Montreal Real Estate: Should I Buy a Multiplex in 2018?

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Montreal Real Estate: Should I Buy a Multiplex in 2018?

Multiplexes are a popular option for Montreal investors, due to the lucrative returns they offer on your capital investment (your downpayment and purchase costs). But buying a revenue property requires more number crunching than buying a primary residence, since you will need to look at rental rates, ROI, cap rate, and other metrics not typically considered when buying a home to live in. This post provides an overview of how to find and evaluate multiplex investments in Montreal. It also takes into consideration the latest market statistics, to determine whether 2018 is a good year to for a multiplex investment in Montreal:

What is a multiplex? 

A multiplex is a building that has been divided into two, three or more separate units. Anything larger than a fourplex is classified as a commercial property, and may incur higher interest rates and taxes. In some cases, investors choose to live in the building themselves, and use the rent paid by tenants to supplement their own mortgage costs. In other cases, they lease out the entire building and collect rent from all tenants. Owning and operating a large building involves more work than just collecting rent every month, so investors should understand the financial and lifestyle ramifications before committing to multiplex homeownership.

What owning a multiplex entails

As the landlord of a multiplex, you’ll need to oversee renovations and maintenance of the building, and manage the day to day needs of your tenants.  This might include, among other responsibilities:

  • Marketing the building to find new tenants
  • Collecting rent every month
  • Managing the contingency fund
  • Noise complaints
  • Roof, wall and floor renovations
  • Structural renovations
  • Landscaping
  • Maintenance of the common areas
  • Repairing or replacing appliances
  • Plumbing and lighting repairs
  • Insulation and window maintenance
  • Fees for concierges, property managers, and handy-men
  • Paying property taxes and revenue taxes

Where to find multiplexes in Montreal

There are several places investors can find good investment opportunities in Montreal:

  • Set up a property alert to receive a list of all multiplexes currently for sale.
  • Consider joining a mailing list for investors to receive handpicked deals in high-demand neighbourhoods, such as repossessions, properties listed under municipal value, and market rarities.
  • Find a knowledgeable investment specialist who can manually browse new listings and send you promising deals.
  • Ask your broker for pre-market listings and off-market listings. Brokers usually have a list of properties that are not currently on the market for sale, where the owners would be open to receiving an offer if presented.

Choosing a profitable multiplex

When searching for a multiplex, capitalization rate is one of the first criteria to use in your financial calculations.

  • Low cap rate: Although most people associate low cap rate with a bad investment, this isn’t always the case. Low cap rates can be a result of poor management in the past, or may indicate that the building needs renovation work to reach its full financial potential. Investors should therefore consider existing cap rate as well as potential/projected cap rate.
  • High cap rate: A building with a high existing cap rate is already generating healthy income in respect to its market value.  Buying into a building with a high cap rate ensures a healthy return son your investment, without a huge amount of renovation work.

Along with cap rates, you’ll want to look into the 1, 5 and 10 year ROI of the building, which is determined by the rental values and vacancy rates in the area, and the monthly carrying costs of the property. You can easily calculate the ROI on any multiplex using our Investor’s Calculator. 

Lastly, keep in mind the buying criteria for revenue properties:

  • Look for properties which have a garage or are very close to public transportation, as they are easier to rent out.
  • Location, Location, Location! Invest in a part of Montreal where tenants are easy to come by.
  • Stage your rental investment according to mass market preferences, to secure the best profit margins and occupancy rates.
  • Look into the urban planning around your potential investment and most importantly,
  • Work with an experienced broker with good knowledge about the investment market as well as the rental market.

When buying a rental property, it’s important to:

  • Invest in neighbourhoods where tenants are easy to come by. If your rental caters to students or tourists, stay close to the Downtown Montreal or the Plateau. If you are planning to cater to professionals, buy near the business centre or Old Port. If you plan to rent your property out long term to families, start your search in kid-friendly area such as Verdun, NDG or Mont Royale.
  • Stage your fully furnished rental according to mass market preferences, to secure the best profit margins and occupancy rates.
  • Check the co-ownership rules surrounding short and long term rentals
  • Work with an experienced broker with good knowledge about the investment market as well as the rental market.

What does the market say about multiplex investments in 2018?

When buying a multiplex, it’s a good idea to research the rental market.

In 2017, the average Montreal multiplex appreciated at 6% over the four quarters of 2017, coming in higher than condos (4%) but lower than single family homes (7%). 3121 multiplexes were sold across the Island of Montreal, which is a 6% increase in sales volume year over year.

The average price of a multiplex on the Island of Montreal in 2017 was $549,448.

Comparing figures across boroughs is more important than focusing on the city average. While Montreal’s multiplex market is performing well in general, there are neighbourhoods where buying a multiplex is a sounder investment compared to other areas.

Above average appreciation:

In the four quarters of 2017, the following neighbourhoods recorded above-average performance in their price growth, in the multiplex market:

  • Plateau: 16%
  • Lachine: 12%
  • Saint Leonard: 8%

Below average appreciation:

  • CDN / NDG: 3%
  • Saint Laurent: 3%
  • Downtown: 2%
  • Lasalle: 1%

QFREB Statistics

The Quebec Real Estate Board’s barometer provides more long term insight insight on price growth.

  • Over the past 5 years, the average Montreal multiplex has appreciated 17%
  • This figure is higher than condo appreciation (12%) and lower than single family home appreciation (18%)

Feel free to contact us directly to request a detailed report on the multiplex market in a particular borough.

 

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