When it comes to buying a rental property, as an investor, it’s not a bad idea to fill out a “unit report card”, marking the A’s, B’s the C’s of a property prior to purchase in order to maximize your margin of profit when it comes to setting rental prices. This report card is best filled out with the help of a qualified realtor (look no further!) who can not only help you to assess your property’s strengths and weaknesses, but can also place your grades on a scale so that you can measure them against other units in the same locale. But don’t fret if you’re a bit of a lone wolf. We’ve outlined some insider tips below to help you get started.
Grade Point # 1: Location
Location determines the value and price of a unit at sale, but it doesn’t necessarily demarcate rental prices. So, as far as we’re concerned, it’s OK to get B’s and C’s in this area. “Why’s that?! I thought location was everything.” Well. Let’s say you buy a property in a less desirable part of town. Sale price might be lower, but if it’s on a Subway line for example, rental prices might carry and average out with similar units in higher-end neighbourhoods. So while you pay less to purchase the property, your rental income will be the same as a higher cost unit (which means you maximize your margin of profit). It’s all about seeing the gap and being in tune with the market.
Grade Point # 2: Reputation (Builder and Building)
Reputation is everything, but it can be difficult to determine builder (and therefore building) reputation without market knowledge. The benefit of pairing up with a realtor on this grade point is that they can help you aim for an A by connecting the invisible links. Perhaps the builder of the new condo you’ve been eyeing has a poor market response. While some builders can get away with renting top-of-the-line, premium units for a high price point, others are not so lucky, and end up renting at bottom-of-the-barrel, discount prices that sit well below average. It’s important to know how your builder’s products measure up to other buildings in the area.
Grade Point # 3: Layout and Square Footage
A floor plan can be an influential determinant when it comes to setting rental prices, so it’s best to try for an A. Determining what sets a premium really depends on the market, so hiring a professional to advise you is not a bad idea. As for right now, corner units with a split floor plan are in high demand and will typically rent for much higher than say an interior unit with side by side bedrooms. When it comes to square footage, you can fall back on a B or a C, because rental price privileges amenities over size. For example, a 680 sq. ft. unit with 2 bedrooms and 2 baths will rent for a higher price per square foot than a larger unit with the same amenities, allowing you to net a higher return due to reduced carrying costs. If you take that a step further, and compare a 900 sq. ft. 2-bedroom vs. a 900 sq. ft. 3-bedroom, you’ll net a higher rental price for the 3 bedroom, even though the units are the same size.
Grade Point # 4: Special Features and Add-ons
From new-fangled appliances to spacious storage lockers, underground parking to that stunner view on your wrap-around terrace, add-ons and special features can help to set your rental unit apart from the competition. But how much is too much? While this grade point is subjective, a good rule of thumb is to know what’s hot, and what others have got. If a parking spot is hard to come by in the city, and every tenant in your building has a reserved spot underground, then you should follow suit to stay competitive. If most of your neighbours don’t bother purchasing a locker but you know your building has minimal storage and you have a line on one for a reasonable price then don’t hesitate to purchase as this will set you a cut above the other units in your building when it comes to rental prices. And if you’re going to invest in other features, like a terrace for example, do your homework. Are people looking for terraces in similar rental units in your area? Is your view impeded in any way? Are you on a quiet or a busy street? Do some digging and make sure the add-ons and special features which might cost more at sale will allow you to make up the lost revenue when it comes time to rent.
While investing in a rental property can be tricky business, these four grade points should help to point you in the right direction so that you can find a competitive unit that will get you the most bang for your buck, no matter what’s happening in the market place. Working with us, we’re always striving to find you investment opportunities that will benefit your investment goals. If you’re looking to take advantage of the hot rental market, let’s discuss your goals and find you a property with great rental potential. We always have lucrative pre-construction investment opportunities on the horizon. Sign up as an Insider here and we’ll send them straight to your inbox the moment they launch. Don’t miss out, register as an Insider today.