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#6 Keep an eye out for illegal suites in apartment buildings!

 

In today’s post, I would like to talk about illegal suites in apartment buildings as something you need to watch out for, especially in older properties, when you are considering purchasing an apartment building. 

By illegal suites, I mean apartment units that were often added after the time of the initial construction of the building and for which the property owner may not have obtained a building permit from the municipality to add these new units.

This can have negative consequences from a financing point of view as the income from these illegal suites will not be taken into account by the bank and in the calculation of the net operating income (NOI). This means the bank will reduce the loan amount accordingly.

You see, in the world of multifamily investing, the value of the property is mainly derived from the property’s income, called NET OPERATING INCOMEor NOI. When the NOI is lower, so is the value of the property. Therefore, banks and CMHC want to see an...

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