What to Look For
If you’re considering purchasing an investment rental property for the first time, you should know that there’s plenty of work you’ll need to do, all the way from making the decision to invent in real estate to actually going out and buying your first rental property. With this in mind, we here at FamilyLending.ca have put together a list of the 10 things to keep in mind when you’re looking buy an investment rental property. If you’ve already done some of this research and are ready to purchase, start by using our handy mortgage pre-approval tool.
Listings and Vacancies
An unusually high number of listings could mean that an area has gone bad. It could also mean the area is seeing a seasonal cycle, so make sure to research such listings. Vacancy rates can give you an idea of how much success you’ll likely have—high vacancy rates mean lower rent rates, while low vacancy rates mean higher rental rates.
Building Permits and Future Development
If new housing developments, malls, or business parks are being zoned into an area, chances are good that it’s a good growth area. Make sure, though, that you keep an eye out for new developments that could hurt property values, such as a loss of parks or other activity-friendly spaces. Areas with new housing developments will also provide competition for your own rental property, though it does seem to be a good time to invest in rental property.
Average Rental Rates
Since rent is what will make you money, you need to know the average rental rate in your area. If charging the average rental rate won’t cover your overhead, keep looking. Don’t forget to research where the area will likely be in the next five years. Major impending improvements could turn a currently affordable investment rental property into financial ruin later.
When scouting out potential investment rental property, survey the neighbourhood for any current or projected perks that will likely attract renters. Cities tend to have plenty of promotional material on hand that will give you an idea of where to find the best blend of public amenities and private property.
Proximity to decent schools is key for tenants who have or are planning to have children. A school’s quality can affect the value of your investment rental property; a school with a poor reputation will negatively affect your property’s value. Your monthly cash flow might be good regardless of school quality, but the long-term value could be problematic when you go to sell it and retire one day down the road.
Insurance will have to be subtracted from your returns, so make sure you know how much you’ll need to carry. Areas prone to natural disasters will cost more in insurance premiums, eating away at your profit margin.
Because property taxes aren’t standard, you need to be aware of how much you stand to lose from taxes. High property taxes can be tolerable if the neighbourhood fosters long-term tenancy, but you shouldn’t bank on it. When looking into purchasing investment rental property, talk to the local assessment office or current homeowners about the property tax situation.
The neighbourhoods in which you are looking to buy will have an influence on the types of tenants you attract, as well as how often you have vacancies. For example, neighbourhoods near a university campus will likely mean a lot of students, and your vacancies will probably happen every summer. Specialized residential mortgage agents can help you find the right neighbourhood for your new property.
Very few people want to live in or near crime-prone areas, so keep this in mind when looking at potential investment rental property. Ask the local or provincial police service about crime statistics for the area; you’ll want to know about vandalism, serious crime, petty crime, and recent activity (upward or downward trends) rates. It also doesn’t hurt to look into the average police presence in the area.
Areas with good employment opportunities attract more people—and more tenants. If you happen to see an announcement about a new company moving into your area, it’s a safe bet that job-seekers will follow. Although an influx of new tenants can affect housing prices, remember that, if you would like employers in the area, renters probably will, too.