Single dwelling vs commercial vs multi-family units

3 Replies

Has anyone written pros and cons to investing in single dwelling vs commercial vs multi-family units? I'm trying to decide when and if I should consider investing into commercial and / or multi-family units. Currently I have invested only in single dwelling units - all strata units that have performed very well.

Advice on how I can measure or gauge whether this is the right investment opportunity for me?

Hi Chanelle,

It's such a broad question it's hard to answer.

With you being in Canada and wanting to invest in the United States that adds more layers of complexity versus an instate or out of state buyer.

RBC bank and TD bank do some lending in certain states here where they have branches. If you have an existing account with them in Canada then in the states where they are here you can get decent LTV values and rates.

My experience calling around banks for my clients is that most do not want to lend to foreign nationals. They want boots on the ground the buyer to be local. If not they will not do the loan at all or instead of 25% down will want 40 to 50% down which crushes the investors cash on cash returns.

The question you need to ask yourself is do you want to partner or not?? 

With partnering we can get away from local, regional, credit union banks that want to give a short term loan, a lot of money down, higher rate, etc.

Example the typical best loans from CMBS, conduit, pension, life insurance companies, private high net worth mortgage lenders start at 2 million loan balance and up usually. We can get something like 10 year term fixed with 30 year amort. at 4.6 rate fixed, 75% ltv, and a non-recourse loan which is huge. The local banks can't do those loans as they have a different business model.

If you have enough cash to put down you could go on your own for an investment. When you say performed very well on your current investment there is no way to know what that means. Returns are in the eye of the beholder. I have some clients that are thrilled with 8% return passive and others who want to work for more yield taking on still good investments but not in the excellent areas.

  

Thank you Joel. I appreciate your help with the front end part of the deal. I've heard that financing in the US as a Canadian is tricky. Friends or colleagues who have invested have had to pay cash or put a significant amount of downpayment. 

I will explore the banking options who mentioned with RBC and TD Bank. 

Your question to me: Am I  interested in partnering? Yes, I am and I'm wondering if this would be a better route for me to get in the market for multi-family or commercial. 

Any really good resources you can recommend for me to read regarding this topic, I would appreciate it. 

Sounds like one of the cons of continuing to invest in single dwelling on my own is the downpayment, the personal financial risk and the difficulty with getting financing through the bank? Could these be alleviated by using my smaller downpayment to get into a partnership? I know the downpayment and investment amount depends on the value of the property. 

Are there calculators you can recommend for me to use to estimate what I can afford and the downpayment I would need to have? Thanks.

@Chanelle Dupre From a macro level most people start with sfr (single family residences) rentals because they're familiar and affordable but as their portfolio grows servicing and managing houses scattered across a metro or worse, across several markets involves a larger and larger amount of travel and that takes a toll on returns, peace of mind and family. Eventually most successful sfr investors transition into multifamily (5+ units) or other types of commercial real estate (CRE). Institutional investors have gotten into sfrs lately but they're dealing with the same issues only on a much larger scale (see my BP blog post here for more on that).

There are economies of scale such as volume pricing but more importantly as you move into CRE you're dealing increasingly with professionals and the pricing is driven by the numbers, a much more rational valuation basis than sfr pricing based on "comps". Even though there's a lot of digital ink spilled here on BP over supposed cap rates on sfrs, duplexes, triplexes and fourplexes (plexes) it's a waste of bits because houses don't trade on NOI, they trade on comps.

I'm an apartment guy, it's my passion and what I do for a living so I could go on all day about their advantages but it would be more helpful to answer specific questions that you may have about them.

As for partners or investing in a partnership it's like getting married because you will 'be in bed' with your partners for the length of the deal. Whether it is crowdfunded or a syndication doing due diligence on your partners is as (or more) important as doing due diligence on the property for the investor/non-managing partner. And that's from someone who does due diligence for a living. There have been a number of great threads here in the forums on how to due diligence on sponsors and you can find them by searching on 'crowdfunding due diligence', 'due diligence for syndications', etc.

Good hunting-

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