Surprisingly for most people, sourcing a rental property is easier than finding a home to live in. Your primary residence, your “home”, is about fulfilling your lifestyle goals. People buy for themselves based on emotion, but for investment’s sake it’s more formula than feeling. My clients in this case were not cash investors (meaning they needed a loan for the bulk of the purchase price). The defining equation for them was, “will the rent coming in be equal to, or greater than, the holding costs going out?” I hear people say this is “impossible” in metro Vancouver. Actually, local people are investing in real estate every day for less than you may think.
Perhaps it sounds unrealistic to say all properties in the Vancouver area are a good investment but if you look back over the historical data since the inception of the real estate board, or even just since they started digitally recording sales data in 1977, prices have consistently been climbing. There have been dips and spikes along the way, yes, but the general trajectory over the long arc is upward.
One of the things that makes Metro Vancouver so viable for landlords is the low vacancy rates. If you are not a renter you will be shocked by just how competitive the rental market has become. The average property owner tends to be insulated from the “housing crisis” that is going on around the lower mainland until they are faced with the necessity to buy or rent. Then it’s obvious there is a short supply, and what is available is unaffordable by most definitions. This applies to both the ownership market and the rental market, making it a perfect and challenging time to buy a rental property.
Financing for rentals is different than for owner occupiers. Mortgage rules require at least a 20% down payment. If you don’t meet the requirements, a strategy I have seen a lot of clients use is leveraging equity from their primary residence. Although borrowing a down payment is technically not allowed, equity take outs and down payment gifts are.
My clients viewed quite a few properties that would be cash flow neutral and some that would be cash flow positive, all within about an hour commute of downtown Vancouver. The commute was a factor because they wanted to attract professionals as renters. It was also important to stay close enough to where they live, so they had the option of managing the tenants themselves – although hiring a property manager was not out of the question. This being their first investment property, they wanted more control over their asset.
In the end my clients placed a bid on an adorable junior one bedroom right on the Skytrain line. Like so many first-time investors they were nervous after reading horror stories on the internet about bad tenants. The additional hiccup of obtaining financing on a property under 500 square feet also cropped up.
Not all lenders will grant funds on what they consider a small space. My clients’ lender would not support their loan because the specific lender has a dwelling size policy, but with a few phone calls I was able to help them figure out why their lender would not proceed and connect my clients to an expert mortgage specialist I have worked with for many years. We had their approval back in a matter of hours, without any restrictions on the floor plan size.