A plain guide to judging a duplex, plex or apartment building on what it earns, what it costs and how it will perform over time.
How to Evaluate a Multifamily Property in Ottawa
Investor guide
Start with the income, not the asking price
A rental building is a business. Its value comes from the income it produces after expenses, and from how that income is likely to change over time. Comparing buildings by price per unit or price per square foot is quick, but it says nothing about whether one building will outperform another.
This guide walks through how we evaluate a multifamily property for our clients: the income, the expenses, the net operating income, the cap rate, the financing and the risks. The same approach works for a duplex and a thirty-unit building.
For current opportunities, see our multifamily real estate services.
NOI
net operating income
Cap rate
NOI divided by value
DCR
debt coverage ratio
Cash flow
what is left after the mortgage
The numbers
Five steps to evaluate a building
Gross income
Actual rents, plus parking, laundry and storage. Compare each unit with market rent.
Vacancy
Allow for vacancy and bad debt based on the building and today's market.
Expenses
Taxes, insurance, utilities, repairs, management and reserves, from real bills.
NOI and cap rate
Income less vacancy and expenses is NOI. NOI divided by price is the cap rate.
Financing
Debt service, debt coverage ratio and the cash flow left for you.
Beyond today
What changes a building's future
Two buildings with the same cap rate can perform very differently over ten years.
Rents below market
Units turning over to market rent can lift income, but take time and may need work.
Capital needs
A new roof or windows may be due. Budget for them before you buy, not after.
Who pays utilities
Tenant-paid hydro and heat protect you from rising costs. Owner-paid utilities need a closer look.
Added income
Laundry, parking, storage or an added unit can raise income where zoning allows.
Financing terms
Rate, amortization and loan-to-value change cash flow and return on equity.
Exit
How the building will appeal to the next buyer when you decide to sell.
Due diligence
Documents to ask for before you firm up
Good due diligence protects you from surprises. These are the documents we ask for on every multifamily purchase, and the professionals we recommend you involve.
Your lawyer, lender, accountant and building inspector each play a part. We coordinate the timing so conditions are met before the deadline.
Ask the seller for
- Rent roll and copies of all leases
- Two to three years of operating statements
- Property tax bills and utility bills
- Insurance details and claims history
- Permits, registrations and any work orders
- Surveys, plans and building reports
Explore
More Ottawa multifamily real estate
Duplexes for sale
Two-unit properties for first-time investors and owner-occupiers.
Triplexes for sale
Three units: more income, still simple to manage.
Fourplexes for sale
The largest building still financed as residential.
Sixplexes for sale
Five and six units, eligible for CMHC multi-unit financing.
Apartment buildings for sale
Seven to thirty units for growing portfolios.
Build-to-order rentals
New low-rise rental buildings delivered to investors.
CMHC MLI Select guide
How the program works for five units and up.
Multifamily Investing FAQs
What is a good cap rate in Ottawa?
Cap rates vary with the building’s age, size, location and condition, and with interest rates. A higher cap rate is not automatically better: it can reflect higher risk. We compare each building against recent sales of similar properties.
Why not use price per unit?
Price per unit ignores rents, expenses, condition and upside. Two buildings with the same price per unit can have very different income and very different futures.
What is the debt coverage ratio?
NOI divided by the annual mortgage payments. Lenders set a minimum, for example 1.10 for standard rental buildings under CMHC MLI Select.
Should I get an appraisal?
Lenders usually require one. For buyers and sellers with several decision makers, an independent appraisal also gives everyone the same facts.
Mitch Gauzas, REALTOR®
