Buying an income property can be intimidating unless you’ve done it many times and are confident in the process.
These are some of the main points to consider:
1. Know the vacancy rates in the area in which you want to buy.
The Canadian Mortgage and Housing Corporation publishes semi-annual statistics that can be a useful tool for renters, property managers, appraisers, developers, lenders, real estate professionals, and public managers. As a rental property owner, you will want to own a property in an area where vacancy rates are low (and ideally average rents are high). CMHC’s October 2014 report has vacancy rates at 6.4% for two-bedroom apartments in Lethbridge.
2. Know your costs.
In addition to your mortgage payment, some of the costs you’ll want to factor in will include property taxes, maintenance, property management fees, vacancy allowance, and insurance. Ideally, the rent you charge your tenants will cover these costs and give your property a positive cash flow.
3. Know your tolerance.
Are you cut out to be a homeowner? Do you know the residential leasing laws in your province? Can you handle the responsibilities of dealing with tenants, collecting payments, and maintaining a property? Do you have the time and are you willing to be “on call” if there is a problem with the property?
Buying an income property can be a lucrative way to diversify your real estate portfolio. But do your homework before you buy and stick to the numbers … shopping based on emotion can be a recipe for failure.