How to Create 5 Units in Toronto for CMHC’s MLI Select Financing! (For Real Estate Investing)


Looking to invest in real estate for solid returns and the perfect fit for your portfolio? Join us as we explore the exciting world of 5-unit conversions in Toronto, a hot topic for real estate investors lately.

These conversions offer excellent financing options, including CMHC MLI Select, but navigating the process can be tricky.

In this video, we’ll discuss the ins and outs of transforming a property into 5 units, including what factors to consider and which Toronto real estate investing route is best for you!

Why Create 5 Unit Rental Properties In Toronto?

Are you wondering why 5 units in Toronto are trending for Toronto real estate investors? 

Unlike many other cities where you’re typically limited to 3 units (usually 2 in the main house and a backyard house), Toronto gives you the green light to go for 5 units on any lot: 4 as of right in the main house plus a laneway or garden suite in the backyard.

Then over the past year, there have been some more game-changing developments:

  • Parking requirements for new units? Waived
  • Development charges for both the first 4 units? Waived
  • Development charges for the backyard house? Deferred

So, it’s pretty safe to say that the feasibility and math are looking a whole lot better lately for Toronto real estate investing.

Why CMHC MLI Select Is Getting More Appealing For Real Estate Investors

And once you hit 5 units in your Toronto real estate investment property, you can qualify for commercial financing.

The most interesting one these days in the CMHC MLI Select mortgage program, where you can get some of the best financial terms out there like lower interest rates, longer amortization periods, and impressive loan-to-value ratios (up to 95% LTV).

This looks especially attract for Toronto real estate investors who are looking to scale aggressively because qualification for the CMHC MLI Select loan isn’t based on your personal income but rather the property’s financials instead. 

This means that as long as you have a Toronto investment with strong cash flows, you can continue to borrow money and do this again and again.

I won’t dive too deep into the CMHC MLI Select program here, but if you’re curious to learn more, check out my other video where I’ll really break it down for you.

Why Does CMHC’s MLI Select Financing Stands Out In Today’s Toronto Real Estate Investing Market?

  1. Improving Cash Flows Mean Better Loan Ratios: Presently, we’re witnessing stable cap rates and a rapid decline in fixed mortgage rates, leading to enhanced cash flows. CMHC MLI Select’s lending model prioritizes strong cash flows, resulting in significant improvements in loan ratios (LTC / LTV).

  2. Reliable Valuations: Despite potential market fluctuations, relying on rental income and mathematical assessments for post-construction valuations offers more stability. The CMHC MLI Select valuation approach contrasts with market valuations, which can swing drastically, providing a more dependable foundation for decision-making in today’s real estate market.

Options For Creating 5 Unit Rentals In Toronto

Now if you’re seriously thinking about diving into creating 5+ units to qualify for CMHC MLI Select, there’s actually many ways to get there in Toronto. So what should you do?

  1. Convert Existing House Into 4 Units: Start by turning a large house into multiple units. It’s cheaper initially, but expect smaller units and possibly lower rents.

  2. Build a Fourplex: Buy a house for its land value and build a multiplex. It takes more time and money upfront, but you can design it for maximum rental space and potentially earn higher income.

Now, let’s consider adding the 5th unit:

  • Laneway or Garden Suite: Build a 3-bedroom house in the backyard for around $400,000. You could rent it for $3,500 monthly, offering good income potential.

  • Add One More Unit into Main House: If zoning permits, add the 5th unit to the main house, especially in areas closer to downtown or major streets. It’s cheaper to build, but there are development charges. Rental income may be lower than a backyard suite.

By just talking it out, it’s tough to see which option offers the best ROI. We’d really need to crunch the numbers for each specific project to see which ones would actually give the best lift and loan ratios once the project is done.

How Capital, Financing, Investment Returns, Loan to Cost (LTC) Ratios Stack Up

Your Toronto real estate investing choice may vary depending on your available capital and borrowing capacity. Let’s look at some practical examples!

More Limited Capital:

Converting a large existing house into 5 units might be your best bet if your capital is limited but you have substantial borrowing capacity. Despite development charges for the 5th unit, this option has the lowest upfront capital requirements. However, since you won’t be able to maximize rental space, your valuation and value-add potential may be lower, resulting in lower loan ratios post-project completion.

More Capital Available Upfront:

Opting for a hybrid conversion of the main house and building an Accessory Dwelling Unit (ADU) becomes a better choice if you have more capital available upfront. The higher rent yields from the ADU compared to a 5th unit in the main house can significantly boost loan ratios during refinancing with MLI Select.

Maximizing Value-Add Potential & Loan Ratios:

If your goal is to maximize value-add returns and loan ratios upon completion, construction projects remain the preferred route. Choosing between a purpose-built fiveplex or a fourplex plus ADU becomes more of a toss-up. While the ADU incurs higher fixed costs, it saves on development charges. Both options are designed to maximize rental yields, resulting in similar loan ratios.

How We Can Help

Looking to dive into the world of 5-unit conversions in Toronto to get CMHC MLI Select financing? You’re in luck because our real estate sales brokerage is is your best starting point! 

Lately, we’ve been guiding more and more Toronto real estate investing clients through this process of buying and converting, giving us valuable insights into maximizing ROI while mitigating risks and constraints.

But hey, we’re not just there to buy and go away –  we go the extra mile by helping you plan your project, connecting you with our trusted network of trades contacts, and are around for ongoing guidance and support as you manage your construction project.

To discuss your private real estate situation with us, just go to this link below to set up a time to chat!

What Toronto Real Estate Investment Is Right For You?

Check out our complete Toronto real estate investment guide for all the details and real-life examples. If you’re ready to dive in, just book a call with us!