5 things to be weary of when it comes to buying a rental property

5 things to be weary of when it comes to buying a rental property 

Investing in rental properties has been a winning strategy for some of Canada’s wealthiest investors.  If you’re considering getting into the game, you’ll need to be particular and selective in your search to make sure you’re choosing your rental property wisely. Here are a few things to be weary of before you take the plunge into real estate investing!

1.      Financial viability. It’s obvious that a property needs to make money, but too often it’s assumed that a rental property will automatically generate cash flow. Many certainly do, while others make up for their limited cash flow in strong property appreciation. However, cash flow and asset appreciation are not givens in the rental market, so you need to do your research to ensure that you’ll earn your intended return on the investment. Investigate rental rates in your target market, as well as how values have changed over the past several years. Look at property taxes, condo or homeowner fees, insurance rates, and other expenses to understand the expenses associated with the each of your options.

2.      Age of property. Older homes often have a ton of charm, making them attractive to renters. However, with that charm can come a lot of maintenance and expense. If you’re handy and don’t mind doing the work, perhaps this won’t be a problem. But every little issue that arises requires a call to a plumber, electrician, or handyman, the return on your investment will be significantly diminished. Newer homes and condos are great options if you’re hoping for more of a hands-off approach in managing your rental.

3.      Target market. You’ll also want to consider your target market. Is the property near a college or university where you’ll potentially be attracting the student population? Or is the property in an area favored by senior citizens who have downsized? You’ll want to consider the financial security and reliability of your renter population as you search for your ideal rental property. It’s important to note that you’ll need to make sure you’re abiding by Ontario’s anti-discrimination regulations once you start reviewing applications – e.g. you can’t reject a family just because you’re worried that their toddlers will tear the house apart. So, your best bet is to do your due diligence up front and put yourself in the best location for the type of renters you hope to attract. 

4.      Rental restrictions. This tends to be less of an issue with homes, but if you’re considering condos as investments, take note. Some condo buildings only allow a certain number of units to be rented, while others forbid rentals less than 12 months. Depending on your objectives, these limitations may make it more challenging for you to rent your property.

5.      Distance. How far is the property from where you live or work? If you’re hoping to be a hands-on landlord and do a lot of the maintenance yourself, this should be a serious consideration. Do you want to have to drive 90 minutes every time you need to show the property or anytime something goes wrong? Are you willing to pay a local management company or realtor to take on the work for you? Figure out your ideal situation and select the location accordingly.

As with any investment, it’s best to go in with your eyes wide open when purchasing a rental property. Be realistic about the effort you’re willing to put in, as well as the amount of risk you’re willing to take. Putting in the time up front will drastically improve your odds that your investment will pay off!