Given Greater Victoria’s low vacancy rates and the high demand for rental units, those who can afford it might be considering investing in revenue property. But purchasing the right property requires thought beyond which house on the market will generate the highest monthly returns from its units, says Jason Binab, real estate agent at Engel & Völkers’ Binab Group. If buyers want to make the most of their investment, they should take into consideration both the value of the property and the value of its neighbourhood.
To start, buying revenue property requires more than the usual down payment on a property the buyer intends to live in – a 30 or 35 per cent deposit, which is a price some hopeful investors are unaware of before meeting with their mortgage broker. When investing in property, buyers must also be able to afford (and stomach) potential costly mishaps in the future, such as temporary vacancies that can occur due to flooding or nearby rental projects that attract tenants. Buyers must also consider whether their property will need renovations – and whether they would prefer someone else to handle further property management.
While buyers and new owners alike might be deterred by the average 10 per cent that most companies charge for ongoing management, having professionals handle everything from maintenance to tenant needs can offer ease of mind to owners, some of whom don’t have the heart or the time to enforce tenancy agreements directly.
Outside of initial financing, Binab encourages buyers to carefully consider and research their neighbourhood. This includes researching a neighhbourhood’s capital appreciation, average rental unit prices, monthly taxes, and smaller details, such as whether utilities should be included for renters. Research also includes surveying the types of people a given neighbourhood attracts.
“If you’re going to buy revenue property, familiarize yourself with the neighbourhood,” Binab said. “Go see what type of people are in the neighbourhood, go sit on the street or in that neighbourhood for an hour or two, and just watch. What type of people are there? Are there any issues – anything shady going on? Are there a lot of renters in the neighbourhood, or a lot of owners?”
Giving potential neighbourhoods a look-over is especially important for buyers who plan to live in the house and rent out a suite or bedroom. Up close, a neighbourhood can become more appealing or less so – it can be busier, quieter, or have a younger or older demographic than anticipated.
Capital appreciation and capitalization rates can also be decisive factors between a buyer’s top property contenders. In some cases, one property with two filled rental units has the potential to generate more revenue, overall and yearly, than another property with double the filled units – so long as the former’s capital appreciation or cap rates are higher than the latter’s. These factors can mean the difference between an owner managing more units for less money and an owner pocketing more money for less units. Capital appreciation and cap rates vary property to property and neighbourhood to neighbourhood.
Being both financially smart and neighbourhood-wise – which often go hand in hand – are key practices when it comes to buying revenue property. Although it is important that buyers research which districts legally allow rental suites, it is also important that buyers understand the value of a potential investment property over time.
