Real estate deals: Montreal 8-plex

City: Montreal

Area: Villeray/Saint-Michel/Parc-Extension, near rue Jean Talon

Address: 6930 Av. Wiseman, Montreal, PQ, H3N 2N2

List Price: $728,000

Sale Price: $753,770 in August 2014 (Sold for 104% of list price)

Days on Market: 41

Number of offers: 14 offers in 5 days

House size: Residential 8-plex; 3 floors; building size: 1,376.30 square feet

Lot size: 2,970.80 square feet

Bedrooms: 12 bedrooms (4 x 1-bdrm suites and 4 x 2-bdrm suites)

Bathrooms: 8 bathrooms

Listing Agent: Bernard Chan, Broker, Royal LePage Champlain

What you need to know
This 8-plex was built in 1960 and contains 4 x 1-bdrm suites and 4 x 2-bdrm suites. Annual revenue, based on current one-year leases, is $54,228 per year. No additional money is made from parking or coin-operated laundry as neither is available in the building. Tenants pay heat, hydro and hot water. Landlord pays water taxes and property taxes. All eight units are currently tenanted with each tenant in a one-year lease, due to expire in either May or June of 2015.

A key feature if any investment property is whether or not there the new owner can make capital improvements to the building that will  lower the operating costs or enable the owner to increase rent (or both). While this 8-plex currently relies on electric baseboard heating—an expensive way to heat, particularly with rising hydro prices—there’s no urgent need for the new owner to spend money for upgrades because currently all the tenants pay their own hydro bills.

Investment Side
Since this is an investment property, the buyer cannot invest less than 20% as a down payment. With a sale price of $753,700, a 20% down payment equates to $150,754—leaving a mortgage of $603,016.

If the buyer opted for a 10-year term on a 25-year amortization, and could secure an interest rate of 4.69%, then the monthly mortgage payment would be $3,402.

Considering the monthly revenue on the building is $4,519, this would leave the new owner with $1,117 per month in income, or $13,404 per year.

Estimating property taxes at $3,000 per year, insurance at $1,250 per year, and water taxes at $300 per year, then the total monthly expenses—including a 3% property management fee, plus a 7% allowance for building maintenance, and 3% allowance for vacancy—and the new owner will spend $944.04 per month, or $11,328.50 per year in operating expenses.

That means:

*Net Operating Income (revenue minus expenses) is $3,574.96 per month

*Mortgage payments are $3,403.82 per month

*This leaves, $171.14 in profit each month.

Since the investor’s cash outlay is $160,754 (this includes down payment, closing costs and deferred maintenance costs), the cap rate on this 8-plex investment is 5.69%, while your return on investment (which is your annual profit divided by your cash outlay) is 1.28%. Increase your down payment to 25% and your ROI increases to 2.32%.

“The 8-plex is located in one of Montreal’s most sought after areas, which is why it got 14 offers over five days and a sale price $25,770 over list price,” says Chan. “A major reason for the interest in this property was that investors find that bank saving’s rates are too low, so most investors with liquid cash are moving to rental properties to get a good return on investment.”

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