some landlords don't want to talk about ex tenants over the phone. In that case I ask if they will talk about the weather. If they say the weather stinks and they hope it changes be warned.


Just wondering how those requirement are working out? As a high quality renter and I know it, I would not be inclined to deal with that crap from a prospective landlord, unless you are the only man on the block with access to some exclusive building/location that I just can't rent from elsewhere... Multiple references contact info and credit check (give you my SIN?)? no thanks. You can feel free to examine a photocopy of a paystub if you'd like though. I suppose maybe a bank statement would be fine and not too much trouble for me to provide.

I'd imagine that you filter out a lot of upper-middle class potential renters by having such requirements, and you end up getting more desperate people who are willing to comply with your demands as the ones who actually do.


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## tavogl (Oct 1, 2014)

Yea I would never provide my SIN to a landlord either, paystubs, letter of employment stating income are both fine by me.


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## Just a Guy (Mar 27, 2012)

From a landlords point of view, there are plenty of people looking for housing, if one doesn’t want to provide me the information I’m looking for, it’s probably not a good sign of a working relationship. Are you trying to hide something? The law is set up that I need to protect your privacy. There are plenty of other people out there to choose from. 

From a renters point of view, there are plenty of properties out there, but if you really want a certain location, or a good landlord, your choices may be limited.

One of the “tricks” tenants often pull involves insurance. I require tenant insurance as part of my lease. It’s not expensive and it helps them as well. The bad part is, tenants have gotten insurance, got the letter saying they’ve got coverage as proof to me, then cancel it right after getting the letter to save money. Fortunately, I check several times a year and it hasn’t come back to haunt me, but there’s a reason we ask for stuff.


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## Rusty O'Toole (Feb 1, 2012)

peterk said:


> Just wondering how those requirement are working out? As a high quality renter and I know it, I would not be inclined to deal with that crap from a prospective landlord, unless you are the only man on the block with access to some exclusive building/location that I just can't rent from elsewhere... Multiple references contact info and credit check (give you my SIN?)? no thanks. You can feel free to examine a photocopy of a paystub if you'd like though. I suppose maybe a bank statement would be fine and not too much trouble for me to provide.
> 
> I'd imagine that you filter out a lot of upper-middle class potential renters by having such requirements, and you end up getting more desperate people who are willing to comply with your demands as the ones who actually do.


If you want to live in a quality building without a lot of rubby dubbies for neighbors you will need to qualify and the qualifying process MUST be the same for everyone or you are asking for a discrimination lawsuit. A credit bureau report and referrences are pretty standard practice. I don't need your SIN but I do need your permission. Incomplete applications go in the trash basket. Applications from people who object to the qualifying or screening process likewise. If you are that hard to get along with when you are trying to get in I hate to think what you will do once you are entrenched and I can't get rid of you.

Would you expect to get credit for a large purchase like a car or house without qualifying? A rental house or apartment is the same.

There are landlords who do not screen their tenants. They are the ones who are always having trouble with tenants who trash the place, don't pay rent, get in trouble with the cops etc etc. If that is the kind of building you want to live in, best of luck to you.


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## Mukhang pera (Feb 26, 2016)

Rusty O'Toole said:


> If you want to live in a quality building without a lot of rubby dubbies for neighbors you will need to qualify and the qualifying process MUST be the same for everyone or you are asking for a discrimination lawsuit.


Rusty, while overall I agree with your views about screening tenants, and I have screened a few in 40-odd years of owning rental properties (but, I'll acknowledge, never dozens of units - or "doors" if you will - at a time). My screening criteria have always been somewhat elastic. I have not seen that as an open sesame to a "discrimination lawsuit". Not all discrimination in this world is prohibited. We all discriminate against others all the time in some form or another. Canadian human rights legislation ordains that one must not discriminate in certain ways on certain grounds. 

In BC, the relevant provision of the Human Rights Code reads:

*Discrimination in tenancy premises*
10 (1) A person must not

(a) _deny to a person_ or class of persons the right to occupy, as a tenant, space that is represented as being available for occupancy by a tenant, or

(b) discriminate against a person or class of persons _regarding a term or condition of the tenancy _of the space,

because of the race, colour, ancestry, place of origin, religion, marital status, family status, physical or mental disability, sex, sexual orientation, gender identity or expression, age or lawful source of income of that person or class of persons, or of any other person or class of persons. (my italics).

So one may not _deny_ a tenancy on the prohibited grounds and one may not discriminate on the prohibited grounds by imposing different terms in a tenancy agreement. The Act is silent about the application process. 

I have considered whether having a screening process that is not slavishly uniform could somehow be construed as a _denial_ where an applicant complains of some variability in the screening process. I do not think the legislation captures such a notion and, I did a quick bit of research and could find no decided case in BC where s. 10 of the Code was invoked with respect to an application for tenancy. The Code came into force in 1973 and my own database goes back to only 1979, so I perhaps missed something.

Let's take a real life example. You have in your pile of applications a number from "a lot of rubby dubbies" and one from Warren Buffet. And maybe one from the charming Wanzhou Meng. You might not subject the latter one or two applicants to the same degree of scrutiny as the former. Or maybe Mr. Buffet comes highly recommended by your best friend. Are you not free to waive the requirement for references for fear of a lawsuit? In the case of Ms. Meng, you might put her through more hoops, questioning her "lawful source of income". Would that be prohibited discrimination? 

As an aside, in BC you cannot bring a lawsuit, the matter is within the exclusive jurisdiction of the Human Rights Tribunal at first instance. Its decisions are subject to judicial review.


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## Rusty O'Toole (Feb 1, 2012)

You will have to excuse me, I farmed out the rental application part to a rental agency, property management company or real estate agent for years. So I may be hazy on some details. But one thing they are careful of, is to avoid discrimination law suits. The rule seems to be, if you have objective criteria like being able to afford the place, having a good job or source of income, credit history, and references AND if you apply them the same to everyone you are in the clear.

So everyone fills out a standard appication form, no form or improperly filled out is an automatic rejection. Income, credit report etc. also evaluated the same for everyone.

The fact that I don't like Warren Buffet and would prefer to rent to Wanzhou Ming would not stop me from renting to him, if he met all the standards.


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