Multi-Family Property Types
Definitions
| Type |
Units |
| Duplex |
2 units |
| Triplex |
3 units |
| Fourplex |
4 units |
| Small apartment |
5-20 units |
| Apartment building |
20+ units |
Residential vs Commercial
| 1-4 Units |
Residential Financing |
| 5+ Units |
Commercial Financing |
| Key Difference |
Different approval, rates, terms |
House Hacking Strategy
How It Works
| Step |
Action |
| 1 |
Buy multi-family property |
| 2 |
Live in one unit |
| 3 |
Rent other unit(s) |
| 4 |
Rental income covers mortgage |
Advantages
| Benefit |
Details |
| Lower down payment |
5-10% vs 20% investment |
| Better rates |
Owner-occupied rates |
| Reduced living cost |
Tenants pay mortgage |
| Learn landlording |
While living there |
| Build equity |
With others’ money |
Example: Duplex House Hack
| Scenario |
|
| Purchase price |
$600,000 |
| Down payment (10%) |
$60,000 |
| Mortgage (4.5%, 25 yr) |
~$3,000/month |
| Property tax |
$350/month |
| Insurance |
$150/month |
| Total costs |
$3,500/month |
| Income |
|
| Rental unit |
$1,800/month |
| Your “cost” to live |
$1,700/month |
Financing Multi-Family
Down Payment Requirements
| Property Type |
Owner-Occupied |
Investment |
| Single-family |
5% |
20% |
| Duplex |
5-10% |
20% |
| Triplex |
10% |
20% |
| Fourplex |
10% |
20% |
| 5+ units |
Commercial |
Commercial |
Owner-Occupied Rules
| Requirement |
|
| Must live in one unit |
Primary residence |
| Duration |
Typically 1 year minimum |
| Can move out later |
Then becomes investment |
Mortgage Qualification
| Lenders Consider |
|
| Your income |
Employment, self-employed |
| Rental income |
Usually 50-80% counted |
| Property expenses |
Taxes, heat, condo fees |
| GDS/TDS ratios |
Must qualify |
Rental Income Offset
| How Lenders Count Rent |
|
| Market rent |
Appraisal based |
| Counted amount |
50-80% typically |
| Offsets |
Mortgage carrying costs |
Finding Multi-Family Properties
Where to Look
| Source |
Notes |
| MLS/Realtor.ca |
Filter by property type |
| Real estate agent |
Multi-family specialization |
| Off-market |
Direct to owners |
| Driving for dollars |
Spotting poorly maintained |
| Networking |
Investor meetups |
Due Diligence
| Check |
Why |
| Zoning |
Legal multi-family? |
| Permits |
Renovation/conversion legal? |
| Current rents |
Market rate or below? |
| Leases |
Terms, tenants staying? |
| Expenses |
Actual, not pro forma |
| Condition |
Inspection essential |
Analyzing Deals
Key Metrics
| Metric |
Formula |
| Cap Rate |
NOI ÷ Purchase Price |
| Cash-on-Cash |
Annual Cash Flow ÷ Total Investment |
| GRM |
Price ÷ Annual Gross Rent |
Cap Rate Example
| Property |
|
| Purchase price |
$800,000 |
| Gross rent |
$60,000/year |
| Operating expenses |
$20,000/year |
| NOI |
$40,000 |
| Cap Rate |
5.0% |
Cash Flow Analysis
| Annual Income |
|
| Gross rent (4 units × $15K) |
$60,000 |
| Vacancy (5%) |
-$3,000 |
| Effective income |
$57,000 |
| Annual Expenses |
|
| Property tax |
$8,000 |
| Insurance |
$3,000 |
| Maintenance (10%) |
$6,000 |
| Utilities (common) |
$2,400 |
| Property management (8%) |
$4,560 |
| Total expenses |
$23,960 |
| Cash Flow |
|
| NOI |
$33,040 |
| Mortgage ($640K at 5%) |
$44,000/year |
| Annual cash flow |
-$10,960 |
The “1% Rule”
| Rule |
|
| Monthly rent |
Should be ≥1% of price |
| $800K property |
Should rent $8,000/month |
| Reality |
Hard to find in most markets |
| Use as |
Quick filter only |
Benefits of Multi-Family
Vacancy Protection
| Single-Family |
One vacancy = 0% income |
| Fourplex |
One vacancy = 75% income |
| Diversification |
Multiple rent checks |
Scale Efficiency
| One Property |
Multiple units |
| One mortgage |
Covers all |
| One insurance policy |
All units |
| One roof |
Serves all |
| Easier management |
One location |
Better Cash Flow
| Multi-family |
Often cash flows better |
| Price per unit |
Usually lower |
| Rent per unit |
Market rate |
Challenges
Purchase Challenges
| Challenge |
Detail |
| Higher price |
More total capital |
| Finding deals |
Less inventory |
| Competition |
Other investors |
| Financing |
Larger mortgages |
Management Challenges
| Issue |
Reality |
| Tenant turnover |
More work |
| Maintenance |
More systems |
| Living with tenants |
Proximity issues |
| Legal complexity |
Multiple leases |
Property Management
Self-Manage vs Professional
| Self-Manage |
|
| Pros |
Save 8-10% fees |
| Cons |
Time, stress, learning |
| Best for |
House hackerssmall portfolio |
| Professional |
|
| Pros |
Passive, expertise |
| Cons |
8-10% of gross rent |
| Best for |
Larger portfolio, remote |
Landlord Responsibilities
| Duty |
Note |
| Repairs |
Within reasonable time |
| Safety |
Fire, carbon monoxide |
| Privacy |
Notice before entry |
| Rent receipts |
If requested |
| Provincial law |
Know your tenancy act |
Tax Considerations
Rental Income
| Report |
All rent received |
| Deduct |
Operating expenses |
| Tax on |
Net rental income |
Deductible Expenses
| Expense |
Deductibility |
| Mortgage interest |
Yes |
| Property tax |
Yes |
| Insurance |
Yes |
| Repairs |
Yes |
| CCA (depreciation) |
Yes (be careful) |
| Your unit’s portion |
No |
House Hack Tax Treatment
| Your Unit |
Not deductible |
| Rental Units |
Proportional deduction |
| Split |
By square footage or units |
Principal Residence
| If You Live There |
|
| Your unit |
May qualify for PRE |
| Rental units |
Subject to capital gains |
| On sale |
Split the gain |
Exit Strategies
Options
| Strategy |
When |
| Hold long-term |
Cash flow, appreciation |
| Refinance |
Access equity |
| Sell |
Capture gains |
| 1031 Exchange (US) |
Not in Canada |
Selling Multi-Family
| Consideration |
|
| Cap rate affects value |
Income approach |
| Buyer pool |
Investors |
| Due diligence |
Buyers want details |
Getting Started
First Multi-Family
| Step |
Action |
| 1 |
Get pre-approved |
| 2 |
Learn your market |
| 3 |
Network with investors |
| 4 |
Analyze many deals |
| 5 |
Make offers |
| 6 |
Inspect thoroughly |
| 7 |
Close and manage |
Recommended Start
| Best First Property |
|
| Duplex |
Simplest multi-family |
| House hack |
Best financing |
| Learn landlording |
One tenant |
| Then scale |
Triplex, fourplex |