If you are looking to expand your rental portfolio, and are looking to purchase a rental property, you need to have a clear idea of what you are looking for. Too many investors underestimate the risk and overestimate the returns. With the right preparation, buying an investment property can be lucrative and can help diversify your portfolio.
Here are some tips to help you choose the best rental property.
Figure out your Investment Costs and Budget
As property values skyrocket, the appeal of seeing your investment go up in value is undeniable. Yet, like any other investment, you need to be equipped for the possibility that your rental property won’t pay off immediately. These types of investments will probably have more upkeep and demands than you anticipate.
Take a look at your financial situation and ask yourself if you have enough liquid investments to be able to cover 6-12 months of expenses in case of an emergency? Do you have enough money saved up to cover the required insurance, upkeep costs and mortgage payments in between renters? Establish your budget by looking at how much you can invest in your property and how much you need to cover unforeseen events.
Turnkey or Fixer-Upper?
The renovation shows on TV make it look easy, but buying a fixer-upper can be risky if you aren’t familiar with construction costs and timelines. Many investors turn to a fixer-upper to save money, but that isn’t always the case. While these rentals can have a lower price tag than turnkey properties, they aren’t necessarily cheaper.
Home improvement projects can be expensive, and when tearing down walls, you may come across some unpleasant (and not up to code) surprises. Even when you are going for a higher priced turnkey property, never skip a thorough inspection. If you are experienced in flipping houses or renovating properties, you may want to consider a fixer-upper. First timers are probably best to stick to a turnkey property.
Location, Location, Location
Now that you have a budget and know the type of house you want, now’s the time to scout out the neighbourhood you want to invest in. The location of your property will often influence the type of tenant you have. Locations near a university will attract students, a neighbourhood with a “cool factor” will often bring in young professionals, etc. Many investors prefer to buy in a B-Class neighbourhood, that is a good mix of homeowners and renters. Keep a sharp eye out for “up and coming” locations that are in transition, as these neighbourhoods will likely rise in value.
Check the Amenities in and Around the Property
Schools, parks, ease of transportation, shopping and other attractions and services like gyms, theatres and restaurants will be big perks to attract prospective tenants. The type of amenities available in any given area tell the story of that neighbourhood and create a lifestyle profile. You can use this in your marketing materials.
Who’s the Competition?
Look around at target neighbourhood and see how many rentals there are. Research the average price for comparable units and know how your potential rental unit fits into the marketplace. You need to ensure you can cover your mortgage, insurance and other expenses, so be sure your investment property is in a location that looks to improve in value over the foreseeable future.
What are the Vacancy Levels?
Take note of the number of vacancies in your purchase area. If there appears to be a high number of vacancies, try to determine the root cause – is it due to seasonal renters, like students, or does the area have a bad reputation? Check for signs of vandalism and check crime stats for the area. If you are looking to attract families, you’ll want to invest in a safe, family-friendly area.
Peer into the Future
Be sure to research upcoming developments. A growing area with major improvement projects planned (like a mixed-use retail residential development, additional transportation options, etc.) could make the location more attractive to potential renters.
How hands-on do you want to be with your investment? Are you going to list your rental, screen the applicants and interact with the tenants, or do you want to hand over those duties to a property management firm? Establish just how involved you want to be. If you are thinking of relying on a property management firm, be sure to ask about their use of property management software, which is beneficial for both you, the owner, and the future tenants.
Know Your Risks
While you cannot predict everything, do be aware of potential risks, like an increase property taxes or the possibility of a bad tenant. No investment is ever a guarantee; you just need to make sure you’re not blindsided if something goes sideways and that you have some flexibility worked in to your finances.
How Property Vista Helps
At Property Vista, we give owners and property managers the tools to help make more informed decisions and improve their bottom line. Our property management solution has at-a-glance dashboards to help tabs on KPIs and costs. It includes an owner and tenant portal to promote effective communication between the property firm, its residents and the building owners. Check out our pricing and book a demo.