Tips and tricks to making money
Purchasing a new condominium sounds like a “Win-Win” situation. Realtors, investors and builders are shouting at you to buy. You pay a small deposit up front, the value increases every year, someone else is paying off the mortgage and you make millions. What could go wrong?
Well no one talks about what happens after you purchase the property! The troubles involved in renting your unit, maintaining a positive cash flow and growing your investment. Real Property Management is often asked “How can I make my rental property profitable?” Below are outlined several areas that every investor should consider when purchasing and renting out a condo.
Condo Investment Factors
Condos do offer many benefits, and are preferential for first time investors due to their low maintenance concerns, single unit aspect and limited risk. Investors should keep in mind that condos also have additional fees associated with condo ownership, largely the monthly condo fee. There are several factors that can maximize your investment and have a profound impact on your rental success.
Location – suburbs like Mississauga, Brampton & Markham offer condos that are cheaper (than Toronto) to buy and still maintain a high rental income.
Size/Bedrooms – do you buy a two bedroom or one bedroom? Depending on the purchasing price, you could have a greater return on investment with a two bedroom.
Parking – parking is commonly purchased in addition to the unit and can be a great selling feature for interested renters.
Monthly condo fees – Builders commonly subsidize condo fees in an new building to advertise a low monthly fee. As a rule of thumb condo fees normally double in the 3rd year after incorporation.
Purchasing from a builder – dealing with builders can be very trying. When purchasing a new condo you will have an occupational period where you can live in the unit but are not allowed to rent it out. Owners that do not abide by their purchase agreement are hit with costly fines and lose any HST rebates given by the government.
Maintaining control of expense and increasing cash flow
Some great ideas to optimize your cash flow are:
Interests only mortgage – the government considers your principle payments as income, so why not spend the money where you need to.
Anticipate increased condo fees – Just like every other expense these fees will increase with time. Check with your condominium association/board.
Send out rent increases – Every 12 months you are allowed to increase the rent. Be smart; if you increase the rent too much you might be end up looking for a new tenant.
Rent parking spaces separately – In some areas you are able to get more money for a parking spot when you do not include it in the rental price.
Equal billing (for taxes and utilities) – this option really helps in the peak months. Instead of fluctuating bills you are able to pay a steady amount throughout the year to cover the costs.
Negative cash flows are not always a bad thing, as every investment will be different. If your monthly rental covers your basic expenses (mortgage interest, condo fees, taxes, repairs) you are in a great situation. Your monthly payment towards the mortgage principle is simply investing money into the property by increasing equity.
Finding your first tenant
Attracting tenants in new condos can be very difficult as many units will come onto the market at the same time, in the same building. Think about setting your unit apart from others: have it painted, include stainless steel appliances, granite counter tops, curtains, and closet organizers. Paid advertising and the Multiple Listing Service can also increase exposure for your unit, helping to find a tenant faster. New rental units are not subject to the same rent control laws as units built after 1991. Offer a lower price for the first year and then increase it on the second.
Many investors want to hold out until they get the rent they want. This behaviour can be detrimental. For example: a tenant offers to pay $1150 for a unit offered at $1200 and will take the property immediately. This represents $600 loss of rental income per year ($50*12=$600), but if you are not able to find a tenant that will pay the full price within a month there is a loss of $1200 plus your regular expenses (utilities, such as hydro). Would you rather lose a few hundred or a few thousand dollars? Know your financial limits and goals before you begin.
Controlling maintenance expenses
Many first time investors get stressed out over maintenance calls from tenants asking for things to be repaired or replaced. If you make it too easy for your tenants some will abuse the system and call you about anything and everything. A great way to eliminate unnecessary calls is to let your tenants know they have to submit all maintenance requests in writing. Always provide them with a phone number in case of an emergency.
Another great way to save money and improve cash flow comes with repairing your unit. Over time you will find that maintenance issues will arise. One of the simplest ways to save money is to find vendors that are reliable and affordable. These people will keep your tenant happy and solve problems without you having to oversee every detail.
Most tenants will insist they require a new appliance when one breaks down, but you are only required to have functional items. Consider second hand units or my personal recommendation of repairing appliances. Repairs are often cheaper and quicker than replacements. Not to mention panting up the stairs with a 200 lb. item.
Never chase keys again
Another simple way to save time and money is a refundable key deposit. It will help stop tenants from walking away with $200 worth of keys and a week of delays.
Pick your team of professionals
Many factors come into play when making a successful real-estate venture. Be sure to consider every factor before you make your choice as they all can have a profound impact.
Sounds like a lot of work, doesn’t it? Don’t be fooled, it is. Many different people will offer you solutions to your problems. They can be a great resource, but make sure you choose professionals that are knowledgeable, familiar with your marketplace, local laws, maintenance factors and have a proven track record in the business.
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I look forward to assisting you with your Ontario Landlord needs and invite you to check back soon.