Once you’ve determined the macro details of what province and city to invest in you need to go micro and choose a property. The process of selecting an investment property should be systematic. Ideally you have a checklist that you measure a property against and with enough checks it gets into your portfolio.
As with any successful practice your investing should be reproducible. That means you can take your checklist anywhere in the world and find a property that will meet the parameters you set out as a good investment.
Is it a good area? Is it in a transitional stage? Is it so upscale that your investment capital is stretched (thus cutting into your return) when you can buy the same house cheaper a few blocks away? On the other hand is the area so rough (but CHEAP) that you feel uncomfortable going there to manage the property?
You need to be able to attract tenants that you like and that will treat your property well.
A mental scan of your city gives immediate red flags or green lights. Your Realtor will also have great insight into areas that are moving up or conversely going down in desirability.
There are websites as well that can provide demographics and crime rates of each neighbourhood in your city. They are an excellent and free resource. If you find a great area you can make it your niche.
If you like university areas your niche might be student housing, or renting to medical staff near a hospital. This helps you see your exit as well. The student housing may sell to another investor while the property near the hospital can be sold to a young doctor buying his first home.
Some tenants have cars, some don’t and some don’t want to. The easier it is to get from your rental to work, school, shopping and recreation areas the more likely your property will rent for more money and appreciate in value. Websites like Walkscore can give you and potential renters the “walkability” of the area where you are looking. Walkability isn’t a passing trend either; Realtors and property managers often include this information in listings because people are looking for it.
If your tenants are drivers, then the shorter the commute the better, properties near but NOT on major routes tend to rent more quickly and for higher rents. Check out the bus stops in the area you are researching and where they go. The people that work in businesses or study at schools along the routes will likely become your tenants.
Property type is very important. Are you starting out with condos, townhouses or apartment blocks? It’s as much how much house you can buy, as it is how much house you can handle. If you’re busy with a full time job a property with an onsite manager might appeal to you (i.e. townhouse or condo unit).
One of our favorite property types is a suited bungalow with a detached garage. The reason we love this type of property is that you have three sources of income from one property. You get the main floor, the basement suite and the garage. Three sources of income help you pay down a mortgage a lot quicker than one source does. In Alberta garage rental is hot, and for a double garage in good repair you can get around $250 per month.
If garages are not a hot commodity where you are, you can always offer the garage as an add-on to either sweeten or increase the rent.
Next, we’ll look even closer at the numbers and proper tenant selection. This will show you how to make your property a cash flowing success.