Multi Residential: a few red flags....

Multi-Residential Asset Class: A couple of tips

This past week I took some investors to view a mutli res building. The building had furnished suites. Furnished suites command a higher rental rate and can compete with rates on short term hotel rental accomodations.
Some red flags:
1. Cmhc won't finance using the income stream provided in the financials. It will take out the premium and look at rental rates fore unfurnished units when it does its market valuation. That will have a substantial affect on the amount it will loan and subsequently the amount you may offer

2. Furnished suites can result in very short term leases. Too much transition can be a serious issue

3. You'll want to make certain that the leases stipulate something around the "wear and tear" of the chattles provided by the landlord. Last thing you want is a tenant demanding a more modern lcd tv

4. You'll want to really know who your tenants are and where they're coming from that they require furnishings to be provided.

CAPS in general:
In low to mid market were seeing caps these days around 5.5 percent. With interest rates low and some unwilligness by investors to look into equities (there are those buyers who see real estate as a sound investment) and one that you can't overlook market lift on top of the CAP. Still make sure you're getting positive leverage. Take you're yield (net income/purchase price relative to cash on cash (net income less annual mortgage/equity).

For more tips or red flags, please don't hesitate to get in touch.

Best,
Michael Gruenstein MBA CSC Sales Representative
Re/Max Realtron(ICI/Res)
Blog: http://mgruenstein.blogspot.com

C:416.271.2066
mgruenstein@trebnet.com