You’re right to be skeptical. The short answer is yes, but it’s not as straightforward as it seems, and it’s certainly not the right fit for everyone.
Many investors are drawn to 4+1 builds (totaling five units) because they think CMHC MLI Select financing will make the process easier or more profitable.
But is a simple triplex conversion the smarter move? That’s exactly what we’re going to dive into in this post.
The Reality of CMHC Financing for 5-Plex Projects
On paper, getting CMHC MLI Select financing for a 5-unit project sounds fantastic, but here’s the reality.
If you’re converting a single-family home into a multiplex—even if you keep one wall intact—you won’t qualify for CMHC construction financing. This means you need to come up with the money upfront to fund the project and only refinance after the work is completed.
Even when it’s a completely new build, CMHC financing might not be as advantageous as you’d hope. With CMHC construction financing, you’re limited to 95% of the total project cost, not the finished value. This is a key difference! It means you can’t pull off a perfect BRRRR because you can’t refinance based on the added value of the property.
Also, you’ll still need a significant amount of capital to fund the project upfront.
Another major factor is the time it takes to secure CMHC construction financing. The application process can be long and drawn out, which increases your holding costs. And while you wait, that property is sitting there, generating no income. For large-scale projects like 5-plexes, this holding period can seriously eat into your profits.
Project Risks and Return on Investment
Let’s talk returns.
A 4+1 or 5-plex build can deliver solid returns, but only if everything stays on budget. Let’s say construction costs hit $300 per square foot. By the time you’ve purchased the property, completed construction, and covered holding and closing costs, you could be looking at a total investment of $2.5 million, with the project taking around 1.5 years. If everything goes according to plan, the completed property might be worth around $3.5 million, giving you a $1 million lift.
But here’s the catch—if the project runs into delays or construction costs rise, those returns can vanish quickly. The reason we expect higher returns on large projects is because of the increased risks, time, and capital involved. But when you weigh the returns against those factors, it doesn’t always look as good as it did on paper.
Triplex Conversions: A More Predictable Option?
A 3-unit conversion is a much smaller, more predictable project with fewer moving parts. You’re reconfiguring the interior of an existing structure, so the costs are significantly lower, and the project can often be completed in a matter of months.
Let’s say a 3-unit conversion costs around $1 million in total. While your value-add might seem smaller—around $150K—that number is much more predictable and looks even better when you factor in the lower time and capital commitments. The risk is lower, the timeline is shorter, and the returns can be more dependable.
Before diving into a big 5-plex project in Toronto, take a step back and consider the complexities involved. Financing through complex construction loans, private lending, or raising capital from partners adds layers of difficulty. Then, there’s the design, the lengthy construction process, and the risk of going over budget or running into delays.
Sometimes, a simpler project—like a triplex conversion—can end up being the winner with far fewer headaches and a much more reliable return on investment.
How We Can Help
If you want to dig deeper into triplex conversions in Toronto, our team is here to help! Our real estate sales brokerage specializes in multifamily properties, whether you’re looking for a ready-to-go multiplex or want to convert a single-family home.
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: 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 support you through the whole process.
- 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!
What Toronto Real Estate Investment Is Right For You?
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