Whether you are looking to generate some additional income or hoping to create long-term wealth, you may have considered owning a rental property. Earning an income on property has proven a popular means of generating wealth, and why rental properties can be a great investment in BC.
Considerations Before You Buy
If you already own a second property which is essentially unused, that provides a perfect opportunity for extra income. Most people don’t have have two properties though. If you are planning to purchase additional property, whether or not it is a good investment will depend on factors such as the cost, the type of property, and the return on investment.
Some considerations that should be reviewed before making a decision include:
Why Are You Buying?
Generally speaking, when people invest in rental properties, it is for one of three reasons: to generate income, to own the property as an investment, or hoping for a quick profit. Buying a property for a long-term investment can be one of the better options, as you will have the time to research and find the right property in the right location.
Are You Prepared Financially?
There are different costs involved with buying a rental property than a home. Lenders typically view them as riskier propositions, so you can probably expect stricter qualification rules and higher borrowing rates. You will also be required to provide a down payment of 20% or more to qualify for an insured mortgage. Other fees will also apply, such as appraisal costs, legal fees, and property taxes.
Make sure that you have the resources to deal with unexpected expenses such as interest rate increases, strata levies, and the need for repairs. Try our Mortgage calculator here for more insights.
Can You Ensure a Positive Cash Flow?
Once you have determined the amount that you can afford to pay on your investment property, you will need to consider how much income it can produce. The amount of rent you can charge will be dictated by the local market conditions.
Calculate the potential cash flow for each rental property that you are considering. Deduct all expenses including borrowing costs, property taxes, maintenance, and insurance from your anticipated annual rental income. You want to see not only a positive cash flow, but also sufficient return as compared to other investment options.
Keep in mind that you are typically able to deduct expenses incurred in renting out the property against the rental income and a deficit can be applied against other income that you have.
How Hands-On Do You Want to Be?
Another consideration is how hands-on you intend to be, or how much you are capable of handling the associated responsibilities of a landlord. You could certainly hire a property manager, but this will naturally dig into your profits.
With these thoughts out of the way, there are several reasons why rental properties are a great investment in BC.
Reasons to Invest in Rental Properties
Here are some of the benefits enjoyed by investors when buying rental properties:
A Great Source of Passive Income
Owning property can be a great investment as it continues to accumulate value. Owning rental property also brings with it passive income that you can use as you desire, whether that be for making renovations or growing capital for future investments. Passive income can bring you closer to true financial freedom.
It Could Become Your Primary Residence
In years to come, if your kids have moved out, leaving you in a home that is now too large, or you simply want to downsize, a rental unit might become your new primary residence. This saves you the trouble of searching for a smaller home, condo, or apartment, as the option of moving to the property is there for you.
There Are Many Options Available
You might choose apartments for your rental property, but you could just as easily choose a house, whether detached or semi-detached. Having options means that your investment can be tailored to your budget and preference.
Great Variety in Different Neighbourhoods
Different neighbourhoods have their own character, charm, and amenities. Some may feature historic homes while others are more contemporary. Others will be close to conveniences and services that appeal to different groups. Shopping, transport, restaurants and more can help influence the character of a neighbourhood and appeal to different demographics. This offers a great deal of variety for both tenants and owners.
A benefit that can be easy to overlook is the simple fact that you will have the opportunity to build professional and personal relationships with your tenants, or with others who also invest in property.
Although the thought of passive income is attractive to many and often serves as the motivator for investing in retail properties, you will find that there are many reasons why rental properties are a great investment in BC. Contact Olympic Mortgages today to find out what we can do for you.