Congratulations! You’ve decided to buy your first rental property. Now comes the fun part: what are the next steps? Buying a rental property is fun and exciting; and can also be challenging. The following are things to consider as you move forward with buying your first rental property:
Budget – What is your budget? And has your budget considered the different fees you’ll incur? Purchasing properties typically involves more than just a percentage of the purchase price as a down payment. The additional fees typically include legal fees, inspection fees, and deed transfer fees. Some rental properties are vacant when purchased, so you will need to allow for the period when vacant and trying to acquire tenants after the transaction has closed.
Real Estate Professionals – In purchasing real estate you’ll typically be dealing with lawyers; mortgage professionals, banks, or private lenders; property inspectors; realtors; and property managers. Not all real estate professionals are equal, and it’s important that you understand your options and choose the professionals that are experienced in your areas of interest and are the right fit for you.
Type of Property - Turnkey rental, renovate to rent, or flip? The condition of the property is important to consider when buying (and budgeting). Turnkey properties are not uncommon, but many properties; and often some of the better investment properties available, are properties that need some work to get to their full rental potential. Determining if one of your purchasing conditions is that the property must be turnkey or if there’s room in your budget for some renovations is an important consideration.
What do you value in a rental property? Understanding what you value in a property both physically and financially will help you narrow your search significantly. Would you like to be in a trendy or up and coming neighbourhood? Or is the neighbourhood less important than the property being cash flow positive from the start? Or perhaps you’re looking to get in early on a pre-construction condo with an eye to renting for a few years before your child will occupy it during their years at college or university? Understanding why you want to buy a property and what’s valuable to you will help guide your decision making.
Understanding the numbers – There are many statistics available to help evaluate your purchase. There is no “all inclusive” number or calculation however, available to tell you exactly what to buy. Many professionals note a properties capacity (cap) rate. While a useful calculation, it’s important to understand a numbers limitations. For example, cap rates are not necessarily useful for evaluating flips and other short- term investments. And cap rate is not the same as the cash-on-cash return, which is generally a better indicator of cash flow. Consider the numbers and statistics, but make sure you understand them and don’t rely solely on one number.
Future Considerations - Now that the property is finally yours and ready to rent, it’s time to find tenants. Your vacant unit(s) will need to be advertised, tenants will need to be interviewed, background and financial checks will need to be completed, leases filled out and signed and money transferred. And once the tenants are in, you’ll want to ensure the property is looked after and maintained. This is where an experienced property manager is most useful.
Anchor Property Management is a professional, experienced Property Management Company. Managing properties is what we do and we’d be pleased to speak with you about how we can help during the purchasing process or with renting and managing your new or existing rental property. Contact us today!