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Multifamily Investing In Canada – Key Differences You Should Understand

Investing in the Canadian market is a great opportunity for multifamily investors; however, it is important to understand the substantial differences between the Canadian and U.S. rental markets, which will dramatically impact operations and key financial figures.  Below are some of the key takeaways from the “Expanding into Canada” education session at this year’s Apartmentalize Conference.   U.S. and Canadian Rental Markets Quite Different Before tackling a multifamily investment in Canada, it is important to first understand that although Canada seems very similar to the U.S., its multifamily market is quite different.  Similarly, it isn’t uniform across the country.  Just like in the U.S., where rental operations can vary dramatically from coast to coast, different Canadian provinces operate differently based on local laws and regulations, most notably each province’s rent control laws.  At first glance, the biggest items that stand out when comparing U.S. and Canadian operations are the giant differences in turnover and rent increases available for turned units.  As you can see below, turnover for U.S. communities was substantially above Ontario and British Columbia, and rent increases for turned units was substantially below.  At first glance, this paints a picture of less turnover cost and higher rent increases in the Canadian market, which are often seen as positive traits.  However, the real situation tells a completely different story.    Rent control plays a crucial role in many parts of the Canadian rental market, and it has the following ramifications: ·         Rents increases for existing residents are capped depending on the provin......
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Important Paragraphs to Look For in a Laundry Room Lease

Greetings Gentle Readers!  Important Disclosure: I am not a real estate attorney and I only offer my anecdotal and work experience in the informational blogs I write.  Should any legal question arise from your readings please consult with your in house counsel or locate an attorney for a legal opinion.  I'm happy to give my opinion/response which is business based and not grounded in real estate law.  Here's a quick "laundry list" of lease paragraphs...this is not all inclusive as each lease may be modified and negotiated by both counter parties....but it should suffice to kick start a discussion.... Firstly, Keep in mind that the laundry vendors have written the leases they prefer to use and generally it's written to their benefit but if you read the leases carefully you'll find there are areas that are negotiable and non negotiable.   Not all laundry vendors use the same format, language and clauses so don't assume one lease is like another.   Preamble -  identifies Lessor (property) and Lessee (laundry vendor) - includes date of execution & lessor description and address,     A typical lease will include number of apt. units and identifies number of units with connections (if applicable)  - keep in mind that if you have in-unit connections for washes and dryers you present competition for the laundry room resulting in possibly reduced usage and reduced revenue.  Laundry vendors will want to know how many in unit connections are in play at lease execution.  That is a known risk.   Furthermore there will be......
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Why All-Bills-Paid is a Case-by-Case Scenario

Why All-Bills-Paid is a Case-by-Case Scenario
I recently met with a first-time multifamily investor who was in the search phase for the perfect property. We discussed the importance of neighborhoods (i.e., location), current tenants, property classifications, and the many other considerations that go into such investments. Then, he made an interesting statement. “If I offer all-bills-paid, I won’t have to worry about anything else as much. Everyone likes having all their bills paid.” While there’s truth in the statement, I found it to be a great opportunity to discuss the unique considerations that accompany such properties. Here’s a brief recap: It’s not widely applicable. You can’t just choose any property and make it all-bills-paid; at least, not without considerable additional investment. All-bills-paid properties are designed as such, without meters on each individual unit. While you can turn a property from an all-bills-paid property to one that is not, and vice versa, there is an associated cost. So, it’s often best to purchase a property that is already setup to accommodate your planned pricing strategy. Your pricing strategy will determine the type of tenants you attract. He was right when he said that everyone likes all-bills-paid. And, for this reason, all-bills-paid properties rarely have vacancies. Yet, the stereotypical tenant for these properties aren’t always on-time with payments, don’t always take care of the property the way they should, and aren’t likely to be loyal, long-term tenants. Understanding this as you go into the decision to offer all-bills-paid will at least help ensure you have realistic expectations of what’s to come.   It can......
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Selling a Multifamily Asset? Don’t Let Leaking Pipes Sink Your Deal

Selling a Multifamily Asset?  Don’t Let Leaking Pipes Sink Your Deal
There is no doubt, leaking pipes at your apartment complex are a nuisance.  From residents to property managers to maintenance supervisors to owners, everyone is impacted when a property is leaking.  Oftentimes, the thought of selling the property to get rid of the headache seems appealing.  However, leaking plumbing is hard to hide, and chances are you will not be able to pass off the property without taking a valuation hit unless you get the pipes fixed. If you are thinking of selling your property and are in need of a repipe, it is in your best financial interest to get your piping systems fixed before you list. With turnkey contractors who are able to quickly and cost effectively complete a repipe without moving out residents, selling a hassle free building will most assuredly increase the value of your property, which will typically offset the cost of the repipe. Because new pipes (installed behind patched walls) have no curb appeal and an ambiguous correlation to increased rents, many property owners are hesitant to make this upfront investment before listing their property.  However, inspectors, insurance agents, appraisers and potential buyers are sure to uncover the evidence if your property is leaking, and will either lose interest or submit a low-ball offer knowing the property has issues. By being upfront about the investments you have made (just like you would promote a new roof or renovated kitchens), promoting a recent repipe indicates to buyers that the property is well maintained and worth their......
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Due Diligence and Hiring a Property Management Team

Due Diligence and Hiring a Property Management Team
One of the most important decisions you’ll make in relation to a multifamily property investment, other than deciding on which property to invest, is whether you will hire a property management team. So, why then would you make such a decision without having performed as much due diligence as possible? It’s important to understand that just because a property management company has been in business for a while or has a large portfolio of properties doesn’t mean it’s suited to meet the very unique needs and demands of you and your property. Due diligence is a must in ensuring the needed alignment is there. Why it’s important A few reasons why you want to take the time to thoroughly vet any property management company with which you’re considering a partnership include: Face value: The company you choose will essentially be your face to the world. The people they hire for the office and contract work will be an extension of the property’s brand and a representation of that brand on the job and in the community. Everyday responsibilities: A property management company must be able to manage the daily business. Researching the company’s track record for approach and best practices is necessary to determining suitability. Reputation. How well is the company known and what things, good or bad, are said about it? What do online reviews look like and how likely are they to be from credible sources? When calling on the list of provided references, what is the overall consensus and are those r......
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Due Diligence: What Every Investor Should Know Before Making an Offer

Due Diligence: What Every Investor Should Know Before Making an Offer
In 2008, this was a headline we read: “It is the Best Time in 30 Years to be Investing in Apartments.” Fast-forward 7 years and this headline just appeared in a June article on NJ.com: “Apartment Buildings Offer Strong Returns on Investments.” Why so little change? Because, while investment property ownership typically generates about 7 percent, multifamily has generated somewhere in the neighborhood of 10%-18% over the past 5 years (Source: NCREIF Property Index). But, before you go jumping into what you expect will be the most profitable investment of your career, you must first understand that these are averages and, like everything else, a property can flop if your investigating skills aren’t as shrewd as your investing skills. What you need, at a very minimum, is a feasibility study, to include the following components:  The property's income and expense statements Area demographics and growth projections Comparable properties and suggested amenities Market analysis based on projections and comps Estimate of total cost of suggested improvements Timeline from purchase to projected solvency Feasibility studies look different depending on who puts them together, but should be comprehensive and address the needs of prospective investors, renters and the local community. In addition, it's a good idea when looking at comps to put together a cost analysis per square foot to ensure you pay a fair price for a viable property. Comparing local rents will also help you see where rent should be increased or amenity value should be added to the property. Remember the words of ......
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Freddie Mac's “New Normal” Looks Like Uncertainty

Freddie Mac's “New Normal” Looks Like Uncertainty
The Freddie Mac Multifamily Midyear Outlook for 2014 contains some points that desperately want to be positive, paired with some estimates and forecasts that paint what could be a very different picture for the multifamily housing market. The take-away seems to be that we should expect volatile market conditions to continue into the next year or so, prime time for investors to do minimal capital improvements in preparation for eventual increased market demand. The report reveals that, by all estimates, more than 3.9 million new households should have been formed during the Great Recession, weren't. Whether that's a result of the shifting cultural landscape or symptomatic of a “failure to launch” generation, prognosticators tend to assume that the trend won't continue and that Millennials will start setting up house on their own as they find jobs. Younger households are more prone to renting, especially now that housing starts are low and home loans are harder to get. Freddie Mac's Steve Guggenmoss says multifamily investors should expect to feel a pinch in the next few months as occupancy rates drop. In the face of such guarded optimism about those Millennials finally “launching” and getting their own jobs and places to live, that warning looks more like the agency is taking a “wait and see” approach to what's coming down the pike for multifamily housing. Basically, there are two possibilities for the market: Scenario 1: Steady Economic Recovery Millennials currently living with their parents get jobs, keeping a 13-year-low occupancy rate near 4.1 percent or ......
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You're Selling My Property???

There is a lot in the news lately about how great the market is for the acquisition and disposition of multifamily assets. You see the big players out there “wheeling and dealing” getting in on the action and proudly announcing their companies being assigned new properties in receivership. But no one ever talks about what happens to the onsite team caught in the middle. No one ever discusses how they weather the storm, the upheaval of not knowing what is going to happen next, and how to transition through the changes.   “A Negative Thinker Sees a Difficulty In Every Opportunity.” Well, I can well imagine how the onsite team might fall into this trap. After all, sometimes completely out of the blue you are told, usually in an impersonal telephone call, that your property is for sale. Maybe you did have a faint inkling it was coming, maybe you didn’t. Either way, most people will internalize this news and rationalize a plan of action.   The onsite team may well first think, “What will happen to us?” followed quickly by “What will happen to me?”   Change is difficult. Everyone understands this, but the questions a sale raises can blind any employee into not being able to see the forest for the trees. With today’s economic climate, employees may well worry about their financial well-being. They begin to worry whether or not their paychecks will be good, whether their current company will honor their accrued sick and vacation pay, whether......
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Open The Window of Opportunity with Owner-Financing

By Linda Day Harrison, theBrokerList, Chicago, IL Today more than ever, many people do not have traditional sources of employment income. With the job market shrinking, many of us are working for ourselves and are creating jobs by starting businesses and new ventures. With that being said, how does a self-employed individual purchase a residential or commercial location with the stringent financing requirements currently in place? Simple! Look at properties with owner-financing. What is owner-financing? Owner-financing is when the seller of a property is in a position to act in the capacity of a lender. The seller accepts a down-payment and an agreement for repayment. The advantages are tremendous and can be a win-win for both parties. Advantages include: More favorable rates and terms. Easier qualification process. Able to sell a property in a depressed market. Seller can get a much higher return than other vehicles such as a CD. Seller can receive a substantial down payment. Tenant can now become an owner. Less closing costs. Now like anything, there are many pros and cons depending on each seller and buyer's tax consequences and personal financial situation, including whether or not the property is held free and clear. Owner-financing should definitely be a serious avenue to consider when selling a property and when evaluating your lease vs. purchase decision on residential or commercial property. An attorney is needed to assist in the process and as a buyer, you should still do your homework, via a due diligence period. Whether buying or......
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Telling Tall Tales; The Apartment Developer's Dilemma

When recently asked about which skill I felt was the most important for a real estate developer to possess, I was stumped for about thirty seconds (which is an eternity when someone is staring at you and waiting). My mind raced. How could I not just rattle-off something well thought out and brilliant? Shouldn’t this be a question that every developer must be able to answer without flinching? Well- I flinched. But at the end of that short eternity, my answer was ‘They must be great storytellers.’    I say this for one simple reason: At his most basic level, the developer is a master salesman. We sell our visions and dreams to our investment committees, the communities in which we work, municipalities, equity partners and debt providers, and eventually to the end user.   So what makes someone a great storyteller?   1.       VALUES. More specifically, understanding what your audience values. Unlike a Dr. Seuss fairytale, the developers’ story is intended to illicit a response. It is designed to excite and sway the audience to allow us to build, help the designers understand our vision, invest in our project, lease or purchase from us, etc.  Our story will only connect with the listener if it appeals to what they value. For instance, telling a County Commissioner about how much money you stand to make will not excite them…hearing that same story, your equity partner will be quite pleased. 2.       FOCUS. A good storyteller understands that they are only providing a framework......
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