There is a quote that I heard from a friend recently that says “Fortune favours the bold.” I liked it so much and it definitely stuck with me. It resonates so closely with what is going on in the world right now, and how to overcome the things we aren’t happy with.
For those who live in Ontario, you can share my sentiment in the sheer craziness that has been unfolding in our real estate market over the last year or more. The market was already flooded with bidding wars and a steady increase in prices, but things have gotten way crazier than any of us could have predicted. It is clear that there is a huge lack of supply of available properties worth considering as investment grade and the shocking competition and over bidding have made it more and more difficult to acquire assets that fit our financial models.
Over the last year, our business has experienced some of the best growth we have ever had, and we were able to acquire several mid size apartment buildings and renovate over 20 units. But there were also times that I felt extremely frustrated with our policies and the lack of supply in our market. These things were hindering our growth – I realized that I felt a bit stuck and that I needed something more sustainable and most importantly scalable for the next 3-5-10 years to come.
I have spent the last year immersing myself on how to invest in US Multifamily Real Estate. I had some exposer to the US Market as I had owned several small properties there between 2010-2016. The strategy involved doing much larger deals than I had done here in Ontario and investing in a different country with no team in place takes a lot of work, patience and persistence. I read countless books, youtube videos, podcasts and attended many online seminars. I wasn’t sure about my criteria, market or size of the property and most importantly my business plan.
So I started to build relationships with people that already had a solid track record and owned a few hundred units. In November 2021, I was able to partner on my first deal. This came with a lot of challenges including structuring and capital raising the right way for Canadians. After consulting with a cross-border Accountants and Lawyers, I was able to figure it out.
I’ll share with you the Top 3 Reasons Why I like US Multifamily.
- Landlord Friendly
The landlord and tenant laws in Ontario are simply put very much unfair. They are mostly in favour of the tenants. If the tenant does not pay rent, it can take 6-12 months for an eviction order in Ontario. I am focusing on investing in landlord friendly states in the USA which are located in the Southeast such as Texas, Florida and Georgia.
- Faster Rent Growth
The Southeast regions I mentioned above are very business friendly in terms of their policies when it comes to taxes, real estate development and lower labour costs. One big item is no rent control. Unlike in Ontario which is a rent controlled province, we are sometimes stuck with a tenant that is paying the same rent as they were 10 years ago with minimal 1-2% increase only per year set by the government. While every other expense increases, the rents do not once the tenant has moved in. In most of the Southeast US, once your lease has expired after 12 months, you can increase it to whatever the market rent would be based on the free market. Just like Ontario, most of the US is also faced with housing shortages and with their population being 10x more, this creates tremendous opportunity.
- Higher Cash Flow
The typical single family house in most of the states is less than half of that in Ontario however the rents are comparable. For example, the price per unit on for an older 1970s built apartment in Texas which is not upgraded would be around $100k per unit. The rents would be around $900 – $1000, with minor upgrades of under $10k per unit, those rents would be $200 more per month.
With US Multifamily investments, you can typically expect a 7-10% average cash on cash return (cash flow). For example, a $100,000 investment would give you a quarterly distribution of $7000 – $10,0000 on average over the term of the investment. The return will depend on the market, for example Atlanta would provide a higher Cashflow than a major market like Dallas.
The current opportunities for investors in the US Multifamily market is not comparable to anything I have seen in my 12+ career as a Real Estate Investor. The high cash flow and equity growth is hard to beat. While equity growth in Ontario is strong as well, there is very little to no cash flow to be able to enjoy passively. If you are looking to diversify your investments or simply wanting a passive investment with equity growth, it’s a solid strategy.