Single-Family vs. Multi-Family: When Ontario Landlords Should Scale Up

Intro & Guest Introduction

Hey landlords, thanks for joining us for this episode. Today we’re joined by a friend and colleague, a fellow RE/MAX agent who specializes in assisting landlords. We’re similar in that we’re here to support you, but a bit different too — our Landlord Protection Program was built to help the average Joe landlord, an investor just starting out with somewhere between one and six properties, guiding them through the purchasing process and managing single-family to small multi-family properties. But when the time comes for an investor to expand their portfolio, Addy Saeed is the guy to connect with. Addy is a fellow RE/MAX agent whose specialties are geared toward investors looking for a different type of investing strategy.

Single Family vs Multi-Family Properties

Today’s conversation covers these types of properties, touches on investing with registered funds, and previews a webinar Addy is hosting in mid-January.

Starting with the basics: single-family homes are a great place for an investor to start — buying a first home comes with no capital gains tax, so you grow net worth tax-free. But single-family homes aren’t designed as an investment vehicle; they don’t cash flow based on the amount of money paid for them. To get more sophisticated, the next step is multifamily — and it doesn’t have to be large. Start small with a triplex or fourplex, then move into six-plexes. CMHC has strong programs even for novice investors looking at five- or six-unit buildings, such as the MLI program or a conventional CMHC loan.

RBC’s 5-Unit Residential Mortgage Program

One of the best things about RBC is that they’ll give a residential mortgage on a building up to five units — with only 20 percent down, instead of the 30, 35, or even 40 percent down sometimes needed for larger multifamily. That’s a great way to get started.

With rent coming in from just a single-family property, that’s one income stream. Once there are multiple units — two, three, four, five — there are multiple rents coming in, so if one unit isn’t paying rent this month, the others still help cover things. With a single-family rental, if that one tenant isn’t paying, the landlord is covering the whole mortgage.

Income Stream Diversification Benefits

Having multiple streams of income diversifies the investment. Instead of 50 percent vacancy because one unit in a duplex is empty, having 10 units means only 10 percent vacancy — the property itself absorbs much more of the hit from a vacant unit.

Current Condo Market Analysis

Some investors were counting on $400–500 a month going into a project while the property appreciates in value, expecting that appreciation to be their return. A lot of people got caught out by that thinking, and there’s currently a glut of condo units sitting on the market, especially in Toronto, not moving. It will likely take anywhere from six months to a year for that inventory to normalize and for pent-up demand to work through.

For a buyer today picking up properties at 60, 70, or 80 cents on the dollar, that’s a great place to be — but not everyone has that capacity. The better approach is looking at fundamentals and picking up properties with multiple units where the income supports the property, not the other way around, where active income is propping up the property. That’s where truly passive income comes to life.

On a commercial loan, lenders look at what the asset itself will produce, not the buyer’s personal situation the way they would for a single-family purchase — for a single-family mortgage, lenders look at the buyer’s income to cover it (using roughly 50 to 100 percent of the projected lease, depending on the lender), in case anything goes sideways. Right now there are a lot of unpaid rents and smaller investors getting stuck in a tough spot because the Landlord and Tenant Board and RTA currently favor tenants — the whole system is flawed for both tenants and landlords right now, and things shouldn’t take this long to resolve for either side. There isn’t enough consequence for non-payment of rent, which is a real risk to weigh when investing based purely on appreciation rather than income.

Landlord Tenant Board Updates

There is some light at the end of the tunnel: an update on the Landlord and Tenant Board’s L1/L2 applications (for non-payment of rent) shows they’re now down to about 60 days for a hearing — down from roughly eight months previously. Their target is a further reduction, likely still a couple of months away, but coming down from eight months to two months is real progress.

Appreciation was a calculation a lot of buyers leaned on with single-family homes, and that got people into trouble — some thought they could assign agreements and walk away, but ended up having to close without the capacity to do so. It’s like teaching a kid to mix hot and cold water in a sink: turn on too much hot, then overcorrect with too much cold — that’s what government policy has done with interest rates, alternating between too loose and too tight. A rate cut of a quarter to half a point is expected soon, with the general expectation leaning toward half a point.

Asset Management Deep Dive

Addy’s asset management arm grew out of his work as a broker of 20 years specializing in multifamily, running buildingsforsaletoronto.com. Clients kept coming to him saying they had capital to invest but not the time or resources to manage a building themselves, wanting a service that could manage it and just report back on what’s happening. That’s where Westcliff Asset Management came from — on a recent deal, Addy closed on a building and brought in property management for the day-to-day, while the asset management side creates and executes a plan to hit or exceed the return the client expected (an IRR target) when they bought.

Property management is the daily day-to-day; asset management is about the bigger picture — making sure the right loan is in place, that idle money is being optimized and reinvested, and identifying additional revenue opportunities, like converting an empty basement space into an income-producing unit, or checking whether a building’s laundry agreement, antenna agreements, or parking are all generating revenue. Asset management holds the property manager accountable to the top line and the expenses, making sure spending is thoughtful and generates a return, with a plan that’s proactive instead of reactive.

Having a team and giving up some control appeals to investors who want a passive investment — comparable, in some ways, to buying a stock and having it managed by a broker, except you generally can’t get into real estate for as little as $10 the way you can with a stock. Property management companies exist to make real estate investing as passive as the investor wants it to be.

Investing with Registered Funds (RSPs & TFSAs)

Westcliff runs on an ethos of learn, invest, then manage — learning is a big part of it, and Addy and his business partner, Kaz Joff, consider themselves lifelong learners. The goal is teaching people different ways they can invest.

There are lower barriers to entry in real estate than people think — you can invest with as little as $5,000, in two main asset types: equity or debt. Debt investing is usually more secure, lending money to another real estate-related party secured against real estate; equity investing can mean an income-producing (more fixed-income-like) asset, or development, which is considered riskier depending on the phase of development. Registered funds — cash, TFSAs, First Home Savings Accounts, RESPs — can be used for these investments depending on the vehicle, but there are stipulations: an investor generally needs to be either “accredited” (making over $200,000 a year individually, or over $300,000 combined with a spouse, or having more than $1 million in financial assets) or “eligible.” Returns on these investments can range from around 8 percent up to 25–30 percent, notably higher than the roughly 6–8 percent many people are used to seeing on an RRSP.

Upcoming Webinar Details

On January 14th at 7 PM, Westcliff is hosting a webinar explaining exactly this concept — how to invest money passively in real estate using equity. As an example: developers of large buildings rarely fund the whole project themselves; they raise money from investors, similar to Westcliff’s own investors, who want a way to invest in real estate without doing all the work themselves. Registered funds like RSPs are described as “lazy capital” that needs to sit in an account for a long period — investing it in projects compounding at 12–14 percent instead of 6–8 percent lets a nest egg grow much faster.

Anyone interested in the webinar can find the registration link through westcliffam.com, learn more about alternative investments at westcliffam.com/invest, or check out the Smart Real Estate podcast at westcliffam.com/listen. Anyone interested in apartment buildings can also reach out through buildingsforsaletoronto.com.

This was a nice, information-packed conversation showing there’s more out there than buying a single-family or small multifamily property. Investing in real estate remains one of the best investments available, and multifamily will generally outperform single-family on return.

Thanks so much, Addy, for joining us — we’ll talk to you guys soon. Bye for now.

Legal Disclaimer & Outro

Please remember, while we are professionals, this podcast is for informational and entertainment purposes only. The advice shared may not apply to your unique situation. Always seek personalized advice from a qualified professional before making any investment decisions. Hey everybody, thanks so much for joining us this week. I hope you enjoyed the episode. If you’re finding it informative and useful, make sure to like, subscribe, and share with a friend so that we can keep getting the information out there to Ontario landlords, and keep on joining us. We’ll see you next time.