Vancouver has been an investors dream for many years now and for good reason. The return on investment that can be achieved and security is difficult to match anywhere else in the world. However there are still dangers and pitfalls to avoid when making your purchasing decision.
Here are our top 10 investment rules to remember.
1. Know why you are buying
Having a long term strategy is essential as it will determine what type of property to buy to achieve your desired outcome. Will you buy, renovate, and sell ... or hold for the long term? Are you buying for capital growth or cash flow? These are just a few questions you must first consider and discuss with your Realtor.
2. Have a significant deposit
With the new Canada Mortgage and Housing Corporation (CMHC) rules a 20 percent deposit is now mandatory if any other real estate is already owned. Having 2o percent or more for deposit also prevents you from paying the CMHC insurance, provides a buffer if interest rates rise sharply, and will give you access to better loans as it shows the bank you are a safe bet.
3. Get your finances ready early
Get pre-approved right away so you don’t waste valuable time searching for a property you may not be able to afford. Shop around for the best rates and terms, and make sure there are no hidden surprises like huge penalty clauses if you pay out the loan early or decide to re-finance. Also make sure the term matches your investment strategy – you don’t want a 5 year mortgage term if you plan on renovating and selling the property in two years time.
4. Location, Location, Location
We've all heard the expression but for good reason. Not all properties will give you the same return, neither will all locations. If using a long term investment strategy what will happen to the area down the road? Will there be any major infrastructure developments, introduction of social housing, or efforts to implement zoning changes? You will need to speak to local municipal councils, and government to find out what may be happening down the road.
Location is also a key in ensuring you will be able to rent for good value in any market conditions. If four new high rises are being built nearby you may want to consider somewhere with less of an oversupply.
5. Who will your tenants be?
Fortunately for investors Vancouver’s vacancy rate has been extremely low in past years so tenants can’t be as picky as they may want to be. However with the 2008 global recession and market downturn we saw that properties that sat on the market and were unable to sell were suddenly looking for tenants and the rental market shifted quickly even here.
It is smart to make sure an investment property appeals to a wide range of prospective tenants. A studio in downtown Vancouver may seem like a great idea if only targeting single professionals or students, but perhaps a 1 bedroom and den in East Vancouver for the same price would serve you better. You would be able to attract the same demographic, as well as older couples, retirees, or young families.
6. Don’t buy without seeing it first
Wide angle lens and digital cameras can make places look great ... unrealistically great. The information given with the listing and on MLS is a good starting point, but needs to be verified and often inspected by you and your Realtor. The marketing information also may not disclose important details. What’s next door or down the street? Can people on the skytrain see you in your living room? Take some time and visit the property and neighbourhood. A good Realtor should do this for you beforehand.
7. Have an inspection done by a professional
You may have spoken to the neighbour or know someone in the building that says “everything is fine!” ... but be sure to do your due diligence. For approximately four hundred dollars you can greatly minimize your risk of buying a “lemon” or “leaker” and properly evaluate the quality of the property. As is often the case in Vancouver where many people live in condominiums, you as a homeowner are responsible for the maintenance of not just your unit, but have shared responsibility for the whole complex. Roof, windows, boilers, garage, etc. Don’t take the words of others as they may not know, have an inspection done before you remove the conditions of your offer.
8. Research the comparable properties
Knocking off 10 or 20 percent may seem like a reasonable idea but in reality may be unrealistic and cause you to let that great property slip through your grasp. You need to have solid understanding of current values and know whether something is overpriced, underpriced, or asking a reasonable amount.
Buying an investment property should be based on facts, not emotions. If the numbers don’t add up you have to be able to walk away. To know when to walk away you need to know what the property is worth and that is done by researching comparable sales. The more similar the property and more recent the sale the better but a Realtor can show you how to find the best comparable and what strategy is best based on the situation.
9. Negotiate with your brain, not your heart
As you’re looking at the property as an investment and not a home be sure to leave you emotions behind when negotiating. As long as it meets your investment plan, is attractive to the rental market, and can give you the return you are looking to achieve it may be worth an offer. Research the comparable to determine market value, and get your Realtor to advise a smart offer strategy. If you can’t reach a reasonable agreement walk away and try again on something else.
10. Work with professionals
Get expert advice from those that know the industry. Speak to your accountant, lawyer, and a local Realtor. You may not have the time of expertise to make all these decisions by yourself and do not want to make the mistake of overpaying or buying the wrong type of property.