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How to Buy an Apartment Building in Canada

Buying an apartment building is a key step savvy real estate investors can take to help improve their portfolio in any market. Having a multi-unit building can provide a lucrative source of regular income. However, you have to consider a significant number of challenges and factors before deciding to make your purchase. This post will detail some of these key considerations to help ensure you get the best deal possible from your property investment.

Harjaap Singh
Harjaap Singh
Co-Founder
Cover Image for How to Buy an Apartment Building in Canada

Buying an apartment building is a key step savvy real estate investors can take to help improve their portfolio in any market. Having a multi-unit building can provide a lucrative source of regular income. However, you have to consider a significant number of challenges and factors before deciding to make your purchase. This post will detail some of these key considerations to help ensure you get the best deal possible from your property investment.

FIGURING OUT YOUR FINANCES

The first step in any investment venture is figuring out the numbers and your finances. Do your research and if you're looking to get a mortgage, get in touch with multiple lenders to see what type of rate you can get. Once you have a budget in place, then you'll be better prepared to make an offer when you find a property you like. Getting pre-approved before you actually start looking for apartments to purchase will also give you a clear idea of when to walk away from a deal. A common misstep of investors is buying a property that is well above their budget to afford and end up being too constrained with the overall expense of their mortgage that they fail to make a good enough profit to justify the effort.

RESEARCHING YOUR MARKET: 

Whether you're new to commercial real estate investment or are long-time investors with multiple properties in your portfolio, you'll want to properly research the city or region you're planning to invest in. Go around and figure out what the typical rental cost is for an apartment unit and get a clear picture of what the occupancy rate is in your target market. Knowing your potential profit in your market will help you differentiate between good and bad investment opportunities in your area. This may sound like a tremendous undertaking, but if you work with a local commercial realtor you can trust, you can get regular market reports to help you with your research. Ideally, if you go through about a thousand properties diligently, you'll easily become an expert in your area, which will help you tremendously in future investments.

For additional reference on how to buy an apartment building, here’s a step-by-step guide to buying an apartment building by Scott Dillingham

UNDERSTANDING YOUR CAP RATE

One of the most important factors a real estate investor needs to consider when looking at a property is its CAP Rate. Your CAP Rate or Capitalization Rate is the percentage rate an investor can expect to get back their capital from any given property.

The basic formula of your CAP rate is the total profit a property is expected to make, before taxes and depreciation, divided by the total cost of acquisition. To simplify the formula is as follows:

Capitalization Rate = Property's Net Profit / Total Cost to Acquire the Property

For example, let's say you have an apartment building that nets a profit of $100,000 annually while your total cost to acquire said property is $1.5 million. How much would your CAP Rate be? Using the formula above, you'll get the following:

X = $100,000 / $1,500,000

X = 0.066 (Multiply this by 100 to convert it to percentage)

X = 6.66%

As an investor, to help improve your odds of buying a profitable property, you need to understand the factors that affect the numbers above. Having the correct process of accurately identifying various factors that affect the formula above is one of the biggest differences between a successful and struggling investor.

Annual Net Profit

When considering the potential net profit of commercial real estate there, you'll want to do the necessary research on your target market and the actual property. Review average rent prices and vacancy rates to get an idea of the overall demand for housing in the community. Are you going to be living within the building and doing maintenance on the building, or do you plan to hire a property manager? Consider potential expenses from taxes and typical costs from the wear and tear of the property. If you're getting a loan to purchase the property, how much is your mortgage? Do you plan to take a personal salary from the overall profits being made from the rent you're getting from your tenant? How much do you need to spend to market the property to get tenants into your units? These are some of the questions you need to ask yourself when looking at a potential real estate investment. This will help you get a relatively accurate representation of the annual net profit of a building before making a purchase.

If you’re interested in learning more about How to Create Massive Wealth by Investing in Apartment Buildings, this article would be a great read.

Total Cost of Purchase

The next amount you'll want to identify is the Total Cost to Acquire the Property. This amount includes the overall value of the building if you're paying for it in cash or your downpayment you pay for a mortgage. If there are required repairs, the property needs to make it livable. You need to include this in the total amount of your purchase cost. Closing costs paid to finalize the transaction, including commissions paid to realtors, a property assessment, attorney fees, permits, inspection fees, and more. 

To learn more about CAP Rates, here’s a quick guide from Derek Lobo on Understanding Cap Rates in the apartment sector.

FINDING THE RIGHT APARTMENT BUILDING

Once you've done the necessary research, prepared your finances, and have a clear idea of the numbers you're looking for in your real estate investment, it's time to start looking for an apartment building. Looking for the right commercial property in itself is a challenge. There are many nuances and factors, not to mention the many difficulties involved with actually closing the deal. After talking with the many professionals and entrepreneurs working in the Canadian commercial real estate industry, our team has identified several unique challenges both sellers and buyers face in the country.

SELLER ISSUES

1. Most online platforms, especially social media, are not designed to vet potential leads for commercial real estate transactions. Although many of these platforms allow you to target specific demographics getting in front of individuals who may have the capacity to invest in your property, they're not really using that specific platform to find commercial real estate. Many of these systems have minimal identity verification processes, and fake accounts are rampant, especially in platforms such as Facebook and Instagram, meaning you can expect a significant amount of nuance leads from these platforms. Social media is a great way to connect to a specific audience, but they're not really designed to service the unique needs commercial real estate industry.

2. Looking at online solutions designed for the commercial real estate market, we've also found many limitations after extensive interviews with market experts. Most of these platforms focus on pay-walling leads to make their profit. You post a lead on their website, a potential lead likes your listing, they try to contact you, but for you to actually get in touch with them, you need to pay a premium. You're not able to properly vet the quality of these leads. You pay the provider whether or not you're actually getting good leads which can be quite expensive in the long run.

3. Aside from paying walling potential buyers from their sellers, most platforms are also quite limited when it comes to customizing the information listed on their platform. They have a set number of data points that they include for each listing, and all of these are publicly listed on their website without much control from the actual sellers. If you're looking to limit the amount of information on a specific property you're selling for whatever reason, it may be a lot of the current commercial real estate systems online don't or won't provide this feature.

BUYER ISSUES

1. If you find a property you like listed online, getting in front of the actual seller can be challenging. Resellers often repost properties that are not their actual listing adding additional cost to your purchase. If you actually want to talk to the principal owner or their realtor, it can be difficult to get in front of them or, in some instances, close to impossible. 

2. Most online real estate platforms were designed to support the residential real estate market. There are a limited number of good options designed to support the commercial real estate industry. In most cases, you have to check out countless websites to research the available commercial listings in any given city in Canada, which adds an unreasonable amount of time you need to spend finding a property that matches your specific needs and budget.

3. Existing commercial real estate online marketing platforms are designed to monetize the needs of sellers at getting leads. However, if you're a buyer and you're looking to get in touch with realtors or owners looking to sell commercial real estate in a particular market, you're going to have minimal options that you can consider. In most cases, you'll probably have to reach out to several realtors on your own, and that in itself can be a challenge.

Talking with realtors and investors in the commercial real estate space, these are just some of the challenges they face every day. Identifying these needs, our team developed Zonado, an all Canadian Commercial Property Search platform that's specifically designed to address the needs of buyers and sellers in our market.

BUYING AN APARTMENT BUILDING WITH ZONADO

Zonado is ideally positioned to reshape the commercial real estate industry, creating a new and more effective way to buy and sell commercial real estate in Canada. We've created an online platform that addresses the common concerns that buyers and sellers are facing today.

Zonado features a seamless platform that enables buyers and sellers to engage with each other easily. When you contact the seller of a listing on our site, you know you're directly communicating with the principal owner or realtor authorized to sell the property. The connection is not paywalled, and when you send them a message through our In-app Messaging feature, it goes directly to their inbox.

The proprietary algorithm used by Zonado provides users with various filter options to help them find the specific property they need. Whether its location, property type, price range, our platform helps ensure you get a list of properties that you want. Browse Zonado today and start searching for your New Apartment Building.

If you've gone to the very end, then I want to thank you for reading through our article about Buying an Apartment Building in Ontario, Canada. If you're interested in Zonado, you're probably asking yourself how much it costs to use the amazing features we discussed in this blog post? If you are, then you'll love the fact that Zonado is absolutely free for buyers looking to purchase commercial real estate. We provide a no-cost registration process, and you can get started right away by contacting realtors and owners with properties listed on our platform. If you would like to learn more, feel free to check out our website Zonado.com or Contact Us today and get started!

Harjaap Singh

Co-Founder

Harjaap Co-Founded Zonado in 2020 with the simple goal of helping fix the information asymmetry in Canada's commercial real estate market. He's passionate about building stunning user experiences, martial arts and fast cars.


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