Pros and Cons Of Investing In Apartment Buildings

There was an interesting article in the Financial Post last week by Garry Marr talking about the merits of apartment buildings as investments. It makes a great point that stock markets have lacked stability for quite some time, but apartment buildings generally hold their value through a recession because of steady financing, low vacancy rates and a supply constrained environment created by government regulations.

During the last housing bubble speculators and flippers were making their fortunes by buying low and selling high. This type of activity can reward the players with healthy returns, but it is not for the weak of heart and is definitely not predictable or dependable. What many forget is 1/3 of Canadians still do not own a home and require places to rent. According to CMHC, apartment vacancy rates were 2.7% in April, 2009 which was up only slightly over the previous year.

The problem is it is hard to find an apartment building for sale. Very few new apartment buildings are being built due to rent controls and current owners are not eager to sell their properties. The good news is even though there are some large companies and REITS controlling large blocks of buildings, about 90% of the buildings are still in the hands of small companies and individuals.As well, like in the housing market CMHC has made it easier for individuals to purchase a multi unit apartment building. For as little as 15% you can purchase a building. The CMHC insurance premium might seem like an unnecessary expense, but keep in mind you can write it off against your income from the building and your lender will probably give you a significantly discounted rate because you have the mortgage insured. The average rate at the moment is about 3.5% for a 5 year CMHC insured mortgage. Without the CMHC insurance you would be paying closer to 5.5%. With a difference that large the insurance will almost pay for itself.

If you are thinking of jumping into the world of apartment investing do your research an assemble knowledgeable team. Deal with a Realtor who has experience in purchasing apartments and of course a Mortgage Broker who is experienced in providing the financing. You will also need a lawyer and a certified inspector to ensure the deal goes smoothly

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