So, you have decided to buy an investment property! It’s wonderful news, as you look to lock up long-term financial security, and stability, diversify your portfolio and generate some passive income.
If you are thinking about investing, it is vital to conduct proper market research to find the property that will generate optimal returns. This includes looking at factors like location, size, and price.
Here are our tips to choose the right investment property.
Talk to the experts
Investing in real estate is no small commitment, speaking with other investors and learning from their experiences is an excellent way to set yourself up for success.
Before making any sort of commitment, learn as much as you can as this will help you avoid properties that are not worth your time, money, and attention. Taking the appropriate precautions in the early stages can save one a great deal of frustration in the long run.
However, do not rely solely on one source of information, be sure to fact-check claims made by experienced investors, for what worked for them may not work for you. Moreover, conducting additional research, online or through reading, may provide a better context of the market and will help you understand your situation better.
What are your goals?
Once you have completed your research, and before you choose an investment property, you should map out what your short-term and long-term goals are. Ask yourself how much time are you willing to put in? Are you only looking for passive income? How long are you going to hold onto this property?
Write out your goals, as they will guide you in your search.
Consider the following
There is a myriad of factors that go into this life-changing decision, so consider the following tangibles when choosing an investment property.
1. Neighbourhood
The neighbourhood in which you buy will determine the types of tenants you attract and your vacancy rate. If you buy near a university or college, chances are that students will dominate your pool of potential tenants. And, as a result, you could struggle to fill vacancies during the summer months.
2. Property Taxes
Property taxes will likely vary widely across your target area, you want to be aware of how much you will be paying in each potential location. High property taxes may not always be a bad thing, as great neighbourhoods, can attract stable, long-term tenants.
The municipality’s assessment office will have all the tax information on file, or you can talk to homeowners in the community. Be sure to find out if property tax increases are probable.
3. Schools
Consider the quality of local schools, if you’re dealing with family-sized homes. Although your primary concern will be with monthly cash flow, the overall value of your rental property comes into play if you eventually sell it. So, if there are no good schools nearby, it can affect the value of your investment.
4. Crime
No one wants to live in a crime-infested area. Talking to the police or researching at the local library can give you accurate crime statistics for the neighbourhood. Check for the rates of vandalism, serious and petty crime, and if criminal activity is on the rise or decline in the area. You should also note the police presence in the area.
5. Job Market
Locations with growing employment opportunities attract more tenants. To find out how specific area rates for job availability are, check with the Statistics Canada website. If you see an announcement about a major company moving to the area, you can be sure that workers in search of a place to live will flock there. This may cause housing prices to go up or down, depending on the type of business involved. You can assume that if you would like that company in your backyard, your renters will as well.
6. Amenities
Tour the neighbourhood and check out the parks, restaurants, gyms, movie theatres, public transportation links, and all the other perks that attract renters. City Hall or the city’s website may have promotional literature that can give you an idea of where the best blend of public amenities and private property can be found.
7. Future Development
The municipal planning department will have information on developments or plans that have already been zoned into the area. If there is a lot of construction going on, it is probably a good growth area. Watch out for new developments that could hurt the price of surrounding properties. Additional new housing could also compete with your property.
8. Number of Listings and Vacancies
If a neighbourhood has an unusually high number of listings, it may signal a season cycle or a neighbourhood in decline, it is important to find out which one it is. In either case, high vacancy rates force landlords to lower rents to attract tenants. Whereas low vacancy rates allow landlords to raise the rent.
9. Average Rents
Rental income will be your bread-and-butter, so you need to know the area’s average rent. Make sure any property you consider can bear enough rent to cover your mortgage payment, taxes, and other expenses. Research the area well enough to gauge where it might be headed in the next five years. If you can afford the area now but taxes are expected to increase, an affordable property today could mean bankruptcy later.
To conclude, remember that it takes time and patience when investing in real estate so don’t feel like you need to rush into a decision right away. Think about what type of investment is best for you. Whether it’s an apartment building with many units, single-family home as a rental, or getting involved in flipping properties, each option will come with different levels of risk and reward.
