Below we compare the sale of a 20 unit building with a 7 unit building from different neighbourhood of Ottawa
Usually we take one recent sale of a property and show you the breakdown of all the financial information to see if it made sense, but this month we are giving you 2 properties that sold recently and comparing the numbers, especially the Cap Rate, the Cash Flow and the ROI, at the end of the day.
Below is the table outlining all of the financial information for the 7 Unit building that sold in the Vanier neighbourhood.
Vanier 7 Unit Property, Sold January 2019
|Scheduled Rental Income (SRI)||$129,600|
|Effective Rental Income (ERI)||$125,712|
|Total Operating Expenses (TOE)||$33,331|
|Net Operating Income (NOI)||$92,383|
|Capitalization Rate (CAP)||5.5%|
|Operating Expense Ratio (OER)||26.5%|
|Sales Price X Net Income||18.3 X|
|Mortgage (@ 3.7%)||$1,097,525|
|Annual Debt Service (mortgage payments)||$76,596|
|Return on Investment (ROI)||2.7%|
Below you can compare the Vanier property with this 20 unit building from the Sandy Hill neighbourhood.
Sandy Hill 20 Unit Building, Sold January 2019
|Scheduled Rental Income (SRI)||$248,016|
|Effective Rental Income (ERI)||$240,576|
|Total Operating Expenses (TOE)||$77,360|
|Net Operating Income (NOI)||$163,216|
|Capitalization Rate (CAP)||3.8%|
|Operating Expense Ratio (OER)||32.2%|
|Sales Price X Net Income||26 X|
|Mortgage (@ 5.0%)||$2,762,500|
|Annual Debt Service (mortgage payments)||$193,151|
|Return on Investment (ROI)||-2.0%|
These two neighbourhoods are right next to each other, separated by the Ottawa River. Sandy Hill can be considered a better neighbourhood and you can see that in the numbers from these two sales.
The Sandy Hill Buyer got a 3.8% Cap Rate, while the Vanier property saw a 5.5% Cap.
The Sandy Hill Building gave a negative Cash Flow of $29,935, while the Vanier one saw a positive cash flow of $15,787.
The ROI for the Sandy Hill sale was -2%, while the Vanier sales had an ROI of 2.7.
You might look at these two sales and wonder why the one buyer would be out of pocket for $1.5Million to have a negative cash flow, while the other guy spent $1 Million and makes money each month.
The Vanier area can be considered a higher risk area, while the Sandy Hill neighbourhood is considered a nicer area, so expect to pay more for a building dependent on where it is located.