Buying to rent: tips from a seasoned real estate investor
Buying to rent is a way to ride out the ups and downs of the real estate market and the economy, said Ann Kaplan, president and CEO of national consumer finance company iFinance Canada. (Kaplan also appeared on The Real Housewives of Toronto, a show run by Slice, one of the brands owned by Corus Entertainment, which also owns Global Television and Global News.) Kaplan, who gradually built a portfolio of seven residential and commercial properties in Vancouver, Victoria and Toronto, has some advice for those buying investment properties as a means to enter the market:
Decide what price you want to pay and be prepared to walk away if you don’t get it. When you’re buying investment property, you’re not in a rush to find a place to live. So do you research, get your paperwork in order so you won’t have to go back to the bank if your offer is accepted, and then put forth the price you want to pay, Kaplan said. If you don’t get it, be prepared to walk away. This strategy has helped Kaplan get very good prices for her properties, she said.
Take baby steps. Kaplan started small, by renting out a single property in Vancouver when she and her husband weren’t sure yet whether they would settle there or in Toronto. “We got a bit of a taste of how renting properties works,” Kaplan noted. After that, she proceeded slowly and asked a lot of questions. She often turned to more experienced real estate investors, asking for an hour of their time to share their advice and experiences.
Find good tenants and don’t raise their rent. “A very good tenant is key,” said Kaplan. Once you find one, make sure to keep her or him very happy, she added. That means keeping their rent stagnant as long as possible. Kaplan also allows her tenants to address small repairs without checking in with her and to just dock any expenses from their rent cheques.
If you’re buying in a condo, get on the board. When considering a condo purchases, check the building bylaws to make sure renting is allowed and has never been an issue, said Kaplan. Still, bylaws can change quickly, as do the wants and needs of a building you don’t live in. So make sure you’re on the condo board, so you have a hand at the table to make decisions and to stay in the know about updated legislation.
Play the long game. You buy investment property so that it generates income later on. Don’t worry about fluctuations in the market along the way, Kaplan said. Every year, use the rental income you’re collecting to make the maximum advance payment on the mortgage that won’t incur a penalty (usually between 10 per cent and 20 per cent). Once you have paid off the mortgage, you can use that equity to buy another investment property.
Consider commercial property, too. “Think a little bit outside the box of investment properties,” said Kaplan. Small commercial buildings that can accommodate three or four tenants generate a lot of income. And when you’re applying for a mortgage to buy a commercial building, banks are more concerned about how much you’ll earn in rents than the size of your down payment. If your rental income can cover your mortgage payments, you can buy with very little money down, according to Kaplan.
If you do choose to live in the home you purchase, seriously consider renting out part of it. Not only does it help you pay off your mortgage faster, but if you are planning to move a lot, this is a great way to build equity. Just remember to factor in property transfer taxes and real estate agent fees in your move-out budget.