Think 'six' for an investor sweet spot

Given the current Canadian economic and institutional landscape, might I suggest "starting with six," six-plex, that is.
I think that the purpose built six-plex offers new investors their best opportunity to become a real estate investor as it sits in the sweet spot of a Venn diagram, where those three circles overlap. The number three, in fact, represents the key things going for six-plexes.
1. Manageability 2. Cap Rate and 3. Low Interest Rate.

Manageability
Most new investors want to be involved with their real estate investment as they see it being a new adventure (and rightfully so), they want to gain valueable knowledge and experience and they want to save the costs associated with hiring a superintedent and/or property manager. Managing six units may seem like a daunting task at first, but once you dive in, you will realize that it is not all that difficult as long as you are a well-organized individual who has a few hours to spare every week. While managing one unit (eg. condo) is an easier task, the superior return from a six-plex more than offsets the extra effort. Tips to help with efficient management of the property include:
• Ensure close proximity to property
• Try to get post-dated cheques from tenants
• Prepare a list of contractors (plumber, electrician, handyman)

Cap Rate
The cap rate for a multi-unit residential property typically has a directly proportionate relationship between the number of units and cap rate (until it reaches a plateau and levels off). For example, the cap rate for a six-plex is higher than a triplex, which is higher than a single unit. While georgraphy and location play a critical part in determining the cap rate for a typical six-plex, it is safe to say that the cap rate range is somewhere between 5 per cent to 6 per cent, which is significantly better than most condos and triplexes.
The six-plex lets real estate investors start to take advantage of economies of scale and thus provide a better return. Tips for those looking to maximize the return on a six-plex:
• Look outside the big urban centers and look to smaller towns university towns such as Kitchener-Waterloo, Guelph, Hamilton, etc.
• Look for purpose built six-plexes as they have better re-sale value and typically require less maintenance

Low Interest Rate
A low interest rate is the lynchpin to making the six-plex the best place to start for new investors. The math is simple, the cheaper your mortgage interest rate, the bigger the potential spread (difference between interest rate and cap rate) and bottom-line profit. Mortgage rates vary based on whether a property is classified as "residential" or "commercial." They are handled by different departments and have different rates. Commercial rates tend to be higher by a percentage point or two than those offered on residential properties. This is where the secret lies in maximizing your ROI on a six-plex. While just about every financial institution in Canada offers commercial rates for six-plexes, RBC offers financing on six-plex multi-unit residential properties at residential rates. This means getting mortgage rates in and around 3 per cent for a six-plex (at the time of publishing this article the rate of approx. 3 per cent was accurate, however, rates can change without notice).

In Summary
When you put these three components together (manageability, cap rate and low interest rate), the six-plex is the ideal starting point for new investors as it provides an investment that is relatively easy to manage, yet at the same time delivers a great spread of between 2 per cent to 3 per cent based on the economies of scale offered and financing available at residential rates.

Why real estate doomsayers continue to be wrong

Mandy Coz needs a lead. She isn’t the first sales rep from a nearby real estate brokerage to cold call my parents’ home in the suburbs on behalf of a family that badly wants to become our neighbours. But she’s the most recent and she’s on the hunt for a new seller. Her clients “lost out” on another property on our street. 
“This summer has been a bit unusual,” says the RE/MAX Premier Inc. sales representative, who’s located north of Toronto in Vaughan. When warmer weather hits and people start flocking to family barbecues, restaurant patios and cottage docks instead of open houses and showrooms, listings often languish. Not this year, though. More residential homes in Vaughan have been listed and sold in June and July compared to the same two-month period in 2012, according to data compiled by the Toronto Real Estate Board. The homes have sold for more too, with the median sale price up 6.1% year-over-year, translating into better business for local sales reps such as Coz. “Buyers are out in full swing. We’ve been busy during the last two months,” she says. “The market has been quite steady. It’s healthy.”
Her cheery descriptors and sunny outlook are a far contrast to the ever-growing list of bearish economists, industry analysts and even journalists who have issued grim warnings about Canada’s dangerously bloated household debt levels and the potential ramifications of a real estate bust on consumer spending, jobs and growth. But with forecasts ranging from smooth sailing to a soft landing to a U.S.-style crash, the future is foggy at best. For many, even those inside industry players, it’s confusing. “The more you cover the housing market,” says Robert McLister, editor of Canadian Mortgage Trends and a mortgage planner at intelliMortgage, “the more you realize it’s unpredictable.”

Instead of toppling after Finance Minister Jim Flaherty tightened mortgage-lending standards last year for the fourth time since 2008, Canada’s housing market appears to have stabilized and it continues to flex its resilient muscles as shown in the national housing statistics released monthly by the Canadian Real Estate Association (CREA). Existing home sales rose for the fourth consecutive month in June, up 3.3% over the previous month and nearly matching May’s gain, which was the highest monthly growth figure since January 2011. Likewise, the average sale price was up 4.8% on a year-over-year basis, with 80% of the surveyed major markets reporting gains.
BMO Capital Markets senior economist Robert Kavcic noted the figures prove the market is both “balanced and well-behaved” and another blow to the naysayers. Similarly, his colleague and BMO’s chief economist Douglas Porter called the market “incredibly calm, cool, and collected” in a May release. But Kavcic and Porter haven’t always thought this way. When the ratio of new listings to sales was driven to a nine-year high on Apr. 17, 2008, Porter declared the housing boom “officially over.” Two months later, a CREA monthly report that showed both prices and volume slipped in May helped Kavcic confirm that the boom had “fizzled.” Except it wasn’t over then and the boom still hasn’t fizzled.
Frequently quoted housing bear Ben Rabidoux, president of North Cove Advisors, contests BMO’s optimism. “We are seeing a correction in certain metros,” he says, citing Toronto’s overbuilt condominium market, Ottawa, Quebec, eastern Canada and B.C. as markets that are cooling down. “If you’re looking for leading signs of weakness, it’s not hard to find them.”
Evidence of the turning tide may be visible, but a decline has yet to happen when and to the extent many alarmists said it would. They might be right eventually — after all, even a broken clock is right twice a day — but they’ve been wrong every time they said we’d finally reached the top and didn’t during the past five years.

Investors need to return to school

Investors need to stop having a negative perception about managing student rentals and embrace the growing base and rising cash-flow that this market provides, according to a leading real estate broker.

Over 950,000 full-time students enrolled at the 82 largest campuses across Canada in September, with 55 per cent of that population living outside of the communities they reside in.
“Almost all universities country-wide need more accommodation. The student market is one of the most under-served yet is the one of best opportunities,” says Derek Lobo, CEO and sales broker at Rock Advisors.
He tells CREW that while the student rental market is more of an operating business with a higher turnover of tenants, investors need to think of the bottom line and not the negatives.  “Some investors do have a negative perception of students, and worry about the wear and tear in the property.  But that is the risk landlords take with all properties, not just students," he says.
Over 10 per cent of the student population comes from outside of Canada with the overall numbers expected to exceed the one million mark in the near future.
“Student rental investing is the most location sensitive business in the world,” he says. “But, it’s also the most lucrative.  For example, a four bed townhouse near Brock University in St. Catherine’s will rent to a family for, on average, $1,300 per month. But by charging per bedroom, you could get $2,000. Student rentals are by the bed so it’s more of cash generating business.”

How bad can "Grow-Ops" be?

In case you are not aware of what a "Grow-Op" is it is a home that has been used as a growing operation house usually for Marijuana.

I hear a lot about houses and condos being used as growing operations and then being put up for sale. How bad can that really be if all the plants and lights are taken out first?

These properties have been used illegally to grow marijuana and, for long periods of time, the heat and the resultant humidity within an enclosed and unventilated space has most likely allowed an excessive amount of mold growth. If it was confined to bathrooms, as we sometimes see on ceramic wall tiles, it probably wouldn’t be much of a problem. But it can get much worse and spread throughout the property. Walls, floors and ceilings are affected, along with furniture, horizontal surfaces, and worst of all, the cavities behind the walls where no one can see.

It can become very difficult to eradicate and, of course, the mold can be a serious health hazard. A common remedy is to strip the house of its internal walls right back to the studs and spray a chemical mold and fungus killer. To maintain a mold free property, remove the source of the excess humidity and then supply a flow of fresh air.

As you can see, the ramifications of using any property for grow-ops can be enormous.