We regularly work with investor clients in different stages of their real estate investing business.
We’ve recently made the case as to why an investment property is almost always a good idea and it seemed like the right time to update an article from back in July 2017 where we talk about where you should buy an income property.
This time around, we’ve examined where multi-unit properties have been sold in the past year, i.e. March 2021 to March 2022, so that we get a sense of where such properties are available and at what price. Rather than simply giving you a table or chart, we have analyzed the data and come up with some key points.
Let’s start with the elephant in the room.
Toronto is…expensive.
We’re based in Toronto and know the city well. While there are options for multi-unit properties within Toronto, the run up in real estate prices in Toronto over the past few years has continued to push down the cap rate for investment properties in the city.
In addition, the increase in average sale price in the city (February 2022 saw us hit another all-time high for the average price in the city of $1,210,889) has meant that some income properties have been purchased by end-users who convert them back into single-family homes. It’s a type of competition that investors aren’t used to seeing, with decisions being made emotionally rather than on the economics of the purchase price and rental income.
It doesn’t mean there aren’t some opportunities within the city, but it absolutely means that the average sale price for each type of multi-unit property in Toronto is considerably higher than the average for the surrounding municipalities.
For our review, we looked at Toronto and all of the municipalities in the surrounding regions, namely Durham, Peel and York.
- The average sale price for a duplex in Toronto is $1,634,000, which is $552,000 more than outside the city.
- The average sale price for a triplex in Toronto is $1,736,000, which is $298,000 more than outside the city.
- The average sale price for a fourplex in Toronto is $2,505,000, which is $1,238,000 more than outside the city.
- The average sale price for a multiplex in Toronto is $2,886,000, which is $995,000 more than outside the city.
While rents may be higher on average in Toronto than in outskirts, the average price is significantly higher and in our work with investors, the best options for multi-unit properties exist outside of the Toronto boundaries. Given that such purchases also benefit from only one land transfer tax (whereas in Toronto it is doubled with the addition of another municipal land transfer tax), our first recommendation is simple.
As of March 2022, investors looking to buy multi-unit properties should focus outside of Toronto.
Clarington – Home of the Bargain Duplex
Let’s begin by looking at the lowest use multi-unit property type, duplexes. A duplex is broadly defined as a building that is divided into two separate dwelling units, each of which has a separate entrance either directly or through a common vestibule.
There were 112 duplex sold in Durham, Peel and York regions in the past year and 74 of them were located in Oshawa. With an average sale price of $809,000, Oshawa doesn’t have the lowest average sale price for outside Toronto (that honour goes to Clarington, with two duplexes sold and an average sale price of $600,000), but it is definitely one of the lowest price options. Mississauga has the highest average price for a duplex, at $1.918M!
Here’s the table of all duplex sales in the past year.
If you’re looking for a duplex just outside Toronto, Durham region is where the most of your options will be and it also has the lowest average price.
Oshawa – Land of Triplexes
Moving on to triplexes, we aren’t surprised to see that the definition of a triplex is a building divided into three separate dwelling units with each unit having a separate entrance.
Oshawa continues to be the most popular place for sales of multi-unit properties, with 13 triplexes sold there in the last year. It also has the lowest average price for a triplex, at $933,000. With only 28 triplexes sold across Durham, Peel and York regions, this is not that common a housing type. The most expensive triplex sold in the past year was in Whitchurch-Stouffville which has one triplex sell for a whopping $2.3M.
Here’s the table of all triplex sales in the past year.
With an average price of $933,000, Oshawa is the clear focus area if you’re looking to buy a triplex. Given that is only about $125,000 more than a duplex in Oshawa, it seems likely that you can achieve a higher cap rate if you can push your budget for an income property up to this point.
Brock – We don’t have many multi-unit properties, but they’re a heck of a deal!
When we look at fourplexes, the numbers drop down considerably, with only 9 sold in the area outside the city in the past year. The definition of a fourplex is a bit more varied, namely a building which consists of two (2) attached duplex dwellings, or a building containing only two storeys exclusive of basement, divided vertically into four (4) dwelling units with either one or two complete walls in common with adjoining units and an independent entrance, either directly or through a common vestibule.
Durham region once again takes the prize as the best source for multiplex units, with five of the nine fourplex sales taking place there. Oshawa was the most common location, with four sales, but the township of Brock, with just one sale, wins for the best price, at only $700,000. That’s the only multi-unit property in Brock sold in the past year, so while the price may be great, you might be waiting a while to buy a place. Mississauga takes the prize for highest average price, with a fourplex sold for $2.6M in the past year.
Here’s the table of all fourplex sales in the past year.
Much like the relatively small price difference between duplex and triplexes, we see that if you can push your budget up a bit, you can move into the fourplex range. With average sale price of $1,076,000 in Oshawa (site of the most options for this type of property), you’re looking at about $140,000 to add another rental unit to your cap rate calculation.
Want a cheap multiplex? Scugog, here we come!
The final category for multi-unit properties is multiplex. While it would seem logical that this would be any property with more than four units, we run into an issue with this type of property and how listing agents categorize it on the MLS system.
It is not uncommon to find agents listing a duplex, triplex or fourplex as a multiplex. It seems particularly common with triplexes being mistakenly listed as multiplexes, perhaps for the silly reason that when you go down the pull-down menu, M comes before T, and the agent says “That will work.”.
We will take the data for multiplexes with a grain of salt as a result. In Durham, Peel and York we are showing 21 sales of multiplexes in the last year. Much like the other types of properties, Durham region is where the majority of sales took place, with 13 of the 21 sales there. Oshawa is the most common location, with six sales, but Whitby shows up with a surprising four of the sales taking place there.
The lowest sale price for a multiplex takes place in Scugog, with one sale taking place at $1,080,000. If that was genuinely a building with more than four units it, that seems like a great price! In a surprising move, Clarington comes in at the highest average price, with one sale there of a multiplex for $2.8M.
It is worth noting that for financing purposes, most lenders view properties with more than four in a different light than other income properties, often categorizing such properties as commercial, even if they are strictly residential. If you’re buying a property with five or more units, make sure you discuss that with your mortgage broker or lender.
Without a doubt, Durham region is where the most options are for multi-unit properties, and it is also the location with the lowest average sale price for each type we’ve reviewed. If you’re considering investing in multi-unit properties, we’d love to get into what makes the most sense for your needs. Don’t hesitate to get in touch with us to discuss next steps.
