If you have been looking for different ways to invest your money, a multi-family investment property is a popular way to go. If you can achieve a revenue producing property, you can reduce your mortgage costs and build equity at the same time. When purchasing a duplex or triplex investment property, you have the option to live in one of the units which combines your desire for wealth building with your need for a personal residence. Whether you choose to be an owner occupant or operate your multi-family investment property as a landlord only, a duplex or triplex is a great way to diversify the rents of your property while consolidating the expenses of owning multiple units.
The following are important things to consider when purchasing a duplex or triplex for an investment property. The below can help you decide if a duplex or triplex is a good investment property option for you based on your capabilities and goals:
Tenants of a duplex or triplex investment property
Depending on your real estate goals, acquiring a duplex or triplex investment property could reduce your own cost of living, bring in cash flow or snowball into further real estate investments in the future. It’s possible to even do all three. Becoming an owner-occupant of a duplex or triplex means you live in one of the units within the building and rent out the others. Being an owner-occupant of a duplex or triplex has some implications beyond just where you live and they will be discussed in more detail below. Regardless if you choose to live in your investment property or not, duplex and triplex properties have a broad range of possible tenants to choose from. By choosing the right tenants you can build a small community who you feel confident will care for your investment. If you choose to live in your duplex or triplex, it will be even more important to choose tenants with whom you have mutual respect as they will become your neighbors. Tenants living in an owner occupied building may be more prone to being responsible tenants as they know the owner is very close by keeping an eye on their most important investment.
TIP: Schedule your mortgage payments for the middle of the month to give yourself a buffer in the case that a tenant may wind up paying their rent a little late.
Purchasing and selling a duplex or triplex investment property
Adding a duplex or triplex to your portfolio has multiple benefits including the possibility of generated income as well as tax implications which differ depending on if it is an owner occupied investment property or not. If you choose to rent out the entire property, you could deduct much of the expenses required for the upkeep and management of the property from your real estate income. On the other hand, if you’re an owner occupant, these expenses are limited to the rental units. Being an owner occupant also means a portion of the property occupied by the owner can be exempted from capital gains tax when you choose to sell. It is important to understand the implication of being an owner occupant or renting out the entire duplex or triplex.
Qualifying and acquiring for a mortgage for an investment property is not quite the same as doing so for a principal residence mortgage. CMHC (Canada Mortgage and House Corporation) rules apply differently if a property is not your principal residence. A minimum down payment is affected depending on if your duplex or triplex is owner occupied or non-owner occupied. An owner occupant may be able to get approved for a lower minimum down payment, whereas a non-owner occupied investment property may require a down payment of at least 20%, even if CMHC insures the mortgage.
When purchasing a duplex or triplex as an investment property, a buyer will want to find out the property’s history of occupancy rate as well as cash flow. To make this research more effective, work with a real estate agent with experience in duplex and triplex purchases.
Management of a duplex or triplex investment property
Owning and managing a duplex or triplex can be a good transition from owning a single-family property without becoming overwhelmed. The management responsibilities of a duplex or triplex can almost always be done by a home-buyer or do-it-yourself manager. Though having one problem could mean it affects all of your units, having both or all three of your rental units in one place can make management easier. Having multiple units in one property also provides you with a vacancy buffer and the chances are slim that your property will ever be completely empty, whereas a single-family property puts you at higher risk between tenants.
There are options to purchase already tenanted multi-family properties. If you’re buying a duplex or triplex with tenants already established, be sure to get all the information you can on the tenants such as the history of how much rent they pay and how long they have been in the building. When settling on a lease with tenants, be sure to include even the smallest details in writing so you know both you and your tenants are on the same page. Becoming acquainted with the Residential Tenancies Act of Ontario (RTA) will benefit you as an investment property owner regardless of the size of your investment.
Locations of duplex or triplex investment properties
Knowing or getting to know the area of your duplex or triplex investment property is wise. Feeling comfortable in the neighborhood you invest in can give you a sense of security as well as help you showcase your property to potential tenants. Most tenants of a duplex or triplex want to be within walking distance to services, public transportation and shopping. Choosing a duplex or triplex with a high Walk Score can ensure your units are seldom empty and you are able to have healthy rent paid from each unit. An experienced real estate agent who you trust will be sure to save you money and save you time when looking for a multi-family investment property. A real estate agent will weed out poor choices and help you choose distinct location options based on your immediate and future goals.
Our team at Sylvain Bourgon Real Estate have experience in all different types of investment properties whether it’s been in personal investments or facilitating successful investment property purchases for our clients.
If you are seeking buying an investment property in the Ottawa area, or have more questions for us, we are happy to provide you with helpful guidance and support. Email us at info@buyandsellottawa.ca or call us at 613-590-3036.