We found 2 rental properties we like and can’t decide which one to buy. Which factors do you think should sway our decision? – CONTEMPLATING
DEAR CONTEMPLATING: The condition of the rental properties and demographic of the tenants are important to consider right off the bat. Are the tenants cooperative? If so, look at whether their rents are close to market value. Many people think it’s a plus if a rental property has long-term tenants, but it can be a red flag in some cases. If the tenants have been there awhile, there’s a good chance the rent they’re paying is under market value.
Some landlords think that not raising rent will help keep a property full. But because the value of a rental property is typically weighted towards the income it generates, keeping rent low will actually drive down the property value. Consider this: monthly rent set just $200 below market value can impact the value of the property by close to $50,000 when it comes time to sell!
I advise my clients to invest in a single-family rental (like a townhouse) as opposed to a duplex. While the value of a townhouse tends to rise in step with the residential market, the value of a duplex is based on the income it generates — so it may actually end up losing value as interest rates climb.
We are about to sell our 15 year old townhouse. The original carpets are in OK condition, but they look tired. Any suggestions? – FLOORED
DEAR FLOORED: Lucky for you, a 15 year old townhouse hits the sweet spot in today’s real estate market. It plays heavily into the criteria for first time buyers, and a quick update can make it even more desirable. A 1400 sq. ft. townhouse for example, might have approximately 1000 sq. ft. of carpet. If an owner were to replace that carpet at $4/sq. ft., the $4000 investment would represent about 1 percent of the property value and would provide a healthy return on that investment!
If you can swing it, I suggest replacing the carpet and repainting (an investment of 1.5 to 2 percent) for an even larger return. When my clients do this, I usually help them pick out the colours to ensure they’ve got something neutral with wide appeal. These tasks are easiest to complete when the home is vacant, but if that isn’t possible, I urge you to do some heavy duty de-cluttering and pre-packing before you start. With less “stuff” in the house, you can probably wrap up the renos in a week or two.
Is it OK to buy on a busy street? – UPTOWN GIRL
DEAR UPTOWN: Yes and no! Everyone says they want to live on a quiet street, but pick any busy street in the city, and you’ll notice the houses have people living in them. The key to buying on a busy street is to make sure you’re doing so at the correct price. Hypothetically, if there were two identical houses a block apart, the one on the busy street should sell for less money. Buying on the busy street wouldn’t be my preference, but as long as the location is factored into the acquisition cost, you should see your property rise in value like any other.