Ottawa Real Estate Investors Organization

I’ve been looking at all the multi-unit residential properties that have
appeared on the MLS in
Ottawa over the past couple months, and I’m finding that most of the returns
aren’t making much
sense to me.  In most cases the cap rates seem to be between around 5 and 7.5%. 
On half the
properties that show up, if I calculate what the total annual mortgage payments
are on a mortgage
at 75% of the list price at a 5% interest rate, the annual payments are MORE
than the NOI.  Is
that crazy or what?  I don’t understand how / why people are buying places like
this.  I’m
thinking either there is something I’m not understanding, or the buyers a little
bit insane.
Anyone have any explanations?

And the cap rates / NOIs in the listings usually don’t include vacancies,
maintenance, management,
etc, so the actual returns will be even less!

I realize that I’m looking at the list prices, not sale prices, but they can’t
be toooo far off in
most cases.  The only reasons I can think of why people would be buying
properties like this is if
they’re putting tons of cash down, or they are thinking that property values
will significantly
appreciate.  If they’re putting all cash down and making a 4 or 5 percent return
and a few tax
write-offs, that doesn’t seem to great either.  If they’re expecting values to
increase
significantly in the near future, that’s fine, although personally I wouldn’t
agree with that in
most cases.

So, any explanations?

By the way, I’ve sold my triplex – it closed yesterday :)

Justin

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