When you have been considering something for a while, like purchasing a multi-family property, and the timing seems right, there can be an irresistible urge to jump right in without looking back. Some scenarios you can jump into without having a well thought out plan, but investing in real estate is not one of them.
Plans are for the successful, serious real estate investor—the one who has business profits as a top priority. Do you think they buy a multi-family property without a plan? No way and neither should you. When investors do not have a plan for buying real estate property, they can be prone to stress and financial turmoil.
Buying Rental Property? Read These 4 Tips First
To be successful in real estate, you cannot go in blind. Here are four tips to consider before calling yourself a landlord.
1. Know your local real estate market: This point is crucial to ensure you are not paying top dollar for your multi-family rent property. You do not want to pay top dollar because it will eat into the money earned by the property and take you longer to increase your cash flow. Therefore, it is important to know your local real estate market, what prices are averaging, and the growth rates within your city. According to the Realtor’s Association of Edmonton, new listings increased 26.7% to 3,080 in April 2017 compared to February of this year. The average prices of condominiums also rose to $242,632, an increase of 3.86% since February.
2. Know your local rental market: Even though property prices may be favourable, there is no point purchasing it unless you can find tenants to occupy the units. Prospective investors need to do some research into vacancy rates in the areas of Edmonton they are considering. A CMHC report released in October of 2016 stated an average overall vacancy rate in Alberta of 8.1%. Depending on the Edmonton neighbourhood, vacancy rates throughout the city are both below and above this number. Some rates are reaching 13%, and others are as low as 4%.
Investors also need to learn how much they can stand to charge for their units, too, to offset costs. In the city, studio apartments charge in the $800 range, one bedrooms average in the $900s, two bedrooms rest in the $1200 range, and three bedroom apartments can be listed for around $1300.
3. Know your responsibilities as a landlord: It is critical you are prepared for the responsibilities that come with being a landlord, specifically what you can and cannot do. For instance, a landlord is not allowed to enter a tenant’s unit without consent or without providing reasonable notice (24 hours) to the renter. A landlord must also ensure the rental unit reaches the minimum housing and health standards, meaning the structure is sound, necessary systems like heating and plumbing work, and weather cannot find its way into the building. Furthermore, a signed copy of the written lease (if there is one), must be given to the tenant within 21 days, and tenants need to be given at least three months written notice before increasing rent. Increasing the rent cannot be done more than once a year.
4. Know your demographics: Who do you want living in your multi-family building? Is it high-income families, middle-class couples, or seniors? You need to ensure your ideal demographic matches up with the neighbourhood you are considering and the quality of the property. A neighbourhood with an awful school district will not appeal to the family with kids group, just as it will not appeal to three university students looking for a party crash pad. Therefore, you need your property and price point to match your demographic.
Like we said before, investors cannot just jump into real estate. Look at all the things you must consider, and this is not an exhaustive list either. There is so much more that needs to be considered such as finances. These four things will help you start planning your entrance into the multi-family property market.