Are you thinking about investing in rental real estate? Due to resilience in areas of the marketplace, many Canadians are expanding their real estate game outside of owning their own homes, and have become investors in the real estate market.
Investing in rental real estate is a good option for investors who know how to use demographics to choose areas that include populations of high quality potential tenants – people who can and will pay rent. Once you find an area with favourable potential tenants, comparing the median purchase price of residential rental real estate against the median rental rate will give you a good idea of the potential return on your investment, and help you make a wise decision about where to become a landlord.
If you find a great deal in the best location you are likely to find yourself in a multiple offer situation. Make sure you are equipped to best handle the situation.
Here are some general tips on how to find the best locations for real estate investment:
1. Strong Employment
If you are looking for long-term real estate investment, look for middle class, working communities. To be a successful landlord, you want renters who have a steady income stream, who can afford to rent, and who will make their payments. To find rental markets that include tenants that meet these requirements, research demographics and check out local unemployment rates prior to buying rental real estate. Compare the potential market’s current local unemployment rates against the national unemployment rate.
2. Highly Accessible
How easy is it to get in and out of the community? This is important and that usually comes along with a regional centre, but look for good highways and airport access. When looking to expand outside of a market that is already a plane ride away from where you live, try to stay within a one-hour drive from the hub city. This allows for ease and efficiency of business travel.
Accessibility to transit is a key component in the infrastructure of a community. Historically, homes located close to public transit tend to increase in value. Look for areas with a comprehensive transit system, or areas with emerging transit.
3. Population Growth
Stable increase in population is usually linked closely to new industry employment. Look for communities with an increasing population – this could be an indicator of an emerging community.
4. Private Sector Investment
If newer big box retailers and large corporations are entering a community, the odds are that they have access to much better research on the community than the public. They want to be in a community that is growing and vibrant, and this is the same type of community investors look for. Keep in mind that some people choose to rent because they’re involved in a temporary activity that requires them to live away from their hometown. For example, contract workers may prefer to rent because they can’t afford to buy a home and/or they’re staying in a city for a set amount of time with a known end-date. These areas make great rental markets.
5. Public Infrastructure
Look for upgrades occurring in public buildings and other public assets in the community itself. If school districts are growing, hospitals are expanding and recreation centres are being constructed, the federal, provincial and municipal governments are probably investing money into the area. Young people attending college may prefer to rent because they can’t afford to buy a home and/or they’re staying in a city for a set amount of time with a known end-date. Therefore, you’ll want to search for cities or large towns with colleges. However, watch out for high real estate purchase prices.
6. Purchase Price
The purchase price of properties in the community should give you your required return on investment based on normalized market finance terms and conditions. You can negotiate low interest, short-term, vendor-take-back financing, but when you’ve overpaid and it comes time to refinance, be prepared. Fantastic short-term financing is a bonus, not a plan.
7. Millennials and Baby Boomers
Keep an eye out for cities, towns or neighbourhoods with large and growing populations of millennials and baby boomers – two groups who may want to rent, but for different reasons. Millennials often rent because they can’t yet afford to buy a home and/or don’t yet want the commitment of home ownership, or they’re averse to buying big-ticket items. Baby boomers may feel the need to downsize as their children grow up and leave home, but may prefer to rent until they find the perfect new home to buy.
For more information on specific real estate markets and generational buying read our 2015 Top-Tier Generational Trends Report.
8. Property Managers
A great property manager on the grounds is important to ensure you are informed and solve issues as they arise, quickly and efficiently, especially if you don’t live in that community yourself.
Do you have any tips to find the best locations? Share them with us in the comments.
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