Real Estate Talk: The
income property market craze

Investors in income property must be aggressive with their offers and conditions

By Joseph Marovitch

February 26, 2020

There is an amazing phenomenon taking place in Montreal in the income property market. As prices rise in Montreal due to the economy, politics and actual limited space on the island, people must live somewhere. When a residential property comes on the market at market price, buyers compete to purchase it since there is not a great amount of inventory. Many people do not want to sell since they realize they will have to pay more if they intend to upgrade to a larger property.

If people cannot find a single residential property to purchase, then they rent. Investors realized this years back and started to purchase income property, meaning apartment buildings, which are an amazing investment. However, we have come to the point where there is not a great number of deals out there. Most income property in Montreal is too high priced. Sellers do not seem to realize that an investor cannot invest in a two to four cap rate (2% to 4% return) and make their money back.

The smart sellers know that if they price their income property with a five-cap rate or higher, they will receive multiple offers and very likely sell for more than they are asking. There are about twenty to fifty, or more, income properties placed on the market each day between Monday and Friday, and 5% or less provide accurate cap rates of five or higher. This means that out of twelve new income properties, there are maybe two or three with cap rates of 5 or higher.

Smart investors know rents will rise and so will the value of the property itself, which is why investors scramble to acquire these properties.

There are very few income properties with a cap rate of five or higher placed on the market each week and there are many investors searching each day for these properties. Therefore, when a property with a five-cap rate or higher is placed on the market with instructions stating a conditional promise to purchase must be accepted prior to a visit, these properties are now getting 25 to 35 offers within 48 hrs of entering the market. The offers are usually higher than the asking price and the conditions are made simple. Many offers are full cash deals with just two conditions, inspection and review of documents.

Smart investors know rents will rise and so will the value of the property itself, which is why investors scramble to acquire these properties. If an investor in income property wants to purchase they must be aggressive with their offers and conditions, otherwise they have no chance.

Last week I made an offer for a client on two unrelated income properties. One property had 60 units. The other had 30 units. Both offers were cash deals above the asking price. Both properties received more than 30 offers in a 48-hour period.

If you have questions concerning the future of the income property market, write your questions in the question section below or feel free to contact me.

Should you have questions or comments, please refer to the comments section at the bottom of the page. As well, to view past articles, go to the search link and type in Joseph Marovitch.

Have a great week!

Next article: Is now the time to sell or should I wait for the spring?

State of the market

The real estate market has been steadily rising for several months and all indications are that it will continue to rise barring a catastrophic event. As an island, Montreal has less and less space to build, therefore, there will come a time when new construction will cease, and we will be in a re-seller market only. This will be the time when only those with wealth will afford to live on the island. This will also be a time when off-island will be where opportunities lie. From Boucherville to Tremblant, communities and prices will grow and rise.

In the meantime, it is noticeable that average priced homes are rising faster in price and selling quicker than luxury homes. If you are selling a property of $1.5 million or more, be patient. The demography for high-end luxury homes is much smaller than average priced homes between $250,000 and $500,000. However, being on an island, we are all in the same boat, so to speak. All prices rise and everything sells eventually.

Image: Pxhere – Public domain

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