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- Nov 14, 2007
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- 61
8 Keys to the SHARPEST Real Estate Purchase My business partner, Keenan, and I have been managing property for almost 6 years now, most recently as Libertas Property Management Inc. As we have been working with many new investors we have noticed certain tendencies. Like many investors, they often look for strong financial numbers to decide whether to purchase a property. If that is all they`re looking at, trouble may be on the horizon. Just because you can buy a property cheap doesn`t mean you should buy it! Look at the property not only as an investor but also as a renter.
Here are Eight Keys to making the SHARPEST purchase decision:
Scene – Be cautious of investing in questionable neighborhoods. Yes, there may be some great deals in these areas, but plan on a higher vacancy rate, lower rental rate or both. Even if you have a great property, potential tenants still have to drive to it before they see it, and if they don`t like the area, or building in the case of a condo, it may be an uphill battle...
House Plan – Ensure that the layout of the property is something that people could envision themselves living in. An example of something that doesn`t work is having a bathroom on the outside of a suite with the only access through a common laundry room. When we were in our purchasing phase we would always ask ourselves "Would I have lived here at some point in my life?" Would you live in a basement suite that you couldn`t climb out the windows of?
Amenities – Does it have schools, shopping, and transit nearby? Does is have unique amenities or selling points (car wash in the condo complex)? Is it close to major attractions, malls, parks, or trendy streets?
Renovations – Was the last renovation done at least in the 90`s? Tacky wallpaper and old green shag carpet or linoleum just doesn`t cut it. You want your property to be in the top quartile of attractiveness of properties on the rental market. Three key elements to attractiveness - fresh paint, nice flooring and newer appliances.
Parking – Is there sufficient parking for the number of tenants? Is the parking close to the entrance in the case of suites and condos? Is there visitor parking? Is the parking open, covered or underground? Is the parking powered?
Expectation of Rent – When purchasing, know the average rents for the area. Don`t bank on the expectation that your property will fetch the highest in the area. If you NEED a rent that is higher than the average, consider whether your property is nice enough to ask for the higher rent. Structure – Don`t only ensure that the structure of the building is sound, but that it LOOKS sound. Even if the structure is sound, if it looks like there is something wrong, tenants hesitate.
Timing – Give yourself or your property manager time to rent it. It is good practice to start advertising 2 months before you either get possession or know it will become vacant. If you are purchasing, write in the purchase contract the term of "Accessibility". An accessibility clause, with 24 hour notice, will allow you, or your property manager, access to the property to view it, take pictures or show it to potential tenants. A good property manager will have photos taken, or better yet a virtual tour, and then advertise, accept applications, screen the tenants and as a final step show the property. Only qualified tenants who already have a good idea of what to expect should be shown the property. In addition, consider the existing tenants or sellers, you are showing their home so be considerate of their time and needs.
I hope this gives some direction to investors looking to purchase their first few properties. Real estate can be a very rewarding investment, but just like all investments, proper due diligence is needed on all aspects of a property purchase. Just remember, your tenant is your business partner, make sure you are investing in property they would also approve of.
You can`t expect quality tenants to rent sub-quality properties.
Happy Investing!
Here are Eight Keys to making the SHARPEST purchase decision:
Scene – Be cautious of investing in questionable neighborhoods. Yes, there may be some great deals in these areas, but plan on a higher vacancy rate, lower rental rate or both. Even if you have a great property, potential tenants still have to drive to it before they see it, and if they don`t like the area, or building in the case of a condo, it may be an uphill battle...
House Plan – Ensure that the layout of the property is something that people could envision themselves living in. An example of something that doesn`t work is having a bathroom on the outside of a suite with the only access through a common laundry room. When we were in our purchasing phase we would always ask ourselves "Would I have lived here at some point in my life?" Would you live in a basement suite that you couldn`t climb out the windows of?
Amenities – Does it have schools, shopping, and transit nearby? Does is have unique amenities or selling points (car wash in the condo complex)? Is it close to major attractions, malls, parks, or trendy streets?
Renovations – Was the last renovation done at least in the 90`s? Tacky wallpaper and old green shag carpet or linoleum just doesn`t cut it. You want your property to be in the top quartile of attractiveness of properties on the rental market. Three key elements to attractiveness - fresh paint, nice flooring and newer appliances.
Parking – Is there sufficient parking for the number of tenants? Is the parking close to the entrance in the case of suites and condos? Is there visitor parking? Is the parking open, covered or underground? Is the parking powered?
Expectation of Rent – When purchasing, know the average rents for the area. Don`t bank on the expectation that your property will fetch the highest in the area. If you NEED a rent that is higher than the average, consider whether your property is nice enough to ask for the higher rent. Structure – Don`t only ensure that the structure of the building is sound, but that it LOOKS sound. Even if the structure is sound, if it looks like there is something wrong, tenants hesitate.
Timing – Give yourself or your property manager time to rent it. It is good practice to start advertising 2 months before you either get possession or know it will become vacant. If you are purchasing, write in the purchase contract the term of "Accessibility". An accessibility clause, with 24 hour notice, will allow you, or your property manager, access to the property to view it, take pictures or show it to potential tenants. A good property manager will have photos taken, or better yet a virtual tour, and then advertise, accept applications, screen the tenants and as a final step show the property. Only qualified tenants who already have a good idea of what to expect should be shown the property. In addition, consider the existing tenants or sellers, you are showing their home so be considerate of their time and needs.
I hope this gives some direction to investors looking to purchase their first few properties. Real estate can be a very rewarding investment, but just like all investments, proper due diligence is needed on all aspects of a property purchase. Just remember, your tenant is your business partner, make sure you are investing in property they would also approve of.
You can`t expect quality tenants to rent sub-quality properties.
Happy Investing!
