Value Add Vs. New Build
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Today we'll compare the pros and cons of two different acquisition strategies. Let's dive in!
January 14, 2025
Read Time: 3 minutes
New vs. Value-Add Multifamily in Ontario: Two Strategies, One Big Decision
The Ontario multifamily market is buzzing with opportunity—but which path should you take?
On one hand, sleek, modern buildings offer stability and ease. On the other, older properties are value-add playgrounds with HUGE upside in rents.
Both approaches can lead to success, but each comes with its own pros, cons, and risks.
Whether you’re building long-term wealth or chasing aggressive returns, understanding the key differences is critical.
Here’s the breakdown.
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New Multifamily Properties
Turnkey investments designed for long-term stability and minimal headaches.
Why New Properties Shine:
Freedom from Rent Control: Properties first occupied after November 15, 2018, allow landlords to set market rents without annual caps.
High Efficiency, Low Costs: New buildings feature energy-saving HVAC systems, smart appliances, and modern insulation, cutting operational expenses.
Attract Premium Tenants: Higher-income tenants are drawn to sleek designs, top-tier amenities, and the convenience of new builds.
Lower Insurance Costs: Newer buildings mean less risk, resulting in lower insurance premiums.
Tenant-Paid Utilities: Separate metering is common, allowing tenants to shoulder utility costs while improving your NOI.
Modern Curb Appeal: New properties make strong impressions—helping with leasing, refinancing, and eventual resale.
ESG-Friendly Designs: Sustainability is increasingly attractive to both tenants and institutional investors.
Below Replacement Cost Deals: Sometimes, you can buy for less than it would cost to build new.
The Trade-Offs:
High Entry Costs: Expensive per-unit prices make scaling portfolios a challenge.
Lower Initial Yields: Higher purchase prices mean modest early returns.
Lease-Up Risks: New buildings in competitive markets may take longer to fill.
Policy Uncertainty: Rent control exemptions could change, reshaping the financial picture.
Tight Inventory: Developers often hold long-term, so finding these gems can be tough.
Value-Add Multifamily Properties
The sweat-equity option for those willing to create value through effort.
Why Value-Add Properties Win:
Affordable Entry Point: Lower per-unit prices allow easier entry, even for first-time investors.
Higher Yields: Better cash-on-cash returns during term of the investment.
Reposition for Profit: Renovate, rebrand, and reposition to boost rents and unlock significant equity gains.
Stable Income: Many older buildings enjoy low vacancy rates with long-term tenants providing steady cash flow.
Tax Benefits: Depreciation, renovation write-offs, and interest expenses offer meaningful deductions.
Less Competition: While many chase new builds, older properties can be hidden gems.
Prime Locations: Many value-add properties sit in established neighbourhoods with strong demand.
The Challenges:
Deferred Maintenance Costs: Aging HVAC, plumbing, or roofs often require costly repairs.
Rent Control Caps: Older buildings are subject to Ontario’s annual rent increase limits and lower turnover.
Higher Operating Costs: Without separate meters, landlords may bear the brunt of utility expenses.
Management Intensive: Value-add projects require active involvement to oversee upgrades and tenant relations.
Exit Strategy:
New Builds: Due to the high per unit cost and lower, but stable returns - large institutions / scaled asset managers are the primary buyers. Scalable, ESG friendly, and perfect for the cover of the investment letter.
Value-Add Properties: This category attracts every buyer profile - from large institutions to mom and pop local investors. Value-add is attractive to everyone.
TL;DR
New Builds: Perfect for institutional and private groups prioritizing stability and ESG. High acquisition costs but minimal maintenance. Freedom from rent control means potential for predictable returns and long-term growth.
Value-Add Properties: Accessible to everyone. Lower upfront costs with high upside through renovations and rent increases. More hands-on but often a faster way to build equity.
[Note: Our team has both types for sale right now. Give us a call!]
