Buying a property, finding a tenant, and pocketing the rent is the basic premise of a rental property; not a 3-step plan for success. Despite the simplified, can’t miss experience we see on reality TV, the real world of rental properties involves a lot of details and research that don't make for interesting viewing.
Below is a bare bones list to get you thinking in the right direction, but we recommend a lot more homework before you commit to investing several hundred thousand of your hard-earned dollars.
Cash flow is king. Your property may rise in value, but don't forget that you are investing; not speculating. Your main goal should be generating positive cash flow month-to-month on all that money you have tied up. Your cash flow may also dry up if you have to ride out a few months with no rent, so have a reserve fund on hand to tide you over.
Be ready to buy. You’re not the only one looking for an investment opportunity. Talk to a mortgage broker and/or get your financing in-place and be ready to act fast, but only if a property checks all of the boxes in your plan!
Know your market. At the minimum, know these market details: housing prices and trends, local rents, occupancy rates and rental inventory, good and bad neighborhoods, the type of accommodation that is in demand, property management availability and cost.
Evaluate cost and timeframe for repairs and maintenance. Major repairs like a leaky roof or a new shower are expensive and force you to "appease" your existing tenants and/or delay the arrival of new ones. Even small repairs can add up fast depending on the per-visit cost of your property manager or handyman. Get a thorough, pre-purchase house inspection and make some calls to ensure your numbers are realistic – be conservative and go with the high-end of your estimates for repairs and maintenance.
Get outside help. Sooner or later you will likely run out of time or lack the necessary expertise. Advertising your property, screening and selecting tenants, drafting rental agreements and conditions, cleaning, repairs and maintenance, insurance, dealing with tenant complaints or issues are time-consuming tasks. You may need a property manager, accountant or lawyer depending on your situation.
Stick to your plan. You did the research and made a detailed checklist for a reason; don’t get impatient or talked into something you don’t know enough about. Drifting outside your intended area or price range, or taking on extensive renovations can put you in the red before you even begin.
A successful rental property is the envy of any investor, but they require a lot of work and can be quite risky. You need to know what's involved, do your research, and create a comprehensive plan for buying and operating your rental.
We can’t do all the work for you, but we are providing some veteran advice from Enriched Academy Co-founder Jay Seabrook in next week's webinar. Jay has owned a lot of properties across Canada and has a great system for evaluating properties, as well as plenty of hands-on experience and practical knowledge.
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