Forget the tiny shoebox condos that drain your cash every month. Toronto’s real estate market is shifting towards multi-family investment opportunities, and one strategy that’s generating a lot of buzz is the 4+1 approach.
Here’s how it works: you purchase a house, convert it into 4 units in the main building, and add a backyard house. That’s 5 units total, making the most of a small Toronto lot and turning it into a real cash cow.
What makes this strategy so exciting? The ability to refinance with a CMHC-insured commercial mortgage allows you to pull out up to 95% of the upgraded value. This is a game-changer for investors, offering both more housing for the city and potentially massive returns for you.
Breaking Down toronto's 4+1 Multiplex Numbers
Suppose you buy a standard bungalow in Toronto for $1 million.
With $1.3 million for the 4+1 build and $300K for holding costs, your total investment is $2.6 million.
Given a 4.25% cap rate (a common commercial real estate valuation method), this property could be worth $3.5 million, providing a $900K increase.
The Cost of Construction
Here’s where it gets crucial: construction costs.
Managing the project yourself could keep costs at $250 per square foot, aligning with the $1.3 million construction budget. However, hiring a general contractor could push costs to $400+ per square foot, potentially turning a profit into a loss.
Accurate cost management, knowledge of Toronto multiplexes, and understanding of the CMHC MLI Select program are all essential for a successful investment.
Exploring Exit Strategies
1. Selling the Property: On paper, the property is valued at $3.5 million based on the cap rate. However, similar properties are listed at $3.3 million and can be tough to sell due to high price points and fewer buyers. Selling at $3.3 million results in a $700K gross gain, with further reductions after fees and taxes.
2. Condo Conversions: Another option is splitting the property into condos. This could fetch around $3.7 million, but comes with additional costs: $450K in carrying costs, $150K for condo conversion, and $150K for high-end finishes. Your total cost would jump to $3 million, leaving a $600K gross gain, with reductions after fees and taxes.
3. Refinancing with CMHC’s MLI Select Program: This is often the preferred exit strategy. You can refinance to pull out the maximum amount and reinvest, avoiding taxes and fees associated with selling. Plus, you keep the property, enjoy monthly positive cash flow, and benefit from long-term appreciation.
The Importance of Finding the Right Property
Implementing the 4+1 strategy may sound straightforward, but not every bungalow is suitable for conversion.
You’ll need to consider lot size and other factors to ensure the project makes sense. Accurate financial planning, financing, and strategic refinancing are crucial to achieving strong returns or even breaking even.
How We Can Help
Interested in exploring this strategy further? Book a call with us to see our top picks for 4+1 projects!
Our Toronto real estate brokerage specializes in buying and selling investment properties across the city, especially houses and multiplexes. Whether you’re eyeing turnkey multiplexes or considering converting single-family homes to multiplexes, we’ll guide you towards smart real estate investing in Toronto.
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 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!
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!
