For this post, I wish I was going to share how I meticulously saved and planned before buying a rental property in BC, Canada. That story would have been informative and can serve as a blueprint for those of you who are interested in buying your first rental property.
However, it did not happen that way. At the risk of sounding rash, my first rental property was quite a spontaneous decision. This post is in no way trying to convince you to follow my steps but I do hope you can learn a thing or two from my experience and be inspired to go on the adventure on your own.
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How Did I Decide to Buy A Rental Property?
I got into a car accident (no one was injured, thankfully) and our car was a write-off due to the extensive damage (😢I loved that car). Since we already paid off a large portion of the car, we were left with over half of the money after paying off the balance (we were financing the car then). We decided to lease a new car with a $0 down payment so we were left with some extra cash (turned out to be ~5% of the downpayment).
We owned the condo we were living in then (our first home) and was paying about the same as what we were paying in rent for the housing costs (mortgage + insurance + strata). Both Eric and I had a relatively stable job so after crunching some numbers, I realized we can afford an investment property if our expenses remain the same in the near future and also work on saving up for a bigger emergency saving fund in the meantime.
Note, we bought a pre-sale condo (if you are interested in the process of buying a pre-sale, read my post here) so we only had to pay a 10% downpayment in total before the development finished and we closed on the sale (taking over the title). The development was supposed to complete 10 months after we signed the contract but ended up being delayed for 6 months (which is common in construction).
Where Did I Decide to Buy My First Rental Property?
I chose a concrete high-rise building in downtown Victoria, BC.
Once again, I wish I can tell you how much research and planning I put into this but it was once again a rather rash decision. I remembered looking at the development’s website one evening and made a decision on which unit to buy within the week. Since they did not have a show home, all I had to go by was their artist’s rendering.
Thankfully, that decision turned out to be good because of the following reasons:
- the development ended up completing on time (in construction, a 6-month delay is nothing)
- the craftmanship was quite good (in my non-professional opinion)
- the finished product looked very close to the rendering
- the unit was rented out within 3 months of completion (it was a bit slower than we expected)
What I have learned is the importance of picking a reputable developer and a popular location.
Our developer did not have a large portfolio but their past projects withheld their values relatively well (compared to buildings of similar age in the area).
With Victoria being a “government town”, there is no shortage of work in the area meaning it is easy to find a good tenant. In fact, our tenant has been able to pay his rent in full on time as his job has not been affected by the pandemic.
What Did I Need for My First Rental Property?
For a principal residence, you can get a mortgage with as little as 5% down payment (whether I think that is a good idea is another story). However, for an investment property, you need at least a 20% down payment in BC. Depending on your lender, you probably have to also show proof of 5% extra in your bank account as a safety net for closing fees.
That means for a $300,000 property, you will need $75,000 in cash (25% down payment).
I did do quite a bit of research on finding the best property management company since we did not plan on taking care of it ourselves. My effort has definitely paid off as their professionalism was apparent during the pandemic (e.g., regular updates, prompt responses).
Other than the down payment and a property management company, there wasn’t much you will need that is different than if you were buying a principal residence.
How Has My Experience Been So Far As A Landlord?
I don’t want to jinx it but it has been rather smooth. This is due in part to a good tenant and a responsible property management company. The management company did the background and reference checks on our tenant when he applied to make sure he had a stable job and has been a good tenant before.
The company has also provided data on the portion of their rental portfolio that was affected by the pandemic (e.g., partial rent, late payment etc) and what they did to handle those cases.
Other than that, I have been receiving monthly operating statements and annual tax statements via email. I only had to visit them in person once to “interview” them and everything after that was done through email and online.
What Do I Wish I Had Done Differently?
I definitely would not purchase a parking spot.
Is that a universal truth? No. Was that what I wish I had done in my case? Yes! During the 3 months of looking for a tenant, it was apparent that people preferred a bigger space over a parking spot. This of course varies depending on the location but downtown Victoria is quite pedestrian-friendly. If I had spent the money on a bigger unit instead of a parking spot, I would have been able to rent it out quicker and also for more money. Alternatively, I could have simply purchased the unit for less and carried a smaller mortgage instead.
Your mileage will definitely vary on this. My recommendation is to run some numbers yourself (or ask a number-savvy friend) and ask a local property management company for their opinions before spending thousands on a parking spot.
Do I think everyone should be a landlord because it is a 100% safe investment? No, because like all investments, it has risks.
I went into this (despite being rather rash) knowing the pros and cons of being a landlord. At the end of the day, if your tenant can’t pay, you have to come up with the extra money for your mortgage payment. If you don’t already have a sizable emergency savings fund, things could go bad really fast (especially if you also have a mortgage on your principal residence).
With the rental income, we are at break-even monthly (income = expenses). However, we are slowly building equity (the amount that goes to Principal is ours). When we sell, hopefully, the property value would have increased so we will make a profit after all the fees. This is a long-term investment for us so we are not bothered by the market’s up and down.
If you are thinking about buying a rental property and not sure where to start, I suggest finding out where you are financially first (if you have no idea where to start, follow my recession prep guide). If you are planning on getting into this with your family or your partner, talk to them to make sure they are as aware of the long-term impacts as you do. This is a very big financial decision and a lawyer should always be consulted regardless of who you end up doing this with.
If you are doing it on your own, you should still take to someone you trust as a sounding board and see if you missed something.
Good luck 🥂