The key to success in multi-unit residential investing is determined before you even close on the property.

What do I mean by that? At any given time, there a re dozens of properties on the market. The key to success is finding the RIGHT property and then moving on it before anyone else does. In most cases this mean s literally looking at hundreds of properties to find the one diamond in the rou gh. To many this is a great enigma and is what scares away most prospective inv estors. Want to learn what to look for in a great investment property???? Read on! I've been investing in multi-unit properties within Canada for more than a decad e and have done very well following a simple formula. Before buying any inves tment property I ensure that as many metrics as possible are tilted in my favor which helps to limit downside and significantly increase the potential upside. All the metrics that I focus on are steadfast numbers which determine the profit ability and cash-flow of the property and have NOTHING to do with potential appr eciation (this helps to significantly limit any downside when the market turns a nd any appreciation is as bonus). While most people I know would keep this info rmation to themselves and not create potential competitors, I'm a big believer i n Karma and think that the market is big enough for a few more serious investors who just need a point in the right direction. THE RIGHT GEOGRAPHIC REGION You can find some incredible bargains out there, but if you can't get tenants to fill your vacant units, you will be singing the blues. You need to ensure that the area/region that you are looking to buy in has its metrics moving in the ri ght direction. By that I mean you have to do some research on the following whi ch can influence your investment: Unemployment Population Growth GDP Growth Vacancy Rates Rental Rates New Projects (eg. Maple Leaf plant in Hamilton, Toyota plant in Cambridge) University in Town While the big cities tend to have the most favorable metrics, don't overlook the smaller towns that can be just as competitive on these fronts. CAP RATE This is usually the first metric people look at to determine whether the potenti al investment is appealling to them. Obviously the higher the cap rate the bett er, but in this period of low interest rates, cap rate compression has been taki ng place (Plain English: Cap rates are going down because interest rates are goi ng down) making it much harder to find properties with high cap rates. Cities l ike Toronto and Vancouver now command a 5% cap and less. As such, I encourage i nvestors to look to the outskirts such as Durham region (Pickering, Ajax, Whitby , Oshawa) or University towns such as Guelph or Kitchener/Waterloo where you can still find cap rates of 7% and beyond if you look hard enough. A caveat here ( and future topic) is to never assume the cap rate advertised is accurate (many t imes waste, maintenance, vacancy, property management, and other expenses are no t included). Although interest rates are very low right now and may allow prope rties to cash flow, if you buy a property with a cap that is too low (anything b elow 6.5% is too low in my opinion, unless you are buying all cash), you may get hurt when you mortgage is due for renewal. RENTS

This is where I have made a significant amount of money in the past. Many inves tors tend to get complacement after years of owning a property and leave their r ents significantly below what the market will bare. In this instance, if you bu y the property at a good cap rate, you can score a home run if there is room to significantly increase the rents. Here's a real life example. I purchased a 12 plex (all 2 bedrooms) in Waterloo, ON back in 1999. The average in the buildin g was $650/month. With a little work to each unit (about $4,500), within 12 mon ths, the average rent in the building was increased to $850/month. A $200/month increase in one unit adds approx. $35,000 in value to the building based on a 7 % cap. As such, looks for properties with rental rates below market (use websit es such as CMHC and viewit.ca to determine the current going rates). On the fli p side, ensure that the rental rates which you see in an income statement are ei ther at or below market, because if they are above market, you will have a tough time keeping them rented at those inflated rates which will lead to an increase in your vacancy rates. EXPENSES Finding efficiencies in inflated expenses is another way to help make your inves tment more lucrative. By inflated, I mean that the current owner hasn't realize d, or doesn't care, that they can make their property run more efficiently and t hus make more money. This skill usually comes with time and experience in ownin g and operating an investment property as you get a feel of what the average wat er, gas, hydro, management and maintenance bills should be. Spotting inefficien cies can be a quick way to add value to a building. Here's another real life ex ample. I recently bought a property which I knew, based on size and number of r esidents, had a monthly water bill that was way too high. I sent my superintend ents into every unit to check for leaks. They were able to pinpoint and fix abo ut 1/2 a dozen leaks. As a result the water bill was reduced immediately by 30% on a monthly basis and lead to savings of several hundred dollars per month. T he point once again is to look for opportunities to either increase income or de crease expenses. APPLYING THE THEORY It is rare to have all of these metrics working in your favor so what you want t o do is to try to have as many of them as possible working in your favor. It wi ll take time and effort to find the right property, but if you do your homework and persist, you will be rewarded. In the last few months I purchased the 2 fol lowing properties which I found using my formula above. The first one was a 24 unit property located in Kitchener, ON. The georgraphica l metrics are bang on here as all the metrics are moving in my favor (check mark ). The cap rate was a very healthy 7% with room for improvement under the right management (check mark) Rents were on average $100/month below market. Over 24 units, $100/month is very significant (check mark) Expenses were high (this is the property I was refering to with the high monthly water bill) (check mark). Other intangibles included a great VTB at 0% for 3 years, the potential to conv ert the units to condos and the potential to add 2 more legal units (check, chec k and check!). Within 6 months the property had an offer of $800,000 over and a bove our purchase price. The second one was a 12 unit property located in Oshawa, ON. The geographical m etrics again were bang on here as Oshawa has one of the fastest growing GDP's in 2012 and projected to continue into 2013. Oshawa has been stigmatized as a one trick pony (GM Plant), but it has made great strides in becoming a multi-dimens ional economy also focused on high tech and education (check mark). The cap rat e was a super healthy 8% (check mark). Rents were pretty much at market and exp enses were also pretty much right on. While rents and expenses offered no real room for growth, the region and cap were enough to make this one a winner as wel

l. Needless to say, both buildings were in great shape and environmentally sound. These were just great finds and not a case of being discounted for some major sh ort coming. Great properties are out there, and now that you are armed with the knowledge of what to look for, its time to put the theory into practise. Good hunting! Author: Paul Kondakos, BA, LL.B, MBA - Professional Real Estate Investor