Current and prospective owners of rental properties in Canada have faced some challenges over the past several years:
? Markets have declined somewhat as economic conditions have allowed traditional renters to purchase their first home.
? Having sustained losses in the 1980s, many lenders are unwilling to lend on negative cash flows.
? Mortgage insurance premiums for rental properties have increased.
? Changes to income tax policies have eliminated or reduced some of the advantages of investing in rental properties.
Investment Property Opportunities
Despite the challenges, there are many reasons for investors to feel positive about the rental sector:
? According to the Canadian Mortgage and Housing Corporation (CMHC), the demand for rental housing is expected to grow by 50,000 units annually until at least 2020.
? Competition among real estate investment trusts and real estate companies with expansion plans is expected to increase the value of existing properties and lead to new construction.
? Most markets show good potential for conversions of single-family homes to multiple rental apartments.
Financing an Investment Property
There are many considerations to be made when weighing the options for financing rental homes.
? Most lenders will not lend more than 65% of the property's appraised value or purchase price (whichever is lower). A mortgage broker may be able to help you find alternative financing at more favorable terms.
? You may be able to find a lender who will offer 75%, but you will need excellent financial health and a property that is in a ?good? area.
? Mortgages greater than 65% will need to be insured. It used to be that CMHC would offer insured mortgages of up to 85%, but in December, 2007, they announced a new program offering up to 100% loan-to-value ratios on rental property purchases and 95% on rental property refinancing.
? Lenders will require that the rental income be able to cover the majority of the property's operating expenses, including the mortgage. If rental income cannot cover expenses, you must have enough personal wealth to make up for the shortfall.
? When considering how expenses are covered, lenders will look only at legal uses of the property. If you have an illegal suite, its rent will not be considered.
Ensure You Can Make Money from Your Investment Property
The key question for anyone looking to buy a rental property is ?Can I make money?? To answer this question you need to do some research.
Find out what you can charge for rent in the area. Check with real estate agents, other investors, or rental listings for the area. Then deduct expenses to calculate what your income will be. Expenses include mortgage, taxes, utilities, insurance, maintenance and, if applicable, property management fees.
If the rent cannot cover the expenses, the investment may not be a wise one. You could wait years for an area's property values to increase and by then you could be in major debt.
There are several methods that you can use to source property below market value. Three such methods are listed here.
The Internet
One of my favourite Property Mentor's Dolf de Roos talks about the 100 - 1 rule (he calls it the 100:10:3:1 rule) in his book:
"Real Estate Riches"
If you don't have this book, I would highly recommend that you buy it. It's one of my favourite 'right-to-the-point' books on real estate.
The 100-1 rule stipulates that if you were to look at 100 properties, you may end up buying one good deal! Property is very much a numbers game. The more you look at, the more chances you have of knowing exactly what it is you're looking for, and henceforth finding your deal.
Not a day goes by when I'm not looking at property, if not physically, I will be analysing deals in the local property paper or on-line. I prefer on-line as I can literally analyse hundreds of deals in one sitting.
If you are a beginner and are not sure of the type of property that would best meet your needs, it is definitely worth spending time doing research on the internet. You can also search for properties to let.
This will allow you to understand rental values and help you to decide how much funding you will need in you purchase, as buy to let financing tends to be based on rental valuations.
Estate Agent
Regardless of what people say, I find estate agents to be a valuable resource when it comes to buying property. I have bought several below market value properties through estate agents.
By being persistent, and proving to an estate agent that you are a serious investor, you will have them ringing your phone of the hook with potential deals. However as with anything, you need to be careful that you are not receiving 'dogs' and that the deals are indeed deals. Once you understand your market, this should be simple.
Get to know your local estate agents and get them to know you. Be persistent in your approach. Go around in person and speak to them. Use them to give you their opinions on any particular area. If you are serious about investing in property, you need to maintain regular contact with at least three good estate agents in your preferred area. Over time, as I have found, these agents will be worth their weight in gold!
Do Your Own Marketing
This is my preferred method of acquiring property. You could start off by advertising in your local newspaper.
Typical adverts might read:
"Properties wanted. Cash buyer waiting, any area considered"
"Repossessions stopped. Don't wait for your house to be repossessed.
Ring now for an instant decision"
TEST your adverts. What works in one location may not work in another area for any number of reasons ranging from social demographics to the type of newspaper you're advertising in.
Both Barry Byers & Javaid Kiyani are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Javaid Kiyani has sinced written about articles on various topics from Real Estate, Property Agents and Management Software Solutions. Dr Javaid Kiyani is a successful Property Investor and Internet Marketeer. With 10 years experience of property, his knowledge of is vast as ev. Javaid Kiyani's top article generates over 12100 views. to your Favourites.