Multifamily property Investing in Ontario, Canada

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Multifamily property Investing in Ontario, Canada

Thomas Kambadzi
Member since 2019 · 10 posts · 0 votes

Hi everyone!

I am new to Real Estate Investing and I am excited about the journey. I just finished reading the Book by BiggerPockets on “How to Invest in Real Estate - the ultimate beginner’s guide to getting started”.

I have been analyzing plenty of deals on the Realtor.ca MLS using the new tools I just picked up in the book. Specifically I am focusing on 2-5 unit Multifamily properties in southern Ontario/GTA area up the way to Barrie region. What's interesting though is it seems as if not a lot of properties (if any) would pass the 1% rule. I know it's a general guideline that helps one to quickly filter if a property will cash flow positively. Does this mean that deals are just harder to find in this region? Makes me wonder too that are the people who end up buying these properties (which don't seem to be good deals, assuming they are bought at the asking listed price) making bad deals or are there cases whereby even though something might not necessarily pass the 1% rule, it may still end up being a worthwhile deal to look into?

Thanks in advance! 

Thomas

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Paul Sverdlin
Rental Property Investor · Ontario + Ohio · Member since 2018 · 82 posts · 53 votes
3y

If you explore in the US just go to RBC or TD. They are quite willing to lend for a "cottage" or a "second home" in US. That should be stated as your intent on the application. What you actually do with that property after the loan is granted is of little concern to the bank. While rates are higher than in Canada, at least you will be able to secure financing for that very first deal.

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  • Stevo Sun
    Calgary, AB · Member since 2021 · 327 posts · 176 votes
    3y
    Quote from @Thomas Kambadzi:

    Hi everyone!

    I am new to Real Estate Investing and I am excited about the journey. I just finished reading the Book by BiggerPockets on “How to Invest in Real Estate - the ultimate beginner’s guide to getting started”.

    I have been analyzing plenty of deals on the Realtor.ca MLS using the new tools I just picked up in the book. Specifically I am focusing on 2-5 unit Multifamily properties in southern Ontario/GTA area up the way to Barrie region. What's interesting though is it seems as if not a lot of properties (if any) would pass the 1% rule. I know it's a general guideline that helps one to quickly filter if a property will cash flow positively. Does this mean that deals are just harder to find in this region? Makes me wonder too that are the people who end up buying these properties (which don't seem to be good deals, assuming they are bought at the asking listed price) making bad deals or are there cases whereby even though something might not necessarily pass the 1% rule, it may still end up being a worthwhile deal to look into?

    Thanks in advance! 

    Thomas

    The 1% rule is not made for Canada. GTA ( to a certain extent southern Ontario) is one of the most expensive markets in Canada. I would be extremely shocked if you were able to find anything remotely close to the 1% rule. A lot of information on here is geared towards the US. 

    I would try to get in touch with local investors or even investor focused realtors. Probably your best bet to understand the local market. 
    2Reply
  • Account Closed
    Member since 2023 · 15 posts · 11 votes
    3y

    It will be almost impossible to find a property that passes the 1% rule near Toronto.  I can get close in Alberta but the houses I buy are about 1/6 the average cost in Toronto.  

    A lot of investors buy for appreciation in markets like Toronto or Vancouver.  You might be lucky just to find something that cashflows.  Good luck in your search!

    1Reply
  • Cody NeustaedterPro Member
    Real Estate Agent · Winnipeg MB, Canada · Member since 2021 · 109 posts · 34 votes
    3y

    If you want to get close to the 1% rule you will need to look into the prairie provinces or smaller cities. Winnipeg, Saskatoon, Lethbridge, are good examples of some places in each of the prairies that you could maybe get 1%. You will not see near the appreciation that you would in the GTA or the Vancouver market though.

    204-227-5081
    1Reply
  • Emily Shay
    Investor · Bismarck, ND · Member since 2021 · 29 posts · 12 votes
    3y

    I echo the comments by the other responders here. The 1% rule is really not good for Canadian markets. The larger urban areas like Vancouver (where I lived for >10 of my formative years) and the GTA are more appreciation markets at this stage of the game. Maybe they would have been good cashflow markets "back in the day" (at least Vancouver) but the way things have trended the last few years, you'd want to get into that market for the appreciation...and the barrier to entry is quite high IMO. Speaking as someone who watched the Vancouver market (Toronto as well though not as closely) as it evolved (at a time when I didn't have the knowledge that I have now) but still hoping to get her foot in the door, it is definitely an appreciation market.

    I agree with @Cody Neustaedter regarding the prairie provinces. I think the barrier of entry is lower and you'll probably find both cashflow and (maybe) some appreciation though not to the same extent as the bigger cities for sure.

    1Reply
  • Stephen Selinger
    Investor · Lethbridge, Alberta · Member since 2016 · 18 posts · 5 votes
    3y

    We are seeing a good influck of BC and Ontario residents into the Lethbridge market for rentals and also moving here. Many of my clients lately have been from BC and Ontario and like the cash flow and low prices that Lethbridge offers. 

    1Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    3y

    @Thomas Kambadzi- thanks - 1)  make sure you are  aware and understand the financing options  differences  for  1-4 unit properties  ( considered  residential ) and  for a  5 unit  property ( considered more of a commercial loan )....2)  if you decide to buy and need financing - make sure you get a formal pre approval in place as  a first step - good luck

    1Reply
  • Hai Loc
    Specialist · Toronto, Ontario · Member since 2012 · 2k+ posts · 891 votes
    3y

    With the interest rates now it makes it even more impossible to break even let alone cash flow. 1% never existed in GTA for a decade and expanded GTA for the last 5 years. For a decade investors have been banking on appreciation on everything in Ontario in exchange for negative cash flow. It’s been working till Mar 22..

    That’s just how it is here making a lot of Ontarians seek US properties 

    0Reply
  • Thomas Kambadzi
    OP
    Member since 2019 · 10 posts · 0 votes
    3y

    Thank you @Hai Loc, @Dave Skow, @Stephen Selinger, @Emily Shay, @Cody Neustaedter, @Account Closed. That makes a lot of sense. At least now I know I am applying what I am learning correctly because the math wasn't making sense at all when I was analyzing deals lol. 

    That being said, I am now ab bit confused on what next then, and here's why - 

    1. I have heard people say on your first deal you should invest in your backyard, but I don't want to invest for appreciation (I find it a bit speculative, especially right now with rising interest rates). Besides investing for appreciation what other strategies work in this kind of a market?

    2. I am also thinking of maybe exploring Thunderbay, (the prices there seem good, quite a bit of the properties work with the math, and there is always a shortage of rentals due to the student population), but another part of me thinks of exploring across the border down in the US. Would any of you be able to comment on pros and cons of investing in smaller Canadian cities vs investing in the US market, as a Canadian investor? (Specifically I am talking about investing in positively cash-flowing small multifamily properties). 

    0Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    3y

    @Thomas Kambadzi- thanks - regarding buying in the US as a canadian citizen -  if you will need to use a loan - getting a loan for an inv property as a canadian  citizen might be a challenge  and  also  quite  pricey  ( if you can  find a source  to give  you a loan ) 

    1Reply
  • Thomas Kambadzi
    OP
    Member since 2019 · 10 posts · 0 votes
    3y

    thanks @Dave Skow, good to know! by pricey you mean the interest rate charged on the mortgage loan in comparison to when doing it in Canada?

    0Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    3y

    @Thomas Kambadzi- no ..pricey menaing that  this type of loan will be more  expensive than a loan that  a US  citizen  could get for a rental property purchase 

    0Reply
  • Paul Sverdlin
    Rental Property Investor · Ontario + Ohio · Member since 2018 · 82 posts · 53 votes
    3y

    If you explore in the US just go to RBC or TD. They are quite willing to lend for a "cottage" or a "second home" in US. That should be stated as your intent on the application. What you actually do with that property after the loan is granted is of little concern to the bank. While rates are higher than in Canada, at least you will be able to secure financing for that very first deal.

    2Reply
  • Hai Loc
    Specialist · Toronto, Ontario · Member since 2012 · 2k+ posts · 891 votes
    3y
    Quote from @Thomas Kambadzi:

    Thank you @Hai Loc, @Dave Skow, @Stephen Selinger, @Emily Shay, @Cody Neustaedter, @Account Closed & @Stevo Sun. That makes a lot of sense. At least now I know I am applying what I am learning correctly because the math wasn't making sense at all when I was analyzing deals lol. 

    That being said, I am now ab bit confused on what next then, and here's why - 

    1. I have heard people say on your first deal you should invest in your backyard, but I don't want to invest for appreciation (I find it a bit speculative, especially right now with rising interest rates). Besides investing for appreciation what other strategies work in this kind of a market?

    2. I am also thinking of maybe exploring Thunderbay, (the prices there seem good, quite a bit of the properties work with the math, and there is always a shortage of rentals due to the student population), but another part of me thinks of exploring across the border down in the US. Would any of you be able to comment on pros and cons of investing in smaller Canadian cities vs investing in the US market, as a Canadian investor? (Specifically I am talking about investing in positively cash-flowing small multifamily properties). 

    Thunderbay has 2HR -$100 flights from Pearson. Not bad as that is a gas fill up. 
    if you did your due diligence there then it might be worth exploring. 
    1Reply
  • Thomas Kambadzi
    OP
    Member since 2019 · 10 posts · 0 votes
    3y

    Thank you @Dave Skow, @Paul Sverdlin & @Hai Loc 🙏🏾

    0Reply
  • Dave Skow
    Member since 2019 · 1 post · 0 votes
    3y
    Quote from @Thomas Kambadzi:

    Thank you @Dave Skow, @Paul Sverdlin & @Hai Loc 🙏🏾


    0Reply
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