With current low residential vacancy rates across the Lower Mainland, many Vancouverites are considering investing in income properties to turn a profit. If you’re contemplating becoming an income-property investor, read on for rennie’s advice on buying an investment property.
Is income property the right investment for you?
Before you invest, do research, and ask lots of questions. You’ll need to know how to select a location, determine a property’s value, and assess fluctuations in the rental market. You should also be aware that many smaller-scale property investors, who own one or two rental properties, take care of maintenance themselves. You can potentially earn more if you know your way around a toolbox and can fix a leak yourself—and have the time to do it.
Can you afford it?
Meet with a mortgage broker or a bank that has a reputation for being investment friendly to find out what kind of mortgage you qualify for. For the most part, lenders expect at least a 20 percent down payment on investment properties, so you’ll either need access to those funds or to consider refinancing the mortgage on your current home. Be aware, too, that mortgage rates are typically higher on investment properties than those on owner-occupied properties. If you’re carrying any substantial debt (whether it’s consumer debt, student loans, or a current mortgage that has the bulk of the principle outstanding) or if you expect any large upcoming expenses (children who will soon be attending university, for example), this may not be the best time for you to invest in an income property.
To find out what you can foreseeably charge for rent, investigate similar rentals in the neighbourhood where you’re considering buying in. Network with investors in the same area to find out about their experience: What have they charged in rent since they’ve owned the property? What’s the longest period their property has been vacant? Have they had any bad experiences with tenants? Find out as much as possible about the local rental market, including the type of tenants you can expect, before you buy. Make sure to review the Residential Tenancies Act, too, so that you’re aware of your rights and responsibilities as a landlord.
Is it a good investment?
Your mortgage payments will be your biggest regular expense, but they’re not the only cost to consider. Property tax, insurance, maintenance, and repair are other regular expenses to factor into your budget. Deduct these expenses from your gross rental income to arrive at your projected net income from your property investment.
Location, location, location
Your search for the right property will go more smoothly if you chose a Realtor with previous experience in buying and selling income properties, especially if this is your first time on the market for an investment property. If you are a first-time property investor, consider focusing your search on a neighbourhood you know very well—possibly even your own—since you’ll be natural at selling your property to potential tenants if you know what it’s like to live in the area. Keep in mind that renters are interested in living in neighbourhoods with lots of amenities like public transportation, good schools, parks, shops, and restaurants, as well as low crime rates and a solid job market.
If you’ve decided to purchase an investment property, you’ve got an exciting road ahead: with the right investment, real-estate investors can benefit not only from the steadily growing passive income that rent provides, but also from the long-term appreciation of their investment property.
Looking to buy an investment property? Our rennie advisors specialize in every neighbourhood across the Lower Mainland and can help you find the home best suited to your needs.