Multi-family properties are residential buildings with two or more units (apartments) – they are one of the safest and fastest ways to create long-term, sustainable wealth. In most market areas during this recession, multi-family properties have proven their resilience. Unlike single-family homes and condos, the value of a multi-family asset depends on the income they produce, not on the market’s condition. By maximizing rents and reducing expenses these assets can appreciate steadily over time. Economies of Scale present with these types of properties also provides valuable expense reduction – having more units under one roof lowers the cost of purchase and maintenance per apartment and increases efficiency of management. Even if a unit is vacant, the loss only represents a fraction of the total rental income, as compared to all the income in the case of single-family homes. Demographic trends also favour multi-family investments, as immigration into cities boosts the demand for rental accommodation. Meanwhile, most developers are concentrating their efforts on building condos and there is practically no construction of new apartments. This is resulting in a restricted supply of rental housing, high occupancy rates and a general upward pressure on rents. All of this plays in favour for multi-family investors.
Rent To Own Program
For those not ready to venture out of the single-family housing comfort zone, “Rent-To-Own” is the best way to maximize your returns while minimizing hassles. The program screens and qualifies tenants, who rent out a house (purchased initially by the investor), with the option of buying it in 3 to 5 years. These tenants are generally want-to-be homeowners, who for credit of financial reasons cannot yet make their own purchase. A portion of the rent collected goes towards the tenant’s down payment, thus helping them finance (often their first) home. These future homeowners take care of the property and treat it as their own, since eventually it will be their own. Steady monthly cash-flow, no vacancies, less maintenance, and motivated quality tenants makes this investment stress free. Also, since the future selling price negotiated between the investor and tenant is locked in at the beginning, whether the market goes up or down, the investor’s return on investment is secured.
Private mortgages provide a regular income stream, tangible security and a real return to the investor that is superior to bank deposits, bonds, and GICs. The big, chartered banks in Canada have often been criticized for charging exorbitant service charges, however service charges at best, only cover a bank’s overhead costs incurred by operations. The bank’s favourite money-making venture is undoubtedly the mortgage-lending business.
Private mortgages allow investors to participate in the same lending space as the big banks, while benefiting from far better returns on their money than what the banks would traditionally offer through their investment vehicles listed above.
There are many reasons why Private Mortgage investments are so highly sought after, these include the following:
– Very low administrative costs
– Cash-flow for the lender/investor
– Protected Capital (secured by the underlying physical asset/property)
– Flexibility – one to five year terms
“One of the unique things we small companies have over the big guys is the ability to establish personal relationships. Big companies really can’t do that. You read about effective organizations, learning organizations, lean and mean organizations, but small companies can be virtuous. We as small companies can have virtue because we as small companies are basically the embodiment of one or two people, and people can have virtue, while organizations really can’t.” -Jim Koch, founder of Boston Beer Company