Choosing a residential rental or investment property as an additional source of income can be a stressful endeavour for first-time investment property owners. Wanting to get the best return on your investment, you want to make the best choice to see a positive cash flow and earn passive income. Here are some of the main things to consider when buying an investment property.
Think about what types of tenants you will attract based on the neighbourhood your property is located in. University students by a college or university, families in areas around public schools, near a business core for professionals. How much rent you can charge and property taxes will also factor into choices around the neighbourhood you choose.
Spend some time researching crime in your target neighbourhood. The local police or public library should be able to provide some crime statistics. Notice if crime is accelerating or declining.
Also, look at the amenities in the area. Grocery stores, libraries, restaurants, parks, public transportation, theatres, and other services will attract renters you want to rent to.
It is advisable to look for a market that has growing employment opportunities to attract tenants. Work BC provides information on the labour market in regions across British Columbia. If you hear of major companies opening or closing offices in that area, that information helps you to make an informed decision as well.
The municipal planning department will have information for developments or plans for developments in the area. A lot of construction in the neighbourhood is a good indication that the area is growing. This could be a good community for a rental property but also factor in if there are lots of new homes being built that might be more competition for tenants. Some developments could lower the property value as well.
Additionally, keep in mind your plans for the property and potential future development. Find out what the current zoning requirements are for the property you are looking at. This may impact any plans you have for building, expanding, or renovating that property now or in the future.
What is the current vacancy rate for the area? If there are a lot of listings and a high vacancy rate it will be harder to find tenants. Keep an eye out for current listings and whether they are increasing or decreasing over time.
Changes can happen seasonally as well, such as for a school term or workers for a construction project requiring housing. Factor that into your expectations for renting in the area.
You’ll want to have a good idea of what the area’s average rent is. If the rent can cover your mortgage, taxes, insurance, expenses, maintenance, and other costs if you need it to. Look at other homes for sale in the area and if the costs are in line with the property you’re interested in for similar square footage.
Reviewing the property history can provide insight into how often the property has gone back on the market after purchase and information on property taxes. If the property has been repeatedly listed by new owners not long after buying, then there may be some issues with the property. Look at property taxes and how they have changed over the years. You want to find a property that has had a consistent history of low property taxes.
Types of Properties
Choosing the type of property to buy also has many factors to take into consideration. There are generally three types of rental properties:
Single-unit Residential Properties
Single-family homes, condo units within a building, or townhouses are often purchased by first-time property investment owners. These properties are typically lower priced and easier to maintain than other types of properties.
Multi-unit Residential Properties
These properties usually have 2-6 units, and the owner may or may not live in one of the units. Property is usually priced higher than a single-unit residential property, but they generally have the best potential to generate positive cash flow.
Commercial Investment Properties
Commercial property investments are often purchased by more experienced real estate investors. This could be a mix of residential and commercial space or only office, warehouse, institutional, retail space, etc. There is a higher risk with commercial investment properties but there is also a potential to generate higher income.
How Will You Manage the Property?
Investing in a property and becoming a landlord requires a unique and diverse set of skills. If you are going to be managing the property yourself, you’ll want to have a good understanding of:
- Budgeting and finance
- Maintenance of the property
- Contacts for quality tradespeople to do required repairs or fix problems
- Screening tenants
- Preparing contracts with tenants
- Managing rent and deposits
- Approaching any legal disputes or issues with objectivity
Things will go wrong and emergency situations will happen, so try to be as prepared as possible for when that happens. Set aside funds for emergencies.
You can also choose to hire a property management company to take over the stress of managing the property for you. Spend some time researching to find the best property management company for you.
Gather information from official sources, but also talk to people in the community. Speak to homeowners, landlords, and renters as they’ll have an honest assessment. Renters, in particular, are likely to speak candidly about the area.
Spend a bit of time in the area yourself at different times of day or night to get a feel for it. Do your research and you’ll be in a solid position to find a profitable rental property.
Buying a rental property and investing in real estate can be rewarding and provide rental income. Knowing your long-term goals, having a plan, and researching well is the best way to ensure a rewarding outcome.
We’ve been managing strata, commercial, and residential properties since 1997 and would be more than happy to provide you with a quote. If you’re looking to hire a property management company, contact us to find out how we can help you with managing your investment rental property.