Advice needed on buying a multiplex
Question: I am interested in buying a multiplex. It has 6 units and I have visited it already and is in decent shape. I am in Canada, so not sure if same as in USA, but banks will lend you only 75% on multiplexes if you do not occupy one of the units. I have the 25% to give, but I really wanted to buy 2-3 different buildings and splitting it as cash down on three rather than on one. Obviously I have not found the other two yet and prefer to take it one step at a time.
Is there anyway for me to get the bank to finance with 5-10% down? I am dealing directly with the seller with no agent, so not sure if I could be creative and benefit from that.
Any advice is greatly appreciated
Answer: Banks won’t extend that much credit, and for good reason. They don’t want to be dealing with the risk of having inexperienced and undercapitalized operators overleveraging themselves in the real estate market when there is a good potential that a year of recession could easily place a 5-10% loan underwater.
With a 5-10% down payment loan, you are most certain to pay a higher interest rate as well. If you are looking for diversification of real estate assets, why don’t you buy into a partnership or real estate investment trust instead of trying to do it all yourself, concentrating all of your risk in the same local economy? Maybe, maybe not. But would the seller consider helping you out by taking back a 2nd mortgage of 15 to 20%?? Typicly you would write this as a 30 year loan with a clause that requires you to pay the full ammount due in 5 to 10 years. Actually when you dispose of the rental property, you pay capital gains tax on the difference between the sale price and the depreciated capital cost. So, for example, you bought a property for $100k, depreciated it down to $0 on the books, and then sold the property for $500k, you would include $500k on your tax return as a capital gain since the CCA allowance reduced the adjusted cost base of the home to $0 and the tax owing is the difference between your ACB and the actual selling price.
If you die, or if you ‘give’ the property to someone, CRA will still ‘deem’ a value for disposition, which usually would be a value consistent with other similar properties in the neighbourhood.
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