When it comes to investing in real estate from a rental property perspective the stakes are high but well worth it. I frequently get asked how to invest in real estate and what should buyers be looking for in an income property.
If you are new to rental properties it can be over whelming the first few times around but rest assured I’ve gathered all of the information you need and anything that isn’t here on my website I can answer in person. It can be overwhelming for a first-time investor, and I don’t recommend you go at it without someone who has knowledge. Rental properties isn’t just about buying a home and renting it out, it’s a business and one should look at it as so. While the returns can be lucrative, it’s important to know the ins and outs.
To cover the basics here are 10 things you should consider when buying a rental property
Rent: For income properties, your monthly or weekly rent is a huge asset and gain. It’s important before buying to find out what the average rental rates are in the potential area. Can you achieve above or below the average and if so is there any renovation that needs to be done to the property to achieve this? The important thing to remember is rental properties are about the long term gain not the short term. At the very least, you are going to make sure your rental income covers your mortgage payment, taxes and insurance. Consulting your realtor and gaining advice on this is key to determining if a property is right for your investment.
Safety: No one wants to live in an unsafe neighbourhood, especially if you are renting to families with young children or elderly people. Make sure to get trusted advice on what the neighbourhood is like. If you use a resource like Statistics Canada you should be able to gain access to detailed information about the neighbourhood.
Amenities: What amenities are near by? Consider this, if you are renting to students they are going to need easy access to grocery, shopping, gas ect. If you are renting to a family these will likely still apply but they will also be interested in the local schools and extra curricular activities. Be sure to assess the area and determine who you ideally want to rent to and if this would be suitable to them.
Schools: One of the top considerations for your renters may hinge on the school district and specific schools that they want their children attend. Researching the local schools will be a key variable which can increase your renter pool as well as significantly impact the overall appreciation of your investment property.
Future Development: What developments are planned for the area which would positively or negatively impact the value of your investment property? Is it a high-growth area or one that is currently in decline? A neighbourhood in the early stages of gentrification might result in a faster and higher appreciation for your investment property.
Inventory: Is there a lot of inventory available on the market? Make sure you look at market trends for the last few years as you don’t want to be in a seasonal trend only when making your investment decision. You have to review the vacancy rates that have existed based on inventory levels and how this may impact your monthly rental rates.
Property Taxes: Your property tax is ESSENTIAL in the over all picture of profit vs. loss. You will want to include this in your rental cost and make sure that it’s not so high, your investment isn’t worth it.
Insurance: These are additional costs that erode your bottom line returns. Of course, you don’t want to invest in areas where you cannot get insurance, like flood plains or possible proximity to natural disasters. You can do your research with your insurance agent to determine the risks of claims that might exist and if you can get coverage at all.
Employment Opportunities: Locations with a growing job market tend to attract more people. More people means more renters, especially if you target an area with a large rent/own ration. You can visit Statistics Canada for reliable and timely data on the labour market for the area you are considering. If you notice a large corporation moving to the area, migration will follow. College towns are now also a viable option as there is the steady flow of students needing off-campus housing, although the demand may only be strong for the September to April school year.
Location: The quality of the location will influence the type of renters attracted to your rental property. Look at criteria, such as the Walk Score, proximity to transportation, hospitals, proximity to universities and colleges, major business centres, local restaurants and shopping. The more central the location, the greater the demand.