Transforming a Single-Family Home into a Fourplex In Toronto: How To Get It Done!
Introduction
Today, we’re diving into a seemingly unicorn topic – turning a single-family home into a fourplex in Toronto.
This is something that got many people interested in multiplex conversion opportunities once the multiplex changes got passed in Toronto, but not many people are actually actioning on. It does have to do with the capital required but it also has to do with just generally not knowing how to get it done.
So in this video, let’s dive into all of this. Stick around, and let’s get started.
Toronto's New Multiplex Rules
Before May of this year, the biggest red tape was that zoning didn’t allow for creation of multiplexes easily in many homes in Torotno.
Now, this toughest part is resolved now that only in Toronto can you convert every house into 4 units.
The City of Toronto is also waiving development charges for these conversions and this is another huge step forward. We’re looking at at least $30k each per unit in savings!
The parking roadblock is now also waived, which was the next big problem.
So, with all of these hurdles pushed away only in Toronto, this means converting a single family home into a fourplex a very attractive opportunity in Toronto – for the right investor.
What Makes A Good Project To Convert?
Now if you’re interested in learning more, but know what’s involved, let me break it down.
From an investment standpoint, you want to maximize rents and values and minimize costs, so looking for the right house is super important. The right house will be big enough without the need to change its external build form. This makes it a lot more cost effective to create four units because top ups or extensions are very costly.
Next, having enough exits and the right sized windows is also important to cut down on construction costs. Ideally, you’ll want a dedicated exit for each unit. In the perfect world, they’d be there already but realistically, the right house will minimize costs of adding more exits. Building code also has window size requirements, so knowing the rules around this without having to change up windows will help you save money.
And the last one to look out for are basement heights – you’ll want to find a house that has a tall enough basement of at least 6 feet and 5 inches to avoid very expensive underpinning costs.
Keep in mind, finding the right project to work could make a big difference in costs and ultimately swing your ROI one way or another, so don’t treat finding the right house lightly.
Toronto Multiplex Conversion: Costs & Timelines
Now, let’s get into the nitty-gritty – costs and timelines.
The first step would be design and drawings, and possibly surveys depending on what you’re doing. This would take at least 2 months in the fastest case and around $10,000 to 20,000 in costs.
After you have permit ready drawings, you’d submit for permits and pay other fees. These days, it’s roughly 2 months to get this done, and approximately $15,000 in costs. Even though development charges are waived, there’s still education charges which make up for a good chunk of this cost.
Next, onto construction. This the part that will vary the most since it’s very property dependant. Who you hire also makes a bit difference at the end of the day. Ballpark numbers will range a lot – to meet all of the building and fire code requirements, we’re looking at possibly $150,000 to $300,000 in construction costs and around 4 to 12 months of time.
Finally, don’t forget holding costs, which it also property and mortgage dependent.
Capital & Cash Flow Analysis
Now let’s walk through an example with numbers.
Let’s say we find a property that can be good for a conversion at a purchase price of $1.4 million. We get a conventional mortgage with a 20% downpayment, so this means we need to qualify for a loan of $1.12 million.
On the capital side, let’s assume the downpayment, closing costs plus conversion costs total around $600,000. So as you can see, this is a very capital intensive project, which is another reason why not many people are able to action on it.
Typically, these types of projects are either funded by cash, a HELOC, or construction or private financing.
Now assuming you fund it with cash and total rental income of over $11,000 per month, you’re looking at $3,500 of monthly cash flow after operating expenses and a mortgage rate of 6%.
How To Make A Multiplex In Toronto: Your Complete Guide!
Refinancing Opportunities
It’s cash heavy upfront, but the intent is normally is to free up after the conversion by reinforcing the property so it’s not stuck forever.
These days with most investment property projects, you might be able to pull out a good chunk of the renovation money but be put into a negative cash flow position.
So here is where multiplex conversions stand out! If you refinance the project after at cost, you can free up $200,000 of cash, and still cash flow an amazing $2,000 per month.
There might be some value add appreciation that’s not accounted for and so as another example, if the home is then valued against other market comps which are closer to $2 million, then you’d end up freeing $480,000 of cash. That means you’d only have $120,000 of capital left in the property, and the home will still cash flow $500 a month post-refinancing.
As you can see, the numbers for these projects are much better, but it does demand a much bigger amount of capital so it’s not for everyone. But once you do, you can get exceptional rent yields and cash flows once it’s done, plus the potential to increase property value from doing this conversion.
How We Can Help
Now if you’re qualified and interested, but don’t know where to look or how to get this done, our team is here to help!
I talked about how finding the right property can make the big difference on costs and ROI, and this is why you really need an expert in this space to help you out and that’s what we’re here for.
We’re a real estate sales brokerage that focuses on investing in freeholds in Toronto, and we’re happy to help you learn more about these opportunities. Just take the first step to book a Zoom discovery call with us!
