Oshawa and the Durham Region is a “perfect storm” for those looking at investing in residential rental properties right now. Several factors are converging that will create continued demand for rental homes. With the anchor being Durham College/UOIT, the expansion of the 407 will bring more people out of the city to the east looking for affordable housing options, including prospective tenants.
Before you rush out and start buying up real estate, there are a few key things you would be wise to consider first.
Here are 10 things you need to know before buying a rental property.
- A rental property with a good, paying tenant, will continue to provide cash flow even if there is a stock market correction. The amount you charge in rent should be based on providing a positive cash flow after all of your costs and mortgage payment (more on that later).
- There is risk in any investment, including real estate. Mitigate some of that risk by working with professional advisors, like your Realtor® and your financial advisor, obtaining a fixed mortgage, and carefully screening your tenants. TIP: When meeting prospective tenants to view a property, try to get a discrete look at the interior of their car… chances are if it’s a mess, their housekeeping skills won’t be much better.
- Study the local economy and market. You can do all the legwork yourself, or, you can work with a professional whose livelihood depends on being on top of these factors. A professional full-time Realtor® like Michael Dominguez, who is also a skilled and successful investment property buyer and landlord himself.
- Know what you have available to invest in time and skill, not just money. This is where being a landlord is vastly different from buying stocks as an investment. If you’re handy, you can take care of many small repairs yourself without having to hire someone else and eating into your profits. Owning an investment property entails a much more hands on approach. Unless you have the means to hire a property management company to oversee everything for you, you’ll be the one rolling up your sleeves and taking care of repairs, maintenance and chasing late rent cheques. All that being said, don’t fall into a fixer-upper trap. Don’t buy the cheapest house out there thinking you’ll get it fixed up quick. You’ll have to factor time and cost into your investment process and things can get out of hand quicker than you think.
- Invest close to home, especially if this is your first investment property purchase. It’s easier and a lot more satisfying, to be able to keep an eye on your investment personally if it’s nearby. Don’t be afraid to make regular visits to the property to ensure your tenants are keeping of the place (with proper notice, of course). Also, look for a neighbourhood with good schools, access to amenities, schools, parks, low crime and good job prospects. Visit the area at night. Does it feel safe? Would you want your child to live here? Better areas will generally attract higher quality tenants. Be prepared to pay for it initially though – the cost of homes in these areas will also be higher.
- Be aware of ALL of the costs. Clearly, your mortgage payment is going to be your largest single fixed expense (remember to ensure you have a fixed mortgage rate!). Property taxes can and will change. Don’t forget insurance. Unexpected repairs and unexpected vacancy can quickly eat into your overall profits.
- Keep your expectations realistic. Choose your property carefully and your tenant even more so and always do the math. This isn’t a “get rich quick” process, but rather “get rich steadily”. Building a portfolio of real estate and its growing value over time is a great way to generate passive income. Just be aware of any tax implications – especially when you sell an investment property. Your accountant will be key to your overall long-term success.
- Before investing in a rental property, make sure that your own financial house is in order. Pay down any high interest debt, make sure you have money for not just the down payment on the new property but also some set aside for unexpected or costly surprises, as we’ve already mentioned. Make sure you don’t have any large expenses on the horizon either – such as college or university tuition.
- Be aware of higher interest rates. The cost of borrowing money today is still at an historic low, but the interest rate on investment properties will be higher. Do the math. Your mortgage payment needs to work within your rental equation or it will eat away at any profits you hoped to gain.
- The bottom line is it’s not rocket science. You can do it! Educate yourself. Work with professionals. Be careful and take the time to learn the ropes. Screen your tenants. Keep an eye on your property regularly. Be firm but respectful with tenants. Save for the repairs you know about, and always set aside a little extra for surprises.
Michael Dominguez is a professional, full-time Realtor® with RE/Max Jazz and owns several investment properties in Durham Region, Cobourg/Port Hope and Orillia. He hosts regular investment property tours in Durham Region, sharing his insight into buying and owning residential rental homes while touring through available properties. To find out more about upcoming tours, call The Michael Dominguez Team at 905-728-1600 or visit www.durhamhome.ca and LIKE The Michael Dominguez Team on Facebook for more information.