This is for educational purposes only; it does not guarantee future performance or serve as financial or tax advice.
There’s been a lot of buzz around the 4+1 strategy in Toronto’s real estate investing world lately.
On paper, it sounds like the ultimate solution—strong cash flow, big value lift, and access to commercial financing that doesn’t depend on your personal income.
But is it really as good as everyone says? The truth is, it might not be the magic solution it’s made out to be.
Let’s break down the 4+1 strategy, its risks, and why smaller, more predictable projects might actually give investors better returns in today’s market.
What Is the 4+1 Multiplex Strategy In Toronto?
The 4+1 strategy involves converting a single-family home into four self-contained residential units (a fourplex) and adding an accessory dwelling unit (ADU) like a laneway suite or garden suite in the backyard.
The idea is that with five units, you can qualify for commercial financing, which is based on the property’s income—not your personal income.
At first glance, this seems like a no-brainer. You get higher rents, a big lift in property value, and the ability to refinance with CMHC MLI Select commercial financing at up to 85% loan-to-value.
But here’s the catch: that commercial financing only kicks in after the five units are built. Most investors still need to qualify for a residential mortgage upfront, which means your personal income needs to support the project from day one.
If your financing plan isn’t set up properly from the start, the whole strategy can fall apart before you even get going.
The Big Risk With 4+1s That No One Talks About
One of the biggest risks with the 4+1 strategy is that it really only works if you can refinance through the CMHC MLI Select program.
The problem is, CMHC’s rules aren’t set in stone—they’ve made sudden changes before, and there’s talk of more changes coming. One big shift could be treating conversions like new construction, which would cap refinancing at 95% of your cost, not the full completed value.
That might not sound like a big deal, but it could leave hundreds of thousands of dollars tied up in your property—capital you were counting on to fund your next deal.
Source: CMHC
Are the Valuations Realistic?
Another question mark is the final valuation of these properties. Right now, a lot of investors are banking on 4.25% cap rate valuations, putting the final price between $3.5M and $4M.
But with so few 4+1s actually built and sold, there’s no solid data to back up these numbers. If the market doesn’t accept those valuations, investors could be left with less lift than they expected—and more capital tied up.
A Safer Bet: Smaller Projects with Predictable Returns
If you’re looking for a more predictable way to invest in Toronto real estate, smaller projects like 2+1 or 3+1 conversions could be the way to go. These involve converting a home into two or three units and adding an ADU. They cost less to build, take less time, and give you more flexibility.
You can even split the project into two phases—convert the main house first, refinance to pull out some capital, then build the ADU with the proceeds. This staggered approach makes cash flow easier to manage and reduces your upfront capital commitment.
When it’s time to refinance, residential lenders typically offer up to 80% of the market value, with no surprises or sudden rule changes. Plus, there’s a much larger buyer pool for 2+1 and 3+1 properties, including end-users who might be willing to pay more for a beautiful home with rental income potential.
The Bottom Line
The 4+1 strategy isn’t necessarily a bad idea—but it’s not the foolproof solution some investors think it is. It’s higher risk, takes more time and capital, and relies heavily on refinancing rules that could change at any time.
If financing isn’t your biggest hurdle, smaller projects like 2+1s and 3+1s offer solid returns with less risk and more flexibility.
How We Can Help
If you’re not sure what’s best for your situation, let’s chat! We specialize in helping investors navigate the Toronto multiplex market with confidence. Our approach is based on real data, not speculation, so you can make informed investment decisions.
Here’s what it’s like to start as a client with us:
- Initial Consultation: We’ll talk with you to understand your needs and teach you how to invest wisely in Toronto real estate.
- Market Search & Purchase: We’ll search the market to find the perfect property for you.
- Renovation Support: If the property needs renovations, our trusted contractors are ready to help, and we’ll coach you as you manage the project.
- Leasing and Management: If you need help renting out and managing your property, our leasing and management team is here for you.
Ready to get started? Click on the link below, and let’s start working together!
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