Photo credit: Maurice Nantel
Are you thinking about opportunities to invest your money in the near future? Today, we take a closer look at the project of buying a plex, and we demystify the ins and outs for you.
First, what is a plex? A plex or multiplex is a word used in real estate jargon to designate a rental building composed of several addresses (duplex, triplex, quadruplex, etc.). An address can be occupied by the owner, but not necessarily either: all addresses can be rented by tenants. So what are the advantages and challenges of this type of project?
The advantages of investing in a plex
1. The purchase of a plex is part of the real estate investment category, and therefore now represents a safe value, especially compared to other types of investments. This is even more true with the crisis we are currently experiencing. Moreover, it is a very good way to diversify your assets.
2. Think long term to make money! Investing in a plex can be very interesting when your objectives are to reduce your housing costs personally or to build up your assets.
3. Take advantage of the leverage effect: it can be interesting to live in your plex for a few years and then move to a single-family home, for example. Indeed, thanks to the leverage effect, you will be able to use the equity created in this way to reinvest elsewhere.
4. Analyze the tax advantages: some tax advantages come with the purchase of a plex. Analyze this with your accountant to see how much of the mortgage interest, taxes, insurance and maintenance expenses you can deduct from your taxes (in proportion to the square footage occupied by the owner-occupants). The use of depreciation to defer taxes is also worth considering.
5. The rental market is very active in Montreal (and everywhere around now, because the center is saturated and very expensive): the demand is there, take advantage of it!
6. Enjoy the freedom: you are the only one to decide how to update the property and you don’t have to ask anyone else for permission to undertake your work (unlike condominiums, for example).
Challenges related to investing in a plex
1. Beware of the short-term gain effect! The market being what it is right now in Montreal, prices have increased a lot: buying to resell a few years later and make a profit is one of the bad reasons to want to buy a plex these days.
2. Be careful to do your calculations: just because the project is potentially profitable does not mean that it really is. You will surely have heard of the Gross Revenue Multiplier (GRM), a ratio used to calculate the return on investment of plexes in particular. However, many experts agree that, for many sectors in Montreal, calculating based on purchase price versus rental income is no longer relevant. Furthermore, it is difficult to compare two buildings with different locations, different types of units, and different expenses (energy bills are sometimes paid by the tenants) with this indicator. So don’t swear by it. It’s case-by-case, so for each building you’re interested in, calculate your income-expenses correctly. Look at the portion of the rental income that will cover your expenses first. Ask your real estate broker to help you with this!
3. Be financially sound: some plexes require major renovations. It is becoming increasingly rare to have a turnkey solution for this type of property.
4. Don’t forget to do your inspection properly. Also, check with the City to see if there are any fines, notices of infraction and if the taxes are paid. Also check with the Housing Authority to see if the rent is being paid, among other things.
5. Speaking of leases… Make sure you respect the current leases and their deadlines to anticipate your eviction notices if that is the case.
6. And, all in all, choose your tenants well! This is crucial because they will have to take care of your unit, and it’s even better if you have a healthy, stress-free relationship with them.
7. Time: be prepared to put in the work! A plex means planning regular repairs, managing tenants, anticipating budgets: in short, you will have to call upon the manager in you or hire a trusted manager from your circle.
In conclusion, buying a plex is a good long-term investment for many reasons. However, be careful to do your homework before taking action, and get help from your real estate team to avoid making mistakes.
Want to know more? Don’t hesitate to contact our Via Capitale du Mont-Royal brokers now!