Buy & Hold Income Properties

-Written by Erica Wiechnik

So you want to invest in a buy and hold income property?

First of all, what is a buy and hold property? Buy and hold real estate is typically a long term investment strategy, where an investor purchases a property and holds on to it for an extended period. The property is not purchased by the owner with the intentions of living in it, but rather to rent it out, cash flow and build equity over time. 

A lot of people dream of having passive income, and a buy & hold income property is a great way to achieve that dream. However it’s not as easy as seen on HGTV. A lot of time and energy goes into acquiring and maintaining a rental property to achieving the passive income, but it’s completely worth it. Taking the steps to actually make it happen is where most people get stuck. Where do I start? Why is it hard to find the information condensed in a step by step process? Do I want to be a landlord? And the list goes on. As someone who has personally invested in numerous buy and hold properties, I wanted to touch base on a few of these points to ease peoples uncertainties.

Picture source: Canva.com

WHERE DO I START?

• First thing to take into consideration when you’re buying any property that isn’t going to be your main dwelling, is that you typically need to put 20% down. This is a huge difference from the 5% needed for a home you’re going to live in. There are creative ways to get financing and capital, but that’s another whole topic called “how to find a great mortgage broker”. Ps. we know how! 
• Next, when you’re looking for an income property, it’s more a business decision rather than a personal one. You’re not going to live in this home, so don’t let your emotions take control. If the numbers work, and the location works, the property works.
• The numbers. Crunching the numbers just takes practice but it’s not rocket science. The best advice I can give is to include ALL of the numbers such as property taxes, insurance, 2% maintenance costs, property management fees (if you don’t plan on managing it yourself) etc. If the numbers don’t work, then don’t force it. Move on until you find something that does. There is no point in even looking at a place if the numbers don’t work because there is a chance that you will get emotionally attached to it. 
• To find out how much you could rent the unit for, look on Rentfaster.ca for that area. Be conservative with this number. It’s better to make more money than you thought then less.
• Everyone has a different threshold of what is considered a good cash flow. Some people are happy with just breaking even and building their equity, others have a minimum number. Figure out the number you need and stick to it. 
• Have a plan for approximately how long you would like to hold onto the property to achieve the ROI you need. This could be a length of time or until something changes. For example: Until your mortgage is below a certain number, until you can sell it for a certain amount more or until the community gets re developed etc. 

GENERAL STEP BY STEP PROCESS 

• Ideally have cash for a down payment ready in a liquid account (when looking at the documents for pre approval, lenders don’t like when money is all over the place)
• Pre Approval
• Research/crunch the numbers
• Look at properties with your favourite realtor, and one who understands the type of investments that you’re looking for
• Don’t let your emotions get in the way
• If the numbers don’t work, move on
• If the numbers do work, put in an offer!
• Complete inspection
• Secure financing 
• Firm Sale
• Legal
• Final walk through & key release
• Find a great tenant
• Pop bottles & enjoy your passive monthly income

DO I WANT TO BE A LANDLORD?

This is the toughest part and the answer is not YES for everyone. There is always the option of getting a property management company (which usually charges around 10% of the rent per door) which relieves some stress but also gives you less control. In the years that we have been renting out properties, we have never had bad tenants (knock on wood), so here are some tips and tricks we have learned.

• Location = type of tenant you will attract. Remember this when you are choosing an area to invest in. If you want to rent to families, buy in the suburbs. If you want to rent to young professionals, invest in or close to downtown etc. Keep in mind, some of the best cash flow comes from lower socioeconomic areas, so if you want to invest there keep in mind the type of renters that you will have. 
• When showing your unit, make sure two people go to the showings and stack the potential renter appointments back to back (15 mins apart). From our experience, not everyone will show, people will be late, people will be early so it honestly doesn’t matter what time you have booked. And that’s why there are two of you there so you can show two parties at once if need be. This also makes your unit look highly desirable encouraging people to pull the trigger and fill out an application.
• Have applications on hand and tell people to fill them out either on the spot or that day and return them to you by that evening via email. This will test how serious people are. 
• When screening the tenants, use the information they provide on their application, but be strategic about it. 

• If they put their employer, boss & bosses phone number, don’t call that number because anyone can put anything on an application. Call the actual business and ask for the name listed as the boss to ensure they actually work there and they are their boss. 
• Don’t call their current landlord to see if they are good tenants. They may be terrible, but this landlord just wants them off their hands so will say anything you want to hear. Call their previous landlord (before their current landlord), they have nothing to lose in telling you the truth. And again, confirm they are who the potential tenant said they are. 
• If they say they want your place, but can’t come up with the damage deposit and first month’s rent, move on to the next person! This is just going to continue to happen if you let it happen once. 
• Make sure you put in the lease agreement that you will be coming in to check the unit 3 months after moving in and then every 6 months after that. If they are good you obviously don’t have to check that often, but this is a good way to ensure your investment will stay safe.

• Once you have found a great tenant, treat them like the valued client they are. They are paying your mortgage and making you money. Get them a small housewarming gift, drop off a Christmas card and bottle of wine, check in often, ensure problems with the home are remedied quickly etc. These little things go a long way!