Toronto Income Property Newsletter: November 2009
The Toronto real estate market continues to chug along as we head into last couple months of 2009. The sales numbers from 2008 to 2009 show vast percentage increases, but remember that last year at this time we were in an abnormally slow period. With all the news of a global recession, the market effectively shut down from October through March of this year. If you compare the volume of business last month with say two or three years ago, then the gains are not as remarkable. There tends to be a little bit of a natural slow-down as we head towards the Christmas season so some of the current demand should subside a bit. The real question is what do we have coming our way in January and the Spring market? I’ll have my thoughts and analyses as events unfold over the next few weeks.
I have found over the years that if you adopt a smart business strategy towards buying or selling an investment property, things tend to go a lot smoother.
i. Define Your Investment Goals
Each time you review a listing or visit a property you should ask yourself would this property meet my fiscal objectives? Some of the specific factors that you should consider are: suitability of neighbourhood for renters, the current vacancy rate, economic conditions and your own propensity to stick it out with the property long-term.
ii. Identify Your Needs & Desires
Determine what you’d like to have versus what you must have. These include obvious items like location, type of investment property and whether you have a penchant for doing renovations if necessary.
iii. Know Your Financial Readiness
The financial questions that you have to ask yourself before you get started include:
• How much money can you afford to put towards a deposit on your income property?
• How much of a debt obligation you are prepared to undertake? What is the maximum that you will be able to borrow?
• What is your net monthly payment comfort level? Set a maximum dollar amount and do not exceed this threshold when searching for properties
iv. Establish a Relationship with a Lender
This is very important because there a myriad of financial products on the market today. The mortgage business has become one of Canada’s fastest growing segments. You can get no money down options, 40 year amortizations and there are specific programs for self-employed people that don’t show a lot income on their tax returns. I often say that how we finance a purchase is just as important as how much we pay for the property.
v. Develop a Purchase Strategy
There are many ways to proceed here. I obviously recommend using a realtor like myself for getting into income properties. My knowledge comes from countless hours in the field looking at rental properties, which I think is the best way to truly gain a proper understanding of the market. Once you have found a qualified agent to assist you, then it is important to develop a strong plan of attack. Start by having your agent search your local real estate board’s listings as often as possible. There are many different ways in which income properties are listed on the Multiple Listing Service (MLS) so ensure that your agent is are being thorough in conducting searches. Look for listings with multiple kitchens and bathrooms and always check both residential and commercial listings. Challenge your agent to determine an innovative campaign to find you the right income property. If you don’t find what you are looking for you may ask them to call income property owners of certain target buildings in your area – you never know when an owner may be thinking of selling. In addition, you may want to place classified ads outlining your specific investment criteria.
Once you have purchased a property and have gotten it all rented out, here a few pointers that may help your continued success with your venture.
i. State of the premises:
This may sound obvious, but under no circumstances should you let your property fall into a state of disrepair. If your tenants are paying each month, on time, then you have an obligation to keep everything in good working order. If something breaks down, fix it. Also, please try and keep up on maintenance items. Make sure the snow gets shoveled, the eaves get cleaned, the grass gets cut, etc. A tidy property is better all around for both you and your tenants.
ii. Rent Increases & the Residential Tenancies Act
You are allowed to raise your tenants rent 2.6% a year. Keep up on your allowable limit and try and stay familiar with you rights and obligations under the tenancies Act. If are unfamiliar with this, please take a look at:
iii. Fire Issues
As a landlord you are obligated to ensure that your rental property meets fire code guidelines. The best way to ensure that your building is compliant is to hire a retrofit consultant who will give you a laundry list of all the things that need to be done. I recommend Paul Schuster at www.pcfirecode.com.
iv. Eliminating Expenses
Sometimes you are limited on how much rent you can get way with, so the best way to improve your profitability is to cut on expenses. Things like separate hydro meters help but ensuring that your building isn’t wasting energy can go a long way to saving you money in the long term.