Earning an income from a rental property is one of the few revenue streams that – done right – can be both passive and lucrative. Here are three fundamental steps to finding the perfect rental income property.
Partner with Great Realtors
This first tip is an obvious one, but it bears repeating. A winning realtor is a vital ingredient in any real estate transaction, but they become doubly essential when hunting for a rental income.
Your success in this process is contingent on finding a fairly priced property in a bankable neighbourhood with good future prospects. Remember, you want to be able to market your rental property easily with as little vacancy as possible. To achieve this, you need a knowledgeable, hard-working advocate in your corner.
Before you start throwing darts at the real estate section of the Yellow Pages, do some digging to find the best in your area. For instance, if you’re in Toronto, you might search “best realtors in Toronto” before cross-referencing the top hits with client testimonials, experience and realtor statistics. For example, a top hit like Harvey Kalles Real Estate emerges as a winner thanks to its mix of solid reviews, longstanding community involvement, and enviable sales volumes.
Location Is Essential – In More Ways than One
With an experienced realtor at your side, you can start defining the perimeters of your search. The old adage, “Location, location, location,” has never been more critical.
Ideally, you’re looking for an area that strikes a delicate balance. It should have a low crime rate, proximity to amenities, good schools, healthy growth prospects and a high average rent compared to purchase prices. At the same time, it can be advantageous to enter (close to) the ground floor of an up-and-coming neighbourhood if you really want to witness your investment pay dividends, which can mean gambling on a neighbourhood that might not look like much yet.
Again, it’s difficult to stress how important a realtor is in this process. As experts deeply entrenched in the minutiae of local real estate trends, they can guide you toward a shortlist of areas primed for investment.
Next, you can consider your proximity to the property. Do you mind travelling 45 minutes across town to address a tenant concern? Would you rather a) find a place close to your primary residence or b) hire a property manager (which can eat into your passive income)? There’s no correct answer here. However, you should consider these questions before house hunting.
Consider Types and Rentable Units
Once you’ve defined locations, you can get a little more granular about what you want. Again, there are no hard and fast rules about what’s best. The property you choose will be determined by price range, target tenants, as well as an ongoing dialogue between you and your realtor.
First, consider the types of property you can purchase – the most popular being single-family homes, multi-family properties and condos. Each has its merits and potential drawbacks. Single-family homes can be pricey but tend to attract long-term, reliable tenants. Condos are less expensive and maintenance-intensive, but may experience higher turnover and slower appreciation. Multi-family properties (i.e. duplexes, triplexes or homes split into various units) exist somewhere in the middle.
If you research thoroughly, hunt meticulously and hitch your success to an experienced realtor, you should be able to find the perfect rental income property. Then, after you sign the dotted line, it’s (mostly) smooth sailing to a passive income.