THE PROS AND CONS OF BUYING AN INVESTMENT PROPERTY
Given the booming condo market in Montreal, it’s no surprise that more and more people are purchasing units as investment properties. Even buyers without much real-estate experience are dipping their toes into the investment market with the help of experts like mortgage and real-estate brokers, and property management companies. But even with professional advice, there are still many factors to consider before buying your first investment property.
First and foremost, can you really afford it, and do you have the time and patience to undertake this type of project?
“Owning an investment property requires time and commitment; there are many factors to consider other than just buying a property and renting it out,” said Tristan Pungartnik, director of operations at Summit Property Management. “When a tenant moves out, maintenance work like painting, cleaning, and upgrades are often necessary to prepare for the next tenant.”
Condos are often recommended over multiplexes as a first investment property so the investor can ease into the responsibility of being a landlord.
“There’s often some back and forth from picking up rent to dealing with any problems that come up, with things like heating, air conditioning, and so on,” said Teddy Kyres, mortgage specialist at BMO. “When you have a condo it’s just one tenant, but if you have a ’plex it can be a little overwhelming at first, unless you hire a management company.”
In addition to dealing with the time commitment and potential headaches, the financial aspect needs to be considered as well.
“One thing people need to understand is that you can’t generally put all of your savings into an investment property,” Kyres said. “It could end up being vacant for a few months, and you might have to hold it, meaning you’ll need the capital to manage the carrying costs; you need a reserve to be safe.”
Moreover, if you own a property already, or are planning to buy one in the future, it’s important to consider how having an investment property could impact your plans.
“If you want to refinance or upgrade your primary residence it may affect you, because when you buy a second property you’re liable for the mortgage,” Kyres said. “So an investment property might impact your future purchasing power. If you have plans to buy another property in the future, it’s a good idea to talk to your mortgage broker or specialist about it before buying the investment property.”
If you decide to go the route of purchasing an investment property, the first things to do are to identify a property to buy, and think about how you want to run the rental.
“Since you want to get the highest rent possible, you want to try and find a property in the most desirable location possible. Somewhere central near transportation, universities, hospitals, grocery stores, and parks is always a safe bet,” Pungartnik said.
“Then do you want to rent it long-term or short-term? Furnished or unfurnished? This is important because many condo associations will have regulations regarding rentals and you want to make sure you’re going to be able to abide by these rules.”
You also want to think about the type of tenant you’re targeting, Kyres said.
“Different parts of Montreal tend to have different types of tenants,” he explained. “Students and empty nesters have different needs, so you have to think about how ready you are to deal with that.”
The abundance of these two groups in Montreal is helping to ensure the health of the investment property market, Pungartnik said, adding: “There are also many new condo projects in prime locations that are giving investors options to choose from.”
Another factor at play is the rise of short-term furnished rentals, which have caught the eye of many investors.
“You see units that would normally rent for $1,500 per month unfurnished, renting for $3,000 per month if they’re furnished,” Pungartnik said.
“It can seem like easy money but, as I said, you have to make sure you get the proper certification and educate yourself on the laws surrounding this because they are being actively enforced by the government and the fines can be heavy for violators.”
Despite the range of options available today for would-be property investors, it’s important to consider the long-term view of an undertaking this substantial.
“A lot of people are buying investment properties these days and it typically is a good investment, but I would caution people not to buy just to buy,” Kyres said.
“Do your homework, speak to experts, and take the long-term view on it when it comes to a potential increase in value. Don’t get excited just because you think you’re getting a deal on it today.”