If the Vancouver real estate market has you wondering whether it’s even possible to earn your desired passive income, we have a few tips to share with our valued Investors and Investors-to-be to help you decide and invest with confidence.
Tip #1: Always do a cash flow analysis. Always.
Vancouver real estate is very expensive, so before you decide to commit to an investment, the most important thing to do is to conduct a cash flow analysis. No matter where you invest, whether here in Vancouver, or in another city, province, or country, a cash flow analysis of your real estate investment will help you make the most objective decision.
What does a cash flow analysis tell us?
To put it simply, a cash flow analysis will help you visualize if your projected income will cover all of your relevant expenses. Additionally, it will help put your emotions aside as it creates objectivity in your decision-making.
Our advice? Do research, do a cash flow analysis, and leave it to the numbers to help you make a decision like a real estate investor.
Tip #2: Never go into a bidding war not knowing your upper limit
It’s important to know at what price you will have to walk away from a deal, for several reasons. First, you may (unknowingly) get too emotional which could easily lead to overspending. Second, there is no point bidding for a property that may end up making your cash flow negative, defeating your purpose of investing. Third, you don’t want to buy at the height of the market. In real estate investing, you buy low and sell high, just like any other investment.
Tip #3: Furnish
Furnished properties generally make anywhere from $300 to $500 more on monthly rent than unfurnished ones. This is definitely true here in Vancouver, where the vacancy rate has declined to less than 1% as demand for rental spaces outpaced supply (Fall 2015 CMHC BC Rental Market Report).
The tenant profile for furnished rentals is generally business executives, or out-of-town short-term renters such as students and workers.
So why not take this opportunity and have some fun furnishing your investment property and make a little more money along the way?
Tip #4: Be Open-minded
Have you considered investing outside of Vancouver? Being open to investing in other areas in BC such as Burnaby, Surrey or Kelowna, may lead you to investments that produce a better ROI (Return on Investment).
Additionally, properties outside of Vancouver are often more affordable while still achieving similar rents. Essentially, you would be paying less for the property, but receive similar monthly rental income. For example, a three-bedroom condo in Kelowna is priced at $365,000 while a comparable unit in Vancouver scores at almost $1 million. Even if you receive higher rents in Vancouver, it may not be cash flow positive, especially with expenses such as property tax and strata fees to cover.
To give you a better idea, consider these two properties:
- A Kelowna 3-bedroom condo, price = $365,000, monthly rent = $2,500
- A Vancouver 3-bedroom condo, price = $905,000, monthly rent = $3,700
Annual rental yield of Kelowna condo = ($2,500 x 12) / $365,000 = 8.2%
Annual rental yield of Vancouver condo = ($3,700 x 12) / $905,000 = 4.9%
*Figures were obtained from real comparable properties.
As you can see, the Kelowna property produces a higher annual rental yield than that of a comparable property in Vancouver.
Tip #5: Investment Realtor = Investor
Always work with a realtor who is also an investor with their own real estate investment properties. They will be able to provide you with a comprehensive cash flow analysis and they will already know the types of property that will make money. Therefore, working with an investment realtor will save you time that you would spend doing the research yourself.
Experienced investment realtors also have connections that can benefit you. Oftentimes, they will have a team of investment specialists (e.g. mortgage brokers, property managers, accountant, lawyers/notaries, etc.) who are already familiar with investment properties. This way, you can leverage the skills and knowledge of the investment realtor’s team.
Want to learn more? Contact our team!
If you have read this until the end, then it’s a good idea to call our team for more information. It’s never too early to start investing. If you are here, then you know you are interested and you want to learn more.
You never know what you’ll find out. Contact Point B Investment Real Estate Team today by emailing us at success@pointBinvestment.ca.
We look forward to hearing from you.
I’ve been a landlord for over 15 years, and I’m very fortunate to have had great tenants all throughout that time. Other landlords haven’t been so lucky. Over the years, I’ve heard from fellow real estate investors and have read stories in the news about tenants who trashed property, were consistently late on rent, or skipped paying rent completely. When I hear these stories, I consider myself pretty lucky that I’ve never had to deal with these tenant issues in any of my investment properties.
But is it really luck? From my observations, there seem to be two types of landlords: he ones who treat their investment like a business, and the ones who are scared of losing out on a month’s rent. The ones who treat their investment like a business conduct the necessary tenant background, reference, and credit checks. But the ones who are scared of losing out on rent will impulsively rent their property to the first person who is interested and might forego a thorough and proper screening. It’s the latter type of landlord that seems to end up with more horror stories.
Being a landlord is not an easy task. It requires dedication, an understanding of residential tenancy laws, and a fair bit of ‘people skills’ when dealing with tenants. But the upside is that when it’s done right, being a landlord can be a great way to earn passive income.
Besides proper tenant screening, the second most important task as a landlord is to write a proper rental contract. A well-written contract lists exactly what is included and what is not included with the rent, how long the tenancy is for, how much the rent is, when it is due, and how much is paid as damage deposit. You can also add an addendum to the contract to include rules like no pets, no smoking, no loud noises after 10pm and any other terms and conditions you see fit. Having this contract avoids disputes as everything is laid out in black and white.
Even with my years of experience as a landlord, I recently discovered some valuable information that all landlords can benefit from that prompted me to write this blog post. In the July/August 2016 issue of the Real Estate Investment Network REIN Life Magazine, former employee of the BC Residential Tenancy Branch, Giuseppe Pino Frustaci, explained a way to better control the outcome of your tenancy with what’s called the “vacancy clause”. (Click here to view the residential tenancy agreement here http://bit.ly/2bKFnSg.)
The Vacancy Clause
On page two, under 2. Length of Tenancy, it states when the tenancy starts and whether it is on a month-to-month basis or a fixed length of time. Most Landlords who want a long-term tenant, myself included, would check off b) for a fixed length of time (usually one year), and then we usually check at the end of this fixed length of time, i. the tenancy may continue on a month-to-month basis or another fixed length of time.
According to Giuseppe Pino Frustaci, if you choose the option that the tenancy may continue on a month-to-month basis or another fixed length of time, you have essentially given up your right to have a say on how your contract will continue. However, if you choose the vacancy option ii, which states the tenant must move out of the residential unit (and have the tenants initial), then you have given yourself a voice in the negotiation. You will get to choose whether the contract will continue on the same terms, different terms, or end if it’s a problem tenant.
Why the Vacancy Clause Matters
This will be extremely important to you as a landlord if market rents have skyrocketed massively like 10-15% in the past year and you want to charge according to market rent. The answer is, you won’t be able to as under the BC Residential Tenancy Act. The BC government only allows you a small percentage of rent increase (usually under 3.5% per year). I’ve seen many people who are under-charging for a tenant who has lived in the unit for 5+ years because their tenants get to ‘continue on a month-to-month basis’ and the landlord has no say in the matter.
The key in using the vacancy clause is to educate your tenant about what this clause means. You can explain to your tenants this this doesn’t necessarily mean they need to move out at the end of the term. It’s more of an opportunity to discuss what worked and what didn’t work during the tenancy period, and to renegotiate the terms or continue with the same terms.
If used correctly, the vacancy clause creates a level playing field for both parties to have a constructive conversation and come to an agreement that everyone can be happy with.
So there you have it. The next time you rent out your investment property in BC, whether it’s in Vancouver, Burnaby, Surrey, Kelowna or even as far as Fort St John, don’t forget to give yourself an “out” with the vacancy clause.