Residential multiplex: A way to diversify your sources of income

What are small rental properties?

What are small rental properties?

Residential multiplex refers to income property buildings of 5 units or less where none of the units is occupied by the owner and less than 20 % of the square footage is used by commercial tenants.

Buildings of 5 units or less are particularly interesting since they can be financed at residential rates and conditions whereas buildings of 6 units and more require commercial financing that often comes with higher rates and additional fees.

Why acquire such a property?

Residential multiplex can be an excellent investment and can represent an excellent a way to diversify your income sources.

Moreover, for workers who do not have access to corporate pension plans, these properties can constitute a suitable option in order to secure additional income at the time of retirement.

Thirdly, since the financing, maintenance and restoration expenditures related to these properties can be deducted from rental incomes; this type of investment offers a notable fiscal advantage.

Finally, this type of investment makes it possible to benefit from a financial leverage effect as the appreciation is being calculated on the building's total commercial value, largely financed by a mortgage loan, rather than on the down payment that constitutes the real investment.

Interested by income properties?

First of all, you must know that the minimum down payment required for a 5 unit building is 15% and 20% for a 1 to 4 unit property. The down payment can come from personal savings, liquid placements or by refinancing a current property in order to benefit from its equity. Many investors privilege the refinancing strategy to purchase rental properties since this avoids them to resort to their personal savings or to sell other types of investments.

The calculation method to qualify files can vary substantially from one lender to another, the financials institutions using different criteria to evaluate the financing requests. It is thus possible to be refused by a financial institution and accepted by another, because of these divergent criteria. We invite you to consult your mortgage broker as it will be able to direct you towards the best suited financial institution, according to your file. Your mortgage broker is there to answer all your questions!

To conclude, it is wise to know that as you increase your number of rental units, the risk associated to vacancy decreases.

Moreover, it is essential to know that lenders have a clear preference for buildings where units have at least four rooms since this usually translates into a better tenants' stability

Residential multiplex: A way to diversify your sources of income

By: Joey Perugino Multi-Prts

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