What type of Property Should I Buy?
One of the most common questions I’m asked by “newbie” investors and inexperienced realtors working with clients, is what type of property should I buy.
The answer I come back with is always the same. There is no way to determine the right property without first understanding what you are looking for in an investment property.
Before you walk into any property, sit down with your realtor and answer these important questions. There are no right answers to any of these questions. It is moreso a matter of personal tastes.
- How hands on do you want to be?
Having a team is vitally important. Certainly having a realtor, mortgage specialist and lawyer is something everyone needs to have. However, do you need to add a contractor, property manager, or maintenance man.
- How comfortable are you in obtaining a fixer upper?
The fixer upper can offer you great value when compared to market prices, however, don’t ever underestimate the scope of the work involved and the costs associated with them. Once completed, you can be sure that you will have a safe investment property for years to come, however, also note the months of lost potential rental income that could have been generated if the property was more “move in ready”.
- What kind of tenant profile are you looking to attract?
This is something too few people consider before setting out on the property hunt. Buyers look at the feature sheets of rents created by the listing agent and the seller as gospel. The reality is, not every property is occupied every month and not every tenant pays the rent they owe.
The properties in the worst areas of the community may be priced well, but if you are targeting a tenant with a good job, there is a very good chance that the tenant you want will not be interested in your rental. Also, without attempting to stereotype too much, it has been my experience that the better the property, the more choosy you can be when selecting your tenant, the more likely you are to be paid your rent owing each month.
- How close does the property need to be to your own residence?
The closer to the big cities in Ontario, typically, the higher the price point. There are investors that want properties they own within 15-20 minutes from their home. Some want it within an hour drive. Others look for properties outside of their province and even outside of their country as they chase the best deal they can find. There are opportunities in every community, however, depending on your investment needs, determining tolerance to distance is an important factor to consider.
- If you are looking at a multi-unit residence, will you consider a non-legal dwelling?
In most Ontario communities, there are countless properties not recognized by the local municipality as being a two unit (or more) suite. The advantage of acquiring a property such as that is that a purchaser can often obtain the property for less than the comparable legal multi-unit dwelling, or in an area where multi unit dwellings are not permitted in the city.
The risks however, can certainly outweigh the rewards. One call from a neighbour, tenant, or anyone else can start a spiral where the city cracks down and forces you to convert the property back into a single family home. In addition, you may be facing steep fines. Financial penalties aside, I feel the biggest risk is if a fire or other type of emergency happens at your residence. If there are injuries or even death in your illegal apartment, you could be facing criminal charges. Since I feel that I am far too pretty to go to prison, I prefer to stick with the legal dwellings.
WORDS OF ADVICE: Before you waive all of your conditions on your multi unit purchase, drop by the local municipality and just ask if the property is a legal multi unit or CAN be at some point in time. Do NOT assume that just because it says it on the real estate listing, it is possible the property is not actually a legal multi-unit dwelling.
- Finally, what are your short and long term goals in investing in real estate?
Let’s face it, owning real estate is a means to an end. No one I know is owning a rental suite simply as a way of giving back to the community. Investors put their money at some element of risk in an attempt to have their initial investment eventually be worth more money. However, do you have an immediate need for returns or are you mainly focused on long term appreciation? Obviously, your level of other revenues could play a role in what you decide to do.
Once you are truthful with yourself, and answer these questions, only then is the time to begin the journey into investment real estate.