One key mistake novice investors make is choosing an investment property based on their own personal taste, rather than on sound investment judgment. In other words, the novice investors focuses on buy and property that they would live in, rather than on a property that is financially viable.
While I would always caution anybody investing in real estate whether for their home or for an investment, you should always be cautious and due your due diligence. Afterall, their is no point in buying a house, building up 30 years of equity that you can never realize because nobody else will buy the property from you.
That said, there are still some key differences between buying your home and buying an investment property. When buying your home, you will buy a property that makes you feel comfortable, perhaps has higher end finishes and appliances and has access to the amenities that you want. You will be prepared to pay a premium to live downtown, to have Bertazoni brand appliances, large yard, finished basement and vaulted cathedral ceilings. Or, you might prefer to live in the country with little to no immediate amenities. Bottom line is you’re buying your comfort.
When ‘shopping’ for investment properties, you are looking for places where others will live. You are doing a balancing act between economic viability (ie. is it affordable, does it need much work, is there value added available) and attractiveness to lots of potential renters.
For an investment property, the types of considerations you’ll want to keep in mind may include:
- The neighbourhood:
is it already well established with prices high?
is it in a poverty stricken zone with little evidence of redevelopment?
perhaps it is a neighourhood that transitioning from a low income neighbourhood where the entry price is reasonable and others are already redeveloping in the neighbourhood, promising greater future returns.
- What kind of amenities are nearby that will attract renters or future purchasers? Things like access to good schools, gyms, groceries and restaurants will go a long way to attracting tenants.
- What is the average rent for similar properties in the neighbourhood? Will you be able to rent to property at a rate that will cover your costs (mortgage, insurance, repairs etc).
- What is the vacancy rate in the neighbourd? Will you be compete vigorously for fewer potential renters or will you have a plethora of people begging to tenant your property?
- What are the property taxes like for your property? Are there any local property tax abatements available to you, which may help pad your bottom line?
- Is there opportunity to add value to the property, thus increasing either its immediate resale value or longer term rental value?
These are just some of a myriad of considerations when choosing an investment property. There are plenty of other considerations, each of which could form the content of a blog in itself.
At Mada Partners we are experienced real estate investors, who work closely with a team of professionals to help us identify strong real estate investing opportunities. We work and partner with investors just like you to maximize real estate investing opportunities.