There is nothing like finding a great real estate investment deal. Visions of profits dance before your eyes, tempting you to take the plunge. Perhaps you should, perhaps not. The trick is to do your homework well before you sign on that dotted line. Do that and no matter what level of investor you are, or how experienced, your chances of being successful are heartily increased. Keep an eye out for these five items.
Buying a property with the idea of turning it into a successful rental does require a bit of knowledge in maintenance department issues. After all, if you don’t know how much it costs to fix or replace something, such as an appliance or two, how will you know how much it will cost to keep your investment in good running order? If there is considerable work to be done, having an idea of repair and replacement costs could help you decide if that bargain you found is really all that great. Buildings inspections are a must.
Verify the Numbers
Sellers provide potential buyers with income and expense numbers when trying to market their property. You should have access to the expense reports for at least the last two years, including items such as electricity, heat, water, sewage and maintenance costs. Study the information, and if you feel you need an interpreter, ask your realtor or accountant to take a look. Don’t just assume that the information is correct, make sure it makes sense. Make sure the money coming in covers the money going out, with some left over.
Security Deposit Questions
Most apartment renters put down some form of security deposit. The rules in Canada for such deposits vary from province to province. When you buy a property, part of the paperwork you should receive is current lease copies. Take a look at the section that notes the security deposit. If there are any on the books, the buyer must inform you where that money is being held. If the seller has them in a separate account or otherwise has them stashed away for himself, that money must be transferred to the buyer when the property sale closes. Ultimately that money will be given back to the tenant when they leave or put towards damages they leave behind if need be.
Make sure you aren’t surprised with a host of hidden fees on your rental property purchase. Fees on multi-unit properties are not as simple or straightforward as on a single family home. Ask before you arrange financing so you ultimately don’t have to tap into your nest egg to cover those surprise fees.
Do You Want to Manage the Property?
Yes, that is a question you should be asking yourself. Sometimes investors, particularly those new to the rental market, underestimate the amount of work and time it takes to keep an apartment building running smoothly. You must be up on all relevant laws, deal with tenants regarding complaints, late rents and other issues that may come up. If something needs fixed, its up to you to take care of whatever the problem may be. It is a business, pure and simple. Consider if you are up to running it, or if it would be wiser to employ a property manager to take care of it all.