Key Considerations for Buying Rental Investment Property
The dream of owning a rental investment property in BC, with monthly cashflow and potential increases in value year after year, is the desire for everyone I know. The idea of sitting back and enjoying the benefits of an investment in real estate may certainly offer peace of mind to you and your loved ones. However, the realities of property ownership in BC can also have enormous challenges that one should be aware of. There are many costs and expenses associated with owning a rental property which may deter investors from engaging. With the numerous expenses one may anticipate, the profit to the investor may quickly be diminished, making the entire investment not worthwhile. Furthermore, there are various types of rental properties to consider investing in, which will also determine the benefits or challenges. The list goes on and on.
Whether you live in the Greater Vancouver area or Lower Mainland, Vancouver Island or up in the Interior of BC, it is important to be aware of the costs to consider when purchasing a rental property in British Columbia. Here is a comprehensive list of the costs and expenses to consider for an investment rental property in BC, along with some potential challenges:
12 Costs to Consider When Purchasing a Rental Investment Property
An investor must set aside a sizeable down-payment in today’s market to qualify for & justify the purchase of an investment rental property in BC. With property values in the province being so high, it will require a large down-payment to bring the operating costs down to a manageable level to be debt serviceable. The potential investor also wants to ensure there is enough revenue each month to cover costs and avoid having to put their own money out of pocket to help with expenses.
Mortgage Payment & Interest Cost:
Any loan or mortgage you must carry on the property will have a monthly payment that you will have to account for. This mortgage payment usually makes up the single largest monthly expense for the investor. Interest rates change and so will the allocation of principal and interest with each monthly mortgage payment. It is important to structure a cost-effective mortgage with the investment property. Ideally, the investor would desire to minimize the interest expense and rapidly pay down the mortgage.
Property taxes are a fixed expense due each year. The amount can vary based on the ever-changing municipality and market conditions in British Columbia.
Strata Maintenance Fees:
Another fixed monthly expense for strata property owners. Used to assist with general maintenance upkeep, strata services, contingency reserves - this is a monthly expense that one can never anticipate being reduced. Strata fees only seem to increase after time and never decease. Furthermore, with a strata property comes the potential for future special assessments. Should there be major issues with the strata development such as water damage (ie. “Leaky Condo”), the out of pocket expenses can be crippling.
You must have insurance to cover the property from perils and liabilities. Having to maintain insurance is another fixed expense and extremely important to have when purchasing a rental property in BC. The investor needs to ensure that the property investment is fully protected from the unexpected.
Realtor & Leasing Agent Fees and Commissions:
Should you seek the services of an agent to help with marketing and managing your investment rental property in BC, there will be a cost for these services. The agent will use their skills and tools to find a suitable renter for your property. The agent will assist you in qualifying the potential applicant to ensure you have a great candidate to rent your property. The agent may also offer to collect the monthly rent and handle general inquiries to satisfy any renter demands on your behalf. The property investor would be insulated from having to deal with any renter issues. All of these agent services, plus many others, come with a fee. The basic average property manager fee may range from 7-10% of the gross monthly rent/lease.
Maintenance & Repairs:
These expenses are not fixed but can arise at any time, unexpectedly. When this happens, immediate action must be taken, and the expenses are incurred on the spot. Typically, the property owner must address plumbing or electrical issue, appliances that need replacing, a new roof or fence, etc. The property undergoes wear and tear so there will be ongoing maintenance required. There may also be the issue of an unruly tenant - one who intentionally damages and vandalizes the property. The repair work in cases such as this may be significant.
Unless the rental agreement states otherwise, the property investor must account for the costs of heat, water, electricity, hydro, cable/internet.
If the property owner opts to waive the services of a rental agent, then the costs of finding a suitable renter falls on the investor. The actual monetary cost of running ads and the time spent on interviewing potential renters can be immense. This is true especially for the new and inexperienced property investor.
Accounting Fees & Costs:
Strict accounting records must be kept and maintained for the investment property. This to highlight the revenues, but also the various costs and expenses to minimize the tax liability to the property investor. As a result, in most cases the property investor must employ the services of a capable financial service provider to help with tax return preparation.
Legal Fees & Costs:
These costs would be incurred for such items as preparing rental contract/leases, dealing with overdue rental collections or any other legal issues. Legal fees are also incurred when an investor purchases or sells a property in BC.
The cost of keeping the yard and gardens maintained and manicured are another expense for the property investor to consider. This may only be a seasonal expense, but regardless, it can be expensive and time consuming to manage.
The information provided above is meant to offer an overall snapshot of the types of expenses a real estate investor may anticipate when pursuing a rental property in British Columbia. The rental investment property market in BC is vast and so are the numerous options and challenges that come with it. It is strongly recommended that prior to engaging and snapping up that investment property, that you seek the services and advice of a real estate expert. A real estate professional will guide and offer you the tools and important information to help you make the right wise decision.
If you are a current homeowner in Vancouver, Surrey, Burnaby, Abbotsford, or elsewhere in the Lower Mainland and are looking to pursue an investment rental property, speak with us today should you have any questions. Similarly, we are also serving clients in Kelowna and the Okanagan Valley who pursue investment rental properties in the Interior of BC. For more information about how you can leverage your existing home equity to pursue an investment rental property, get in touch with us today by clicking here or giving us a call at 604.620.2697.
Silver Hill Blog
Jim Horvath is the principal broker and director of Silver Hill Mortgage Corp., arranging private mortgage loans in British Columbia for over 25 years.