RCF Income Property Master Sheet
Everything You Need To Know About Passive Income & Investment Properties
Investing in rental properties is a great way to generate passive income and build personal wealth, but it’s not something to jump into without doing some homework. There are many factors that should be evaluated when purchasing an income property, and it often entails different considerations than when you purchase your own home. Understanding the needs of a future and often purely hypothetical tenant can seem impossible – especially for a first-time buyer – but there are a few key features to always look for that greatly increase your chances of success. Developing a passive income stream from a rental property requires a certain amount of knowledge and a lot of pre-planning, which is why our team at River City Financial is here to guide you through each step along the way.
First things first. What are the legal requirements for a property to be used to generate income as a rental suite? In order to be eligible to rent out a portion of your house to tenants as an income property, your unit must have:
There’s a reason it’s such a common saying in the real estate investment industry. Understanding the features of the neighbourhood that your rental property is within is key to successfully getting and keeping tenants, because it will show you who to market to and what to focus on when promoting your property. The overall quality of the neighbourhood that you make your real estate investment in will ultimately determine the type of tenants that you attract. If your income property is located downtown and near offices, then you can expect to attract more young business professionals that are looking to be close to work. Neighbourhoods with schools and playgrounds will attract families with children. Anything close to a university or college will greatly increase your potential renter pool, even though you may have vacancies in the summer months. Keep in mind that, with investment properties, the area and overall feel of the neighbourhood you buy in often determines the type of renter you’ll attract.
In the housing market, a desirable neighbourhood is one that provides an opportunity for growth, and there’s no better indication of growth than nearby schools. Families will always prefer to have their children attend a school close to home, so your potential pool of tenants will automatically increase by choosing a property situated near K-12 schools. Having a rental property near a college or university is also a huge benefit with a large population of students, instructors, and other institutional employees entering your pool of potential renters.
When exploring potential income properties, be sure to keep a close eye on what services are located within a close proximity. Grocery stores, banking options, and retail outlets are always good to have nearby, and they are all things potential renters will take note of.
Any property that doesn’t increase in value over time isn’t a worthy investment, so consider any potential updates and upgrades to add value within the property. You want to sell potential tenants from the moment they set eyes on your property, so general upgdates like new fixtures and fittings to landscaping and curb appeal can go a long way in adding value to your income property. Make sure to calculate the costs of the upgrades against the potential increase in value to determine how much you can afford to spend on the updates.
Be hyper-aware of the deadlines you set for yourself regarding any renovations and upgrades, as the longer you go without a tenant, the more it will cost you as you’re paying the entirety of the mortgage and utilities. This can take a serious dent out of your bottom line income stream if you’re not diligent in planning and budgeting right from the start.
Here are some simple DIYs that will add value to your property without breaking the bank:
Revamp Your Bathrooms
One area of the home that particularly benefits from some extra attention is your bathroom. This space is typically left looking a little generic, so investing some time to inject a little character to this room will help your income property stand out and increase its value. A few quick upgrades could include:
Focus On The Kitchen
One of the most important rooms in a home is the kitchen, so it’s no surprise that focusing on this space would be a good a idea. However, kitchen renovations can be quite expensive – instead, try these DIYs to freshen up the room.
Liven Up The Living Room
Tenants will be paying a lot of attention to the living room of a home, because it’s typically the area where they will be spending a lot of time each day. Make this room feel extra comfortable and inviting by ensuring it is in top condition.
Add A Few Features To The Bedroom
Bedrooms also often fall victim to being left with a generic look – especially when they are not the master bedroom. By inserting a few helpful features to these rooms you will give potential tenants a clear way to distinguish your home from others in the market.
Make A Memorable First Impression
As previously noted, the first impression your home makes on potential tenants is incredible important. Little touches that add some charm to your home will go a long way, so be sure to consider the following exterior tips.
It’s always a good idea to keep a close eye on the housing industry to try to capitalize on your property investment in a buyer’s market to maximize your potential revenue. Take a lesson from Scott McGillivray, the star of the popular HGTV show Income Property and real estate investment guru that has prospered first hand from the positive effects of rental properties. His success showcases that, in the long run, investments in real estate tend to grow and are more steadfast and less volatile than other investment opportunities.
The housing market has so many moving parts and variables at play that it can seem daunting to try to stay up-to-date without consulting a professional in the industry. That’s why we’re here to share some of our favourite online resources that you can use to get a better understanding of what you’re getting into when investing in real estate:
Calculate your overall monthly costs as well as the upgrades and adjustments you might have to do and compare against potential profits to get a general idea of your rental property’s financial situation. When planning your budget, make sure to consider any tradesmen you have to hire to complete the upgrades or additions. Crunch all of the numbers, and if you don’t see a plus sign, don’t do it!
Property taxes are something that can be easily forgotten when investing in real estate, but understanding how much you’ll be paying towards taxes is crucial to making a bottom-line profit on your property. Do your background research and check the last tax assessment for the area to confirm and ensure your property will bring you positive cash flow. Pro Tip: A great way to avoid the annual surprise of property taxes is to have the annual cost built into your monthly mortgage payment!
Before homeowners proceed with renovating their homes to include a rental suite or upgrade an existing suite, they should contact their local municipality. It’s best to discuss this plan with a Development Officer or Building Safety Codes Officer to obtain the correct information regarding permit requirements (ex. building, gas, and electrical work), zoning, and other construction considerations.