The Math Behind Multi-Family

In this blog we will review the basic math behind assessing a small multi-family investment property. We will be reviewing a real property with real numbers. I personally know the owner and visited the property mid-renovations, once renovations were completed and during the lease-up.

Let’s break down the reality and numbers for this GTA (Greater Toronto Area) Property.

The property itself was completely renovated and this MUST be taken into consideration as it relieves future capital expenses that may come up for you, the potential purchaser. On the right, you will see a sample of the work the Vendor (Seller) had completed in the past 18 Months prior to making it available for sale.

Here are the quick facts:

  • Class: Multi-Family Investment
  • Unit Count: 12
  • Suite Mix: 6x 1-Bedroom, 6x 2-Bedroom
  • Price: $2,300,000 ($191,666 per suite)
  • Net Operating Income (NOI): $114,504 Per Year
  • Capitalization Rate (Cap Rate): 5.00%
  • Recent Capital Improvements: $400,000 (Estimated)
 
 
  • Plumbing
  • Electrical
  • Drywall
  • Doors, Trim and Tiles
  • All Bathtubs and Fixtures
  • All Kitchens
  • All Appliances
  • Brand New Security Cameras
  • Smart Wiring To Each Unit (Electrical)
  • Brand New Emergency Staircase (Second Exit For Each Unit)
  • All Landscaping And Concrete Work
  • Aluminum Siding
  • Brand New Basement Hallways And Laundry Room
  • New Hot Water Tanks (Rented)
  • All Doors And Units Re-keyed With Master Key

So a 5% Cap Rate is not all that bad in the grand scheme of things especially when you have such limited future repairs during your first mortgage cycle (5 Years). Of course you will still budget for emergency repairs and planned future repairs found when you do your professional building inspection.

PGI (Projected Gross Income):

  • 1-Bedroom Suites: $995.00/Month + Hydro
  • 2-Bedroom Suites: $1,095.00/Month + Hydro
    • Monthly Gross Rental Income: $12,540.00 (Per Month)
    • Annualized Gross Rental Income: $150,480.00 (Annually)
  • Other Income:
    • Parking Income: None
    • Gross Laundry Income: $2,400.00 (Annually)
  • Less Vacancy/Bad Debt (-2.50% of Gross Rental Income): – $3,762.00
  • Total PGI: $149,120.00 (PER YEAR)

Operating Expenses:

  • Property Taxes: -$21,168.00 (2017 Actual)
  • Insurance: -$2,348.20 (2017 Actual)
  • Hydro (Common): -$1,500.00 (Estimated)
  • Water: -$1,920.00 (2017 Actual)
  • Gas: -$7,680.18 (2017 Actual)
  • Total Operating Expenses: -$34,616.38

NET OPERATING INCOME (NOI): $114,504

Based on this NOI and the asking price of $2,300,000; the cap rate shows a 5% cap Rate (4.98% to be exact).

If you want to learn how to calculate a cap rate, we’ve broken it down here: http://retrackers.ca/calculating-cap-rates