Congratulations on your decision to invest in a rental property. It’s a big step that comes with challenges and rewards. Here are a few things to keep in mind when looking for an ideal property.
The first thing you want to consider is the location where you’d like to invest. Properties and tenants come in all types. Homes in a 100-year-old neighbourhood will be different from those available in a new and growing subdivision.
Different neighbourhoods will attract different tenants, too. Properties close to a university might be attractive to students, while those close to parks and elementary schools could catch the eye of young families.
Consider what you want in a tenant, and it can help narrow down where you look for a property.
The features of the home will be as important as the location of the home. A four-plex with only two bedrooms in each unit will attract a different type of tenant compared to a four-bedroom, two-bathroom single home. Likewise, if that four-bedroom has no dining room and only a tiny living room, it might be ideal for some roommates but a poor choice for a young family.
Most lenders require 25% down if you want a mortgage for a rental property. Plus, they may require additional stipulations—rent being 125% of the mortgage payments, for example.
Whatever your lender proposes, be sure you can afford it. If things go awry, can you cover the payments on a $500,000 property that sits empty?
In addition, buy-to-let mortgages generally have higher fees than traditional mortgages, and you will have to pay tax on the property and on any rental income you receive.
Know what risks you are willing to accept.
Inevitably, you will come across a steal of a deal for a property. Unfortunately, these great deals often come with a hidden price: lots of work. Are you willing to invest time and money (and possibly labour) to repair or renovate the property after you purchase it?
Once the place is occupied, there will be maintenance inside and outside of the home. That, too, will cost money and time. Will you have your tenants mow the lawn and fix squeaky hinges, will you take care of them yourself, or will you hire a professional to do them? Each comes with its own set of tradeoffs.
You can try all you want to make a perfect home in a perfect neighbourhood, but what if no one wants to rent it from you. Try these tips to gauge interest in your property:
- Check with local realtors. How long do their similar rental properties stay listed?
- Place a fake ad online and measure its response rate. If it’s too low, try dropping the price. If you get too many responses, try raising the price. Find the price that works best for you.
Hopefully, these tips will make investing easier for you.
Have you already invested in rental properties? What tips do you have for new investors?