Why Invest in Multifamily?

In March 2010, I left my well-paying and secure job at Canada Mortgage and Housing Corporation (CMHC) and probably the best benefits package and pension plan in Canada to focus full time on my business of multifamily investing and other passions of mine. I had been at CMHC’s employment almost 14 years. The best way to tell you about the reasons why one would want to invest in multifamily properties is to tell you my reasons for doing it.

Probably like you, I believe that investing in multifamily properties is one of many strategies that can take me closer to my goal of greater financial freedom, and faster than staying in my job at CMHC. Through the many deals I underwrote while at CMHC I have seen how much wealth these properties can create and I have experienced it myself. In 2004, I entered into a joint venture to buy an 18-unit apartment building in Edmonton, which we sold in November 2010. Our return on investment averaged over 34% per year…
You can make a lot of money investing in multifamily properties. I mean, a lot of money! But it’s true too, you can also lose a lot of money (we’ll explore this in a subsequent posting). One of the busiest times in CMHC’s multifamily underwriting department in recent memory, and perhaps in CMHC’s history, was during the crux of the recent economic recession between January and June 2009… That’s right, during the worst economic downturn since the Great Depression of 1929. The volume of applications for CMHC mortgage-default insurance for multifamily properties reached very high levels never seen before. Our office was swamped with deals to underwrite and our turnaround time to process applications had tripled. During the recession, most of the deals we underwrote were for refinance applications, not purchase applications. Interest rates had significantly decreased to such an extent that landlords were easily willing to pay a penalty to have the ability to refinance their loans prior to the expiry of their loan terms, not only to benefit from lower interest rates, but also to take out large sums of equity and invest into other multifamily properties or other investments. The value of these properties had essentially almost doubled in the five or six years prior to the recession. These buildings were creating enormous amounts of wealth. Credit for multifamily properties was readily available at a time when credit for other asset types or investment types had practically shut down. What does that tell you about multifamily properties?
Multifamily properties are considered relatively low-risk investments. In fact, Moody’s Investor Service has ranked multifamily properties as one of the safest asset types to invest in. The beauty about investing multifamily properties is as long as they are maintained in good condition and are bought in a decent market at a good price, they keep producing wealth.

In 2006, I asked to be transferred from CMHC’s default management (defaults of multifamily properties) and real estate department to the multifamily underwriting department specifically for the purpose of learning everything about financing multifamily properties as I already knew I was going to invest in this type of properties. Mission accomplished! Now that I have left CMHC I can more readily share with you what I have learned.

My goal in this blog is to share with you as much of my knowledge about multifamily properties as possible. The blog is designed for both the novice investor who wants to get into multifamily investing for the first time and for the more seasoned investor who wants advanced tips. I’ll write about my personal experiences, the good and the bad ones… The postings will be numbered so as to enable to have the building blocks in the correct sequence if you wish to build your multifamily business.

As you can imagine, much emphasis will be on what I know best, that is getting CMHC’s financing for multifamily. If you master the financing aspect you master over half of the challenges… For an investor, buying their first multifamily deal is in most cases very intimidating. In this blog I will offer readers a very unique perspective as an owner/ operator myself of multifamily properties and a former CMHC multifamily underwriter who has underwritten hundreds of apartment buildings in all sorts of markets.
In my next posting, I’ll talk about whether or not multifamily investing is for you, what elements to take into consideration is selecting a property size, market, etc..

Please, do not hesitate to leave me comments or questions. I will be glad to respond.

Regards,
Pierre-Paul

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