What to Consider When Purchasing Your First Investment Property
So you've decided you wanted to invest in real estate?
What should you look for in a rental property? No investment property is perfect, so you must weigh factors and choose an investment property that best suits not only your financial needs, but your abilities as a property owner and renovator.
Look for properties in your price range. Does the property fit your budget when considering rental income and any work that may need to be done? Is the price comparable to similar investment properties recently sold in the area? It is important to establish the property's value in comparison to neighbouring properties. If it is very expensive in a poor neighbourhood, chances are you may have trouble renting it or selling it in the future.
If you want an idea of how much you can afford, contact me here.
This is likely the most important factor when purchasing an investment property. If the property doesn't have enough income to cover expenses and the mortgage payments (if any), it will likely not be a good investment for you. Investment properties ideally should cash flow enough to cover the costs of the property as well as any unexpected costs that come from repairs or vacancies.
Look at the area the property resides in. Is it in a good rental area? Consider the distance to schools, restaurants, shopping areas and potential work places such as hospitals, commercial areas or large office buildings. Depending on your target tenants (professionals, students, families etc.) your desired location will differ. In lower income areas, the proximity of bus stops can be crucial for renters that do not own a vehicle.
Zoning and Compliance
This step is crucial. To avoid future run-ins with by-law officers you must ensure your property is zoned correctly for its' current use as well as has the proper permits. For safety, the property should be inspected for fire and electrical. A fire safety certificate will ensure your property is up to code with fire safety including but not limited to: fire rated doors, proper exits, smoke alarms and sprinklers. An electrical safety authority certificate or inspection by a master electrician will ensure your property is compliant with the Ontario Electrical Safety Code or other code in the area you reside.
The structural integrity of an investment property is crucial. If you are not prepared for a property with foundation problems, water seepage, an inadequate roof, you are in for a big financial hit. Have your property inspected by a qualified home inspector and budget for items that need to be repaired. Get quotes for repairs that you cannot do yourself to be prepared financially.
Does the property have enough parking? Depending on how many units the property has, there are different requirements for the number of parking spaces that need to be available for tenants. Not only are they required by law, they create maximum enjoyment for tenants and increase the chances of your units being rented quickly and constantly. A functional garage can greatly increase rents and property value. If it is insulated and heated, consider renting it out for storage if your tenants do not require it!
Does each unit have their own electrical panel and meter? Are there multiple hot water tanks? Paying for a tenant's utilities is not ideal because you cannot control their consumption and consequently, your costs. Is the heating electrical, natural gas, water or oil? These are all questions that are imperative for deciphering the costs of the property. If the current heating system is inefficient, calculate how much it would cost to install an efficient system.
The overall look of each unit important to evaluate for the rental income of the apartment. Is the unit clean and functional? What condition is the flooring, paint and cabinetry in? Purchasing an investment property that excels in other categories but lacks in cosmetic appeal can be a great investment because they are inexpensive items to fix that come with a great return. As a unit becomes vacant, take the time to update flooring, paint and renovate bathrooms and kitchen to increase rental income and property value.
Having a qualified real estate sales representative guide you in the process of purchasing your first investment property can greatly decrease stress and take the guessing out of which property to choose. If you wish to speak to someone about purchasing an investment property, click here.