Ontario’s Growth Making the Multi-Family Investment Market More Attractive

Some projections assert that the Canadian commercial real estate market will climb to as high as $59 billion. But what is notable is the tremendous growth within the many subcategories in this sector. New research shows that the Canadian multi-family investment market reported $7.1 billion in sales during the first half of 2022. This demonstrated stable growth from the reported $14.1 billion in 2021.

Multi-family investment properties consist of multiple separate residential spaces. This could range from multiplexes with a few units to high-rise condos with hundreds of separate units. Multi-family properties come in all shapes and sizes:

• Apartment buildings
• Condominium complexes
• Duplexes
• Mixed-use properties (commercial and residential units combined)
• Retirement homes
• Triplexes

That said, compared to single-family properties, multi-family properties enable investors to generate multiple rental income streams.

As per reports, multi-family properties have outperformed other asset classes and continue to witness a significant shift in the investment market in their favour. This has been one of the primary reasons for the increased interest and growth in the multi-family market. The other contributing factors? Quality, scale, and stability.

It makes sense, then, as to why many pockets of the nation are recording robust new housing construction activity for multi-family properties.

How Immigration is Impacting the Multi-Family Investment Market

It is also important to note that immigration will continue to be a driving factor for the rental market in Canada.

Over the next three years, Canada is expected to see an influx of at least 1.3 million new Canadians. Industry experts project that Ontario alone will see more than one million people within the next five years. Believe it or not, more newcomers are choosing different (and more affordable) cities throughout the country’s most populous province, like Thunder Bay, one of Ontario’s cheapest places to live.

As a result, this notable jump in people is expected to provide consistent growth to Canada’s real estate market and, in particular, bolster demand for multi-family properties nationally and provincially.

With the overall Canadian real estate market experiencing an affordability issue, more households are becoming renters, which is another reason why interest and investment in multi-family rental properties is expected to remain high. It has become challenging for many families to become homeowners, be it high mortgage costs or rising prices, so they have no other alternative but to rent. With more competition amid smaller inventories, prices inevitably go up. Indeed, the statistics confirm that there has been an immense surge in rents and more investment interest in rental properties.

What Are the Benefits of Investing in Multi-Family Real Estate?

According to real estate market analysts, investors see many benefits of investing in multi-family real estate opportunities.

First, multi-family properties tend to be long-term holds and are usually more capable of withstanding economic downturns. Second, multi-family homes provide investors with a consistent income stream, as tenants tend to stay longer in multi-family homes than other properties. Third, multi-family properties are less volatile than different types of real estate investments – even in a recession, people will always need a place to live, and central banks respond with easy-money policies. Lastly, for investors, multi-family real estate is a good source of equity that can help them weather a recession.

Historically, the market data suggest that multi-family properties tend to perform better during economic downturns and are considered recession-resistant assets that can potentially provide investors with stable returns in both bull and bear markets. In addition, rental prices are generally more durable than home prices, and even when property prices tumble, rents typically remain stable. Multi-family properties have strong economies of scale, and even if rents slide, investors can usually absorb the hit because they have multiple income streams.

If tenants are late with rent, a single-family investor would be more affected than a multi-family investor. Similarly, an investor with a ten-unit property can handle a ten percent vacancy rate. However, if a tenant moves out of a single-family home, that translates into a 100 percent vacancy rate. Therefore, multi-family properties are less riskier investments for investors and lenders.

Multi-family property investments extend significant tax benefits to investors, particularly as governments at all levels of government try to encourage new builds to alleviate the current situation. Cost segregation and depreciation allow investors to take advantage of tax credits and reduce their tax liability. This allows them to further reinvest in this market to generate more income.

Meanwhile, multi-family properties are more expensive, but financing them is generally easier than single-family homes. This is because multi-family properties have higher cash flow potential. The process of getting financing might be more complicated compared to single-family homes, but qualification is easier because lenders understand they are a better alternative to other kinds of housing market investments.

It is essential to note that investors do not manage multi-family properties on their own. It makes more sense, from both a financial perspective and a management perspective, to hire a property management company to handle the day-to-day operations of the business. An investor is not going to deal with tenants or run after them to collect rent. They will simply hire a property management company that can do the following:

• Find and screen tenants.
• Collect rent payments.
• Maintain the premises properly and oversee repairs.
• Handle compliance and regulation issues.
• Manage complaints.
• Take care of evictions.

Investors who own one or two single-family homes do not have the same luxury, and it may not be financially feasible for them to hire property managers for their small portfolio.

A Worthwhile Investment Opportunity

Overall, the multi-family investment market continues to be more attractive in Ontario as these properties are easier to finance, allow investors to compound returns faster, and offer more significant economies of scale. The initial investment might be steep, but the payoff in the long run can be much higher if the property is appropriately managed. The most attractive aspect of multi-family investment properties is the scalability opportunity and the potential to generate passive income that is much higher than that from single-family properties.