Single-family homes are rare, and they are expensive, especially for first-time buyers in Greater Montreal. But is that a reason to give up on the dream of owning a property? Not at all!
A financially interesting option is available to first-time buyers: the small plex, with two, three, four, or five units.
The small plex offers several advantages:
• You can live for less because your rental income pays a good part of your monthly mortgage payments.
• In a few years, you can decide not to live there anymore and rent out the unit.
• The current housing shortage reduces the risk of dealing with vacant units.
Of course, there are also some disadvantages:
• You must manage tenants.
• You need to stay up to date with the laws and regulations surrounding residential rentals.
• And you have a bit less privacy.
In Montreal or Outside?
Yes, plexes in Montreal are expensive. Outside the island, they are certainly more affordable, but the rents you collect will also be lower. You also need to consider your lifestyle. If you work in the city, will you have higher commuting costs? To know which option is most advantageous, you need to calculate everything.
How Much Down Payment?
As with a single-family home, whether the plex has two, three, or four units, you'll need a down payment of 20% to obtain a conventional loan.
However, the situation is different if you plan to live in one of the units. The future owner-occupant can take out mortgage insurance – with the Canada Mortgage and Housing Corporation (CMHC), Sagen, or Canada Guaranty – to reduce their down payment.
In the case of a duplex, you would only need 5% for a purchase of less than $500,000. If the purchase price is higher, you’ll need to pay 10% on the amount exceeding $500,000. For a triplex or four-plex, you’ll need to put down 10%. Note that obtaining owner-occupant mortgage insurance is only possible if the desired property is worth less than $1M.
The rules are different for a five-plex since it falls into the category of multi-unit properties. Whether you live in the building or not, the minimum down payment required will be 15% of its economic value – not its market value – for an insured loan and 25% if the loan is not insured.
A Pro Tip to Finish
Starting your journey as a property owner with the purchase of a plex is a wise path to building your personal wealth. In a few years, you can refinance your plex to free up the necessary funds for the down payment to buy the single-family home of your dreams... You will then own two properties and continue collecting rent every month!
Patience can be rewarding...
