A Realtor’s perspective on buying real estate that makes a profit
Whether you’re looking to diversify your holdings beyond the usual bonds and stocks or just hoping to cash in on a hot market and low interest rates, there are numerous reasons why you might be thinking about an investment property.
And if you happen to be considering making such a purchase, here are a few key things to consider when buying an investment property.
Buy property that is in demand. This takes some research – speak to a Realtor®, talk to property managers, look at the want ads. Find out what other people want in order to figure out what you might want.
Buy something that doesn’t require a bunch of time or management. As they say, time is money. Some properties take too much time or attention to make them good investments. Think long and hard before you commence with a vacation or college rentals, likewise with a low-quality property in a less than desirable location.
Buy something that’s central and easily accessible. Don’t underestimate the importance of a convenient location that is near transit.
Beware the fixer-upper. It may be worth getting something that you’re willing to put the time, money and effort into when you will be the one living there; however, fixing something up for other people to enjoy is a whole other proposition. And along those lines . . .
Don’t get overly attached to an investment property. Yes, it’s something you own, but the reason you bought it is for the rental returns and the eventual growth in capital upon selling. Don’t go overboard with making changes or doing renos. Sure, it should be clean and treated well by tenants, but that’s where the relationship ends.
If you’re considering a townhouse or condo, talk to people who live there now and see what they like about the place or what potential problems may be. Check on the parking situation, strata board, rental rates, etc.
If the condo is new, look into the developer and builder and do some research into how their previous projects have been received.
A few other things to think about
Figure out what you want for a projected income. Of course, you want a good return, but you need to know what your minimum is – likely at little more than what you need to cover the monthly mortgage payment. That then determines what you want to rent something for and if that figure is realistic. Many people go with the “One-Percent Rule” in that case. For example, if you buy a property for $300,000 with a $20,000 downpayment, you should aim for getting around $2,700 to $3,200 a month in rent. Of course, much depends on your location and the local rental availability. It’s also a good idea to talk with your banker or mortgage professional to discuss the purchase of an investment property and run the numbers with them.
Seriously consider whether you’re prepared to be a landlord. There will be issues to address, so think about whether you have the right temperament to deal with the matters that will arise. Good tenants mean less management, and treating them fairly and with respect leads to good relations.
Do your research, take your time and make good decisions and you’ll end up with a cash flow-positive property. A decent, plain, well-situated property can be a solid investment. And they’re out there if you know where to look or have an experienced local Realtor in your corner.