Property Management Blog

What makes a good investment property?

How to guide for property investment

Good afternoon readers, we hope this message finds you well. As mentioned in our first blog post, we’ll be choosing & answering some FAQs from yourselves. There is no limit to the amount of questions or topics that can be asked – we’d love to hear each one. Without further ado, today’s blog post will be addressing the inquiry of: What makes a first investment property “worth it”?

Well…that is a broad question. Between area, unit type, size, and countless other factors, this is a great question to break down. There is no limit to what makes good investment properties & “bad” ones. The factors that make each respective investment vary can be used to your advantage, but also against you. 

Let’s be honest –  while the thought of your investment property raking in monthly income whilst you’re sipping cocktails on a beach in the Maldives may be appealing, the reality is much different. Assuming the costs of your investment don’t outweigh the benefits, you’re off to a good start.

For a buyer/tenant, we can narrow it down to 3 main factors that define a “good investment property”. 

→ Area (Tenant specific, based on cultural affluence, children, caretaking, education, safety, etc.)

→ Size/Layout

→ Property Type (Residential, Commercial, House, Condo, Bungalow, etc.)

With the high volume of tenants & homebuyers staying indoors, our housing market is bound to decline in sales. Based on a report using Toronto Real Estate Board data in an article found  here (attach link to narcity), it shows a steep plummet of approximately 50% in House & Condo sales throughout the GTA in only TWO weeks. That is beyond a dramatic decrease, just as we were being told Toronto rent prices were close to surpassing those of London, England, and nearing those of New York. 

To further crunch the numbers (referencing a table I came across on Zoocasa) the number of sales of detached homes & semis in the GTA dropped by 53% between March 17-30. There were 1,153 home sales in the GTA as compared to 2,435 from March 1-16. Condo sales also dropped over 50%, going from 1,541 to 729 in the same comparison of both periods. 53% is bound to rise with the growing “Semi-Lockdown” state of Ontario.

With all those numbers, how will this affect you maximizing on your investments?

In the short term, we can absolutely predict a large scale “cool-down”  on real estate transactions. It was initially predicted that the April-June real estate market would reach a record-breaking sales season. Buyers/tenants will likely hold off on their home purchases & searches amid uncertain health and economic conditions. Sellers anticipating a higher market value return on their property will no doubt hesitate to accept a lower offer. This will likely result in a Buyer-Seller stalemate.

More often than not, a tenant or buyer is looking for a property to match their specific criteria. Each will have different expectations and needs. Seeing as a homeowner will have little to no control over a buyer’s needs, which components can they decide with instead?

  1. Hidden Costs:

These are likely the defining factors you may not yet be aware of. Property taxes, reparations, mortgage payments, insurance, condominium fees, etc. If you were renting, the landlord would be responsible for each of these. Although owning is an appealing concept, a rule of thumb many homeowners use is: if you can pay for it twice, you can afford it. Remember – your mortgage will NOT be your only cost

  1. Inflation and Appreciation:

Through daily interaction with some of the GTA’s more experienced homeowners, we can easily convey the following message: your property will likely not double up in value for numerous years. Yes, we’ve all heard how properties were bought 30-50 years ago, and the value doubled. In some cases, that may be true. However, in most cases that price change is simply a result of inflation over the years. Do not base the purchase of an investment on the idea of a high return over the course of a couple years.

  1. Renovation & Repair:

This ties into inflation & appreciation. Regardless of the original property listing price, renovations and repairs are proven to drastically increase the overall value, and therefore rent price, of a property. Strategically, the purchase of a less expensive property in a popular area then renovating it can be a fantastic investment. Proceed with caution, as these costs will have to be mapped out and budgeted to avoid exceeding your limits. 

  1. Equity & Credit:

A fantastic benefit for purchasing an investment property is the option of building equity. Making monthly payments on a mortgage and utilizing money by putting into an asset that you could later sell is an excellent way to build credit and benefit you in the long term. 

  1. A PROPERTY IS NOT AN INVESTMENT UNLESS YOU SELL IT.

This may be a controversial opinion, but hear us out. Our Investment Real Estate cycle is as follows: Pre Construction/Resale → Tenant Placement → Property & Portfolio Management → Mortgage/Refinance → Repeat. This method is guaranteed and proven time and time again to maximize your investment. By following these steps, your property will rise in value, with or without general inflation.

To conclude, a “good investment property” varies in definition. If all above factors appeal to a buyer or tenant, the question becomes “what makes a good investment property for YOU?” If you’ve read the above components and are not convinced that your property checks all boxes, seek some additional support. Being your “One-Stop-Shop ” for real estate, our team at Eminence Realty INC. will be able to answer all questions, and refer you to the best professionals…all in house. If all the above components are well within your boundaries, and you are confident in moving forward – you may have just begun your journey on maximizing your Real Estate investment Portfolio. 

Still have questions? We’re here to help. We’d love to hear from each of you, voice your thoughts and questions to info@eminencerealty.ca, or give us a call at (647) 479-2808. Until next time!

Sources:

https://www.moneyunder30.com/why-your-house-is-not-an-investment 

https://www.cnbc.com/2019/10/01/real-estate-is-still-the-best-investment-you-can-make-today-millionaires-say.html

https://www.iwillteachyoutoberich.com/blog/surprising-real-estate-investing-myths/ 

https://www.cnbc.com/2019/04/18/wealth-manager-buying-a-home-is-usually-a-terrible-investment.html 

 

https://www.thebalance.com/is-buying-a-condo-a-good-investment-2388507 

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At Eminence Realty, we grow alongside the rapidly evolving market so that we can continue to provide you with the highest level of excellence. As your One-Stop Shop for Real Estate, we’re here for you. We invest our time to ensure you are maximizing on your investment each step of the way. From tenant placement to portfolio management and everything in between, our hardworking team is the best at what we do.

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