Owning a rental property is an asset that – let’s face it – not everyone can afford. Aside from the upfront capital and ongoing fees that these properties require, owning one also demands time and energy from the owner-landlord. That being said, they can also be a very profitable investment and provide a constant revenue stream… If the property remains rented.
But what contributes to the ‘rentability’ of your investment?
Choosing where to buy your rental property can be just as important as choosing the house/condo itself. The location (location, location) will often have a direct correlation with vacancy levels. A condo located in a highly sought after area like Downtown Vancouver will be easier to keep rented year round than an apartment closer towards UBC, where you may experience vacancies during the summer months when students aren’t attending classes.
The number of vacancies in any particular area can indicate a seasonal cycle (ie. properties situated on beachfront) or that the neighbourhood is not desirable. Prior to making your purchase decision, determine which of these factors are the cause. Generally speaking, owning a rental property in a neighbourhood with a low vacancy rate will allow you to charge more for monthly rent, increasing your revenue stream.
On the subject of rent, it is important to know what the average rent is for the area. In order for your rental property to be profitable, the amount of rent must be enough to cover at least your mortgage payment, taxes, strata fees, and other expenses involved with property ownership, while still having a remainder leftover. If the average rent in the area isn’t enough to cover all of these components, it is probably best for you to keep looking. There is a flip-side to this argument, however: if you know for a fact that an area is going to be seeing major improvements in the near future (5 years is a good measure), buying in to the area now may may help you realize more profit in the future… This can be said for most purchases involving real estate.
When viewing properties with your real estate agent, pay attention to the building itself and its amenities. What state of repair is everything in? Does anything in the building need replacing in the near future? Does the building have a healthy Contingency Reserve Fund? Try to interview other tenants/owners in the building to ask them how the property manager is at addressing issues, as well as how pro-active they are or you can hire a professional property management firm to save your time.
The importance of finding a rental property that comes with a parking spot can not be emphasized enough. For many tenants, not having a parking stall can be a deal breaker. This is especially true for tenants who are moving to the city from a smaller town where having a vehicle is a necessity. Many buildings offer paid-for parking stalls but the cost to your tenant of renting one can add up, with you not even realizing a profit. You are better off finding a property that comes with a parking stall even if it is a more expensive purchase, and charging your tenants more in monthly rent to offset.
Are there other factors that should be considered? Add them in the comments below…