Key Considerations for Purchasing a Rental Investment Property
Whether you live in the Greater Vancouver Area, Lower Mainland, Vancouver Island, or the interior of British Columbia, it’s important to be aware of the costs to consider when purchasing of a rental property in British Columbia. Here is a complete list of costs and expenses to consider for a rental investment property in British Columbia, along with some potential challenges:
12 Costs to Consider When Buying a Rental Investment Property
A large deposit
An investor must set aside a significant down payment in today’s market to qualify and justify the purchase of a rental investment property in British Columbia. Given the high property values in the province, a significant capital outlay will be required to bring operating costs down to a manageable level and allow for debt service. The potential investor also wants to ensure that they have enough income each month to cover costs and avoid having to fork out their own money to contribute to expenses.
Mortgage payment and interest charges:
Any loan or mortgage you need to take out on the property will have a monthly payment that you will be accountable for. This mortgage payment is generally the largest monthly expense for the investor. Interest rates change, as does the distribution of principal and interest with each monthly mortgage payment. It is important to structure a profitable mortgage with the investment property. Ideally, the investor would like to minimize interest costs and pay off their mortgage quickly.
Property taxes:
Property taxes are a fixed expense due each year. The amount may vary depending on ongoing municipal and market conditions in British Columbia.
Strata maintenance costs:
Another fixed monthly expense for condo owners. Used to help with general maintenance, strata services, contingency reserves – this is a monthly expense that can never be expected to be reduced. Strata fees only seem to increase over time and never decrease. Additionally, a strata property carries the possibility of future special assessments. If there are major problems with the strata development, such as water damage (e.g., “leaky condo”), the out-of-pocket expenses can be crippling.
Insurance:
You must have insurance to cover the property against risks and liabilities. Having to maintain insurance is another fixed and extremely important expense to have when purchasing rental property in British Columbia. The investor must ensure that his real estate investment is fully protected against unforeseen events.
Fees and commissions for real estate agents and rental agents:
If you are seeking the services of an agent to help you market and manage your rental investment property in British Columbia, these services will come at a cost. The agent will use their skills and tools to find a suitable tenant for your property. The agent will help you qualify the potential applicant to ensure you have a great candidate to rent your property. The agent may also offer to collect monthly rent and handle general inquiries to satisfy tenant requests on your behalf. The real estate investor would be protected from having to deal with tenant problems. All of these agent services, as well as many others, are paid. Average property manager base fees can range from 7-10% of gross monthly rent.
Maintenance and repairs:
These expenses are not fixed but can arise at any time, unexpectedly. When this happens, immediate action must be taken and expenses incurred on the spot. Typically, the homeowner needs to address plumbing or electrical issues, appliances to replace, a new roof or fence, and more. The property experiences wear and tear so ongoing maintenance will be required. There may also be the problem of an unruly tenant – one who intentionally damages and vandalizes the property. Repair work in such cases can be significant.
Utility expenses:
Unless otherwise stated in the rental agreement, the real estate investor must take into account the costs of heating, water, electricity, hydroelectricity, cable/internet.
Marketing costs:
If the landlord chooses to forgo the services of a letting agent, the costs of finding a suitable tenant fall on the investor. The actual monetary cost of placing ads and time spent interviewing potential tenants can be immense. This is especially true for new, inexperienced real estate investors.
Accounting fees and costs:
Strict accounting records must be kept and maintained for investment properties. This is to highlight the income, but also the different costs and expenses in order to minimize the tax to pay for the real estate investor. As a result, in most cases the real estate investor must utilize the services of a competent financial services provider to assist in preparing their tax return.
Legal fees and costs:
These costs would be incurred for items such as preparing the rental agreement/leases, processing overdue rent collections, or any other legal matters. Legal fees are also incurred when an investor buys or sells property in British Columbia.
Landscaping:
The cost of maintaining and maintaining the yard and gardens is another expense to be considered by the property investor. It may just be a seasonal expense, but regardless, managing it can be costly and time-consuming.