February 2020 - Point2 Blog

Apartment Investors| Not All Multifamily Rental Buildings Are the Same.

Apartment Investors| Not All Multifamily Rental Buildings Are the Same.

Multifamily Apartment rental properties are not all the same. By that I mean,they often have different suite mixes i.e, One bedroom suites, Bachelor suites and Two and Three bedroom suites and often all of these types of suites are in an Apartment building. I have found a mixed suite mix the most popular with Investors as opposed to a building with all one or two bedrooms or bachelor suites.

And a lot of these buildings are heated differently, and some owners include the heating costs otherwise the tenant pays for their own heating inside their suite. Common areas such as hallways are heating costs borne by the Apartment Investor owner.

Apartment Investors you’ll find most new Multifamily Apartments now have electric baseboard heating or heat pumps( with a Heating and Cooling feature), for heating the building and each individual tenant suite. With these type suites the tenants pay their electrical heating cost.

These electrically heated suites will have separate electric meters so the hydro consumption is measured by BC Hydro in British Columbia and the Hydro use is billed separately to each tenant in the apartment complex.

Many of the Older Apartment have a central hot water system and the common area heating cost is paid by the building owner. Usually these type of Building use Furnace oil or Natural Gas for heating the domestic and hot water for heating the entire building.

Depending on a local Rental Market, Landlords may sometimes pay a tenants heating cost to attack or keep tenants.

Apartment Investors as you can see, not all Multifamily Apartment Complexes are the same.

Most Apartment Investors and Owners talk about Multifamily Apartment Values, when considering buying or Selling a Multifamily apartment. They will often refer to the local CAP rate (return on investment after operating expenses) and or some also count a asking price based on Suite per suite price i.e. $200,000 per suite or rent per square foot i.e. $2.50 sq.ft. and often all of these. This information will be available from a local experienced Apartment Realtor.

Apartment Investors| Not All Multifamily Rental Buildings Are the Same.

Part 2-Calculating CAP Rate For VICTORIA BC Apartment Investment

PART 2-CALCULATING CAP RATE FOR VICTORIA BC APARTMENT INVESTMENT

SEE– Part 1- CALCULATING CAP RATE FOR APARTMENT BC INVESTMENT

Using Cap Rates In Victoria Wisely

1 Calculating CAP rates to quickly compare similar Victoria Apartment investment opportunities. The cap rate basically represents the estimated percent return an investor might make on an all-cash purchase of the property. Because of this, cap rate is a good statistic to use when comparing a potential acquisition to other investment opportunities of a similar nature. Cap rates allow quick, rough comparisons of the earning potential of investment properties and can help you narrow down your list of choices.[6]

For example, let’s say that we’re considering buying two pieces of property in the same neighborhood. One has a cap rate of 8%, while the other has a cap rate of 13%. This initial comparison favors the second property. It has a higher cap rate, so it is expected to generate more money for each dollar you spend on it.[7]

2 Don’t use CAP rate as the sole factor when determining an Victoria investment’s health. While cap rates offer the opportunity to make quick, easy comparisons between two or more pieces of property, they’re far from the only factors you should consider. Real estate investment can be quite tricky – seemingly straightforward investments can be subject to market forces and unforeseen events beyond the scope of a simple cap rate calculation. At the very least, you’ll also want to consider the growth potential of your property’s income as well as any likely changes in the value of the property itself.[8]

For example, let’s say that you buy a piece of property in Victoria for $1,000,000 and you expect to make $100,000 per year from it – this gives you a cap rate of 10%. If the local housing market changes and the value of the property increases to $1,500,000 suddenly, then you may have less-lucrative cap rate of 6.66%. In this case, it may be wise to sell the property and use the profits to make another investment. However, it is also possible that the income levels may have increased, or the expense levels may have decreased. Make sure to look into all of the factors involved when determining the cap rate.

3 Use the CAP rate to justify the income level of the investment property In Greater Victoria. If you know the cap rate of properties in the area of your investment property, you can use this information to determine how much net income your property will need to generate for the investment to be “worth it”. To do this, simply multiply the property’s asking price by the cap rate of similar properties in the area to find your “recommended” net income level. Note that this is essentially solving the equation (Net income/Asking price) = cap rate for “net income”.

For example, if we bought a property for $400,000 in an area where most similar Victoria BC properties have about an 8% cap rate, we might find our “recommended” income level by multiplying 400,000 × .08 = $32,000. This represents the amount of net income the property would need to generate per year to get an 8% cap rate. However, keep in mind that you cannot set rental rates based on the cap rate. They must be based on market rates and consider how this rental would compare to other rentals in the area.
Source Carla Toebe

SEE- PART 1- CALCULATING CAP RATE FOR APARTMENT INVESTMENT.

PART 2-CALCULATING CAP RATE FOR VICTORIA APARTMENT INVESTMENT.

E&O

Part 1-How To Calculate CAP Rate For Victoria Apartment Investment

Part 1- How To Calculate CAP Rate for Victoria BC Apartment Investment

Real estate investors rely upon a variety of types of information when negotiating for income producing properties – for instance, the desirability of the property’s current location and/or any prospective changes in the neighborhood are two common factors. One crucial piece of information that helps investors make their decision is called the capitalization rate (or “cap rate”). The cap rate (expressed as the ratio of the property’s net income to its purchase price) allows investors to compare properties by evaluating a rate of return on the investment made in the property.[1][2] If you are considering an investment property, then you may want to calculate the cap rate first and then use it to help you make your decision.

Call a local Apartment Realtor to find out your local Market CAP rate

!. Calculate the yearly gross income of the investment property. The gross income of a piece of investment property will mainly be in terms of rent rolls. In other words, when a real estate investor buys a home, s/he usually makes money from it primarily by renting it out to tenants.[3] However, this isn’t the sole possible source of income – miscellaneous income can also accrue from the property in the form of coin operated vending or washing machines, parking, etc.

For example, let’s say that we’ve just purchased a house we intend to rent to tenants at a rate of $750/month. At this rate, we can expect to make 750 × 12 = $9,000 per year in gross income from the property.

2. Subtract the operating expenses associated with the property from the gross income. Any piece of real estate comes with operating costs. Usually, these are in the form of maintenance, insurance, taxes, utilities, vacancy costs, and property management.[4] Use accurate estimates for these numbers and subtract them from the gross income you found above. This will find the property’s net income. For example, let’s say that, after having our rental property appraised, we find that we can expect to pay $900 in property management, $450 in maintenance, $710 in taxes, and $650 in insurance per year for our property. 9,000 – 900 – 450 – 710 – 650 = $6,290, our property’s net income.

Note that the cap rate doesn’t account for the property’s business expenses – including the purchase costs of the property, mortgage payments, fees, etc. Since these items reflect the investor’s standing with the lender and are variable in nature, they adversely affect the neutral comparison that the cap rate is meant to deliver.

3.Divide the net income by the property’s purchase price. The cap rate is the ratio between the net income of the property and its original price or capital cost. Cap rate is expressed as a percentage.[5]

Let’s assume we purchased our property for $40,000. Given this information, we now have everything we need to know to find our cap rate. See below:

$9000 (gross income)

-$900 (property management)

-$450 (maintenance)

-$710 (taxes)

-$650 (insurance)

=$6290 (net income) / $40000 (purchase price) = 0.157 = 15.7% cap rate

Source :Carla Toebe

PART 1-HOW TO CALCULATE CAP RATE FOR APARTMENT INVESTMENT

See PART 2– CALCULATING CAP RATE FOR VICTORIA BC APARTMENT INVESTMENT

E&O

APARTMENT INVESTMENTS VICTORIA, BC

Apartments Investments Victoria BC

The most common and best understood form of apartment investment for income property is the apartment house.

The apartment house can run from the frame two family house up to the 500 unit apartment complex.

Newer apartment houses are generally wood frame or concrete construction and range from the suburban “ garden type” apartment house to ultra high -rise apartment building.

See my Income Properties versus Real Estate Investment post.

Older apartment houses of brick (wood frame on the west coast ) construction are usually located in urban areas (although there are a few in older suburban areas). They are generally referred to as elevatored buildings or “walk-ups” (without elevators).

Victoria Apartment Investments

Smaller apartment houses of frame construction are scattered throughout both urban and suburban areas. These generally considered less desirable than concrete and brick apartment house investments, but they may be just right for certain types of investors who want “higher cash flow” or a shorter life span for tax “write off.”

Many larger older homes have been converted into apartment houses. If well located, these can make excellent investments.

With today’s low mortgage interest rates, apartment investors are paying high prices for apartment properties in Victoria and across Canada. Great opportunity for both Apartment owners to sell their income properties and Apartment investors buying Apartment investments with today’s low mortgage interest rates.

Real Estate Investment Trusts are seeking out Apartment investments across Canada for their shareholders. Victoria is a much sought after location for these Buyers in today’s investment market place.

Are you planning on selling one or a portfolio for Apartment properties? Call me 250-413-7042 or email me at fred@fredcarver.com to arrange a time to discuss selling your Apartment Investments. I am currently working with several Canadian Real Estate Investment Trusts wanting to purchase one or several VICTORIA apartment income properties.

CAP rates are low right now, so let’s get together.

Apartments Investment In Victoria BC

Income Properties Differ From A Real Estate Investment

Income Properties Differ From A Real Estate Investment

How an income property differs from a real estate investment .

Income property is to real estate investment as Apples are to Fruit. Income properties (Apples) are a kind of real estate investment (Fruit). However, not all real estate investments (Fruit) are income properties (Apples).

What makes the difference ?

Real Estate Investments ( a general term ) Any form of Real Estatë can be bought for investment purposes . This includes raw land, houses, apartment houses, vacant warehouses, in short, any real estate, anywhere, can be bought for investment. Ten thousand acres of a swamp in Brazil …Vast acres of desert land..A house in ski country …A forty story skyscraper …All real estate investments .

Income Property ( a Real Estatë Investment that generates rental income ):

The name itself includes that element of income. In short, income property includes a real estate improvement which generates rental income out of which must be paid regularly recurring operating expenses. ( For example : real estate taxes , insurance, , heat, payroll, etc). All financing costs ( principal and interest payments) must also be paid from the rental income. Income Properties Differ From A Real Estate Investment

What is left over is the “cash flow” or “net income “ on the owners invested income .

Why Income Properties Is So Attractive To Investors

A vacant industrial building can be bought for investment but not for income.

The same industrial building with rent paying tenants can be bought for income. Vacant land can be bought for investment but unless leased cannot be bought for income. The main reason that income makes such an attractive brokerage commodity. Is an investor can purchase it with relatively low cash down, finance 60-70 percent (sometimes more), and obtain enough income from the tenants to pay the operating expenses, the cost of financing, and give him or her a current return on their invested capital.

Why There Are Fewer Investors For Non-Income Property

Potential investors for non-income producing real estate (such as land) are in much shorter supply. They must not only have 50-100 percent cash available for the initial purchase but also must have sufficient capital to carry the year to year expenses, such as taxes, until the time comes to develop or sell their investment. For every such investor there are several thousand investors who are ready, willing and able to buy income-producing properties.

Special thanks to John Peckham for his training to many commercial and residential Realtors with his brokerage guide to income property brokerage .

Income Properties Differ From A Real Estate Investment