4 Important Factors to Consider When Buying a Rental Property
When it comes to buying real estate we’re often told the three most important things are “location, location, location.” While the location of a property certainly matters, there are other things to consider as well. This is especially true when it comes to buying a rental property. For you this might be for your forever home, but for tenants it might just be a stepping stone to something better later on.
Let’s take a look at some important things to consider when buying a rental property.
Amenities are key to attracting the right tenant and shouldn’t be overlooked. Before buying a rental property, think about who are your ideal tenants. Do you want a family or a professional couple?
Once you figure out who you’d like in your place, think about the amenities they would like. Some popular amenities are shopping, restaurants, parks and schools.
Commuting is another thing that matters a lot. Tenants want somewhere that’s easy to get to. If the rental property is close to public transit or the highway, it will make it that much easier to rent out.
Running the Numbers
Buying a rental property is very different than buying a principal residence. With a principal residence while it’s nice to make money, it’s not usually your prime objective. It’s finding a nice place to live. Not so with a rental property.
With a rental property it’s all about the numbers. Ideally, you want to find a property that not only provides you with a positive cash flow, but also will appreciate in value over time.
A property with a positive cash flow means that the amount you collect in rent exceeds the carrying cost of the rental property (mortgage payments, property taxes, utilities, etc.). You can find out if it does by seeing what other similar properties in the neighbourhood are renting for.
Appreciation is another way to make money. This is how much your property goes up in value over time. Although you won’t be able to reap the rewards right away (unless you refinance your property), when you eventually sell it you can earn a tidy profit.
One Unit vs. Two Units
Do you want a one unit or two-unit rental property? If you’re buying a condo, you don’t have much choice, but if you’re buying a house, you’ll have the option of buying one with a basement apartment.
Buying a one unit versus a two unit rental property has both pros and cons. A benefit to having two tenants is that if one tenant leaves, you’ll still have another one in the property paying the rent. The downside to that is that you’ll have two tenants to deal with. Also, both tenants may not get along.
If you’re a first-time landlord, it might just be easier to stick to one unit and consider two or more units on your next property once you have some experience under your belt.
Is it Legal?
Something else you have to be concerned about is, is your rental property legal? If you’re looking for a single family home with a basement apartment, it’s a good idea to find out if the basement apartment is legal. Does it have fire separation between the units? Does it have an emergency exit? Does it have a separate entrance? Does the city you’re buying in allow rental properties? These are all questions you should have the answer to before buying. All it takes is one complaint from a neighbour to land in you in hot water with the city.
Written by Sean Cooper Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. Sean’s helping others with their mortgages as an independent mortgage broker. Get in touch with him for all your mortgage needs. For a free mortgage consultation, email Sean@BurnYourMortgage.ca or call 647–867–3711.