There are quite a number of variables to consider when purchasing a residential income property.
You’ll likely want to eventually engage with a real estate agent, but prior to doing so it is important to conduct as much research as possible. Remember to approach the purchase with an unbiased attitude and evaluate your options based on factual information.
Here’s a look at some of the top variables to consider when evaluating potential properties.
1. Economic outlook. Locations that are seeing employment growth will typically have more people moving to the area – this should also increase the potential renter pool. Conversely, locations that don’t offer as much employment opportunity or have/will see large employers leaving town, will often experience higher vacancy rates.
2. Neighbourhood characteristics. The location in which a home is located has a profound effect on the type of tenants you can attract. For instance, a quality neighbourhood full of schools, parks/playgrounds and activities for children will often draw in families. Choose a location in part based on the type of renter you’re looking for.
3. Property taxes. The amount of property tax will vary by location. This is something to consider when looking at the monthly carrying costs of a property. Lower property taxes aren’t necessarily the best option – for example, if the area in consideration supports longer-term quality tenants, higher property taxes may not be an issue.
4. Crime rates. Most people don’t want to live in a crime-ridden area. Research the types of crime, frequency and future outlook for the area in question. Many cities offer online-based statistics and maps for crime within the city.
5. Vacancies and rent. You’ll want to try to determine what the average vacancy rate is for the area and the expected future trends. Lower vacancy rates generally equate to higher tenant demand. Next, find out what the average rental value would be based on the type of property you’re considering. Conduct a historical search to evaluate long-term trends – you’re looking for an increase of rental rates over time.
6. The home. Ideally, you’re looking for a property that has appreciation potential and good projected cash flow. Single-family homes tend to attract longer-term tenants, whereas condos provide less maintenance but will generally appreciate at a slower pace.