Despite any transitional ups and downs, 2020 was a record year for real estate in Canada. As a result, Edmonton’s healthy buyer’s market conditions (combined with record-low mortgage rates) have created favourable opportunities for budding real estate investors looking to secure a fantastic deal on their first investment property.
That is, of course, if they know what to look for.
If you’ve been thinking of investing in Edmonton’s lucrative real estate market, here are four things to consider when choosing the right property.
The Right Neighbourhood
We’ve said this before – but we think it bears repeating. When it comes to the right investment property, the neighbourhood you choose is as important as the home itself. Because the ideal location will depend on the type of tenants (or buyer) you’re looking to attract, you’ll want to do some research on your target market and what they’re looking for.
For instance, young working professionals may be more inclined to purchase near the downtown core, which will offer convenient access to work as well as vibrant city center amenities (restaurants, cafes, recreation venues, etc.). On the other hand, growing families will likely prefer a more quiet, suburban setting near schools, parks and services (i.e., family doctors).
Other neighbourhood elements to consider include:
Property taxes – While higher property taxes are often tied to reputable/ high demand neighbourhoods, they will eat into your overall profits.
Crime rates – Be sure to investigate crime rates within the neighbourhood, noting if they are on the rise or decline, above or below average, etc.
A saturated rental market – A neighbourhood already seeing an increased number of rental listings may indicate the area is in decline. It will also force you to face heavier competition and likely result in lower monthly rental income.
Future development – Neighbourhood development can cause home values to appreciate or depreciate, depending. For instance, up-and-coming schools and shopping centres tend to drive buyer demand, whereas the construction of a new major highway or nearby landfill will likely cause home values to decrease.
The One Percent Rule
Simply put, the one percent (1%) rule is a baseline used by real estate investors as a means of evaluating a potential investment property purchase. According to the 1% guideline, the monthly rent you collect should be equal to (or greater) than one percent of the property’s overall purchase price.
For example: An investor looking to obtain a $150,000 mortgage loan for a property would calculate a $1,500 monthly rent payment. Keeping this in mind, they would then look for properties that cost less (or no more) than the above $1,500 in monthly mortgage payments.
In short, sticking to this simple guideline will ensure that rent collected will be greater (or at least equal to) the monthly mortgage payment. However, it is important to keep in mind that the 1% rule is only a baseline, and other important calculations (such as your gross rent multiplier, after repair value, etc.) will also need to be taken into consideration.
Note: We recommend working with an experienced real estate investment REALTOR®, who will help pair you with a budget-friendly property guaranteed to help meet your long-term financial goals.
Multiple Income Streams
Another thing savvy real estate investors look for when choosing the right investment property is the opportunity for multiple income streams. While this doesn’t mean buying up a half dozen properties in one fell swoop, it does mean looking for individual properties that can deliver more than one source of income (within one convenient location).
For instance, many investors opt to purchase a duplex or, even better, a fourplex to ensure twice, if not four times the amount of monthly rental income. While this may require a little more capital upfront, it does ensure that even if one of the units goes unoccupied, you’ll still enjoy a healthy rental income stream.
Conversely (and especially popular among first-time investors), you may choose a single-family home, duplex or townhome with a legal basement suite. This will allow you to a) occupy one of the units and pay your mortgage down faster or b) not occupy a unit and benefit from two sources of rental income within one property.
While it’s not uncommon to make some minor repairs or upgrades before getting your property tenant worthy – the keyword is minor. “Fixer-uppers” may be incredibly tempting at first due to their lower listing price, but often end up costing more than a newer property in better shape (you don’t want to end up replacing the furnace, roof and hot water system two years after purchasing).
This is yet another critical reason to work with an experienced real estate investment REALTOR® who, along with a qualified home inspector, can help you identify potential issues and the time and money it will take to address them (and ultimately whether the property is a worthwhile investment overall).
Here too, you’ll also want to consider how much ongoing maintenance/upkeep the property is going to need. Suppose you don’t intend on hiring a property manager. In that case, you’ll want to select a property within reasonable distance to your own home so you can efficiently address any issues, should they arise.
Are you interested in learning more about investing in Edmonton’s lucrative real estate market?
The Terry Paranych Real Estate Group specializes in helping new and seasoned investors realize their real estate dreams. Not only will we provide the expert investment-related advice and guidance you need to succeed, but we’ll also help you zero-in on the best properties, negotiate a better asking price, turn a healthier profit and much more.Terry Paranych on