Suppose you’re looking to invest in a secondary rental property or a primary residence with a rental suite. In that case, you need to understand the rental market conditions & how that impacts your return on investment (ROI) before you make any decisions.
Many people look for secondary rental properties as a stock market investment alternative since real estate has proven to be one of the soundest & most reliable investments one can make. In fact, 1 out of 6 Canadian homeowners own multiple properties and 40% of Canadians aged 56 and up have over fifty percent of their net worth in real estate.
It’s understandable to look into potentially purchasing an investment property. Still, as with all investments, you need to understand what your ROI might look like. In the case of residential real estate investment, your ROI is highly dependent on your rental income, among other factors.
Here are 3 ways you can accurately estimate your expected rental income.
Check Rental Sites for Relevant Market Comparisons
Assuming that you have a specific area or neighbourhood in mind for your rental property (maybe you’re thinking of renting out your current home and moving), you need to look at what other properties in the area are renting for.
If you haven’t decided on which Ottawa neighbourhood to invest in, check out or blog on the best Ottawa neighbourhoods for real estate investment.
The biggest mistake you can make is not having an accurate idea of the monthly income you might receive from a rental property. Many factors like location, age, size, amenities, and transit access can either add or subtract value from your rental property, and those need to be considered.
You also need to consider the tenant demographic of the neighbourhood you’re looking to invest in. Are tenants mostly students? Young professionals? Growing families?
All of these factors combined are what will help determine the rental income you can expect from a property.
If you’re wondering how you can begin to calculate these things, you’re not alone. Here are some websites that might be of use for your preliminary research:
- Rentals.ca
- Realtor.ca (you can toggle the search function to only properties for lease)
- House Sigma (this will show you active listings & recently leased properties to see final prices)
The best tool for evaluating the potential of a rental property? Royal LePage’s Investors Edge Search Tool.
The Investors Edge Search Tool shows you available listings in your desired location including information like ROI, Cash Flow, Cap Rates and more. It takes all of the guesswork out of property hunting by automatically performing these calculations for you (don’t worry, you can also adjust variables as you see fit).
P.S. Adam Mills & Joe Kanoza are both Investors Edge Certified Realtors which means they can help you on your real estate investment journey and give you access to tools like the 10-year Pro-Forma report and more!
If you’re not quite ready to jump into a 1-on-1 call but want to get Ottawa real estate investment advice and listings sign up for our Invested In Ottawa Newsletter!
Work With A Realtor Experienced in Rental Properties
Even though you’re looking to purchase a property, you should work with a realtor familiar with the rental market and investment properties.
When you work with a realtor, they must know your budget and goals for your property. Being transparent and sharing that this will be an investment property will help your realtor give you a more accurate picture of what each property will be able to generate in rental income. They will also be able to tell you things like what features most renters are looking for, what kinds of homes require more maintenance, what neighbourhoods are most rental-friendly, etc.
By the way, your realtor’s job isn’t over when you sign on the dotted line! They can help you lease your unit and find you suitable tenants so that your property is leased at or above market value.
On our team, all of our agents are well-versed in the rental market and will be able to advise you accordingly. Our investment property experts, Adam & Joe, are Investors Edge Certified and are always ready to help with real estate investment advice, whether residential or commercial.
Look For Properties With In-Place Tenants for Expected Rental Income
If you’re looking to purchase a property to rent out, one way to ease the stress of finding tenants is to purchase a property with “in-place tenants.” This simply means that tenants already occupy the property.
This provides you with 2 things that can majorly reduce your anxiety.
- With tenants already in place, you know exactly what you can charge for rent because it’s already being charged. You can also tell that the property is a desirable rental because…you guessed it, it’s already occupied.
- You don’t have to stress about taking on a mortgage and not having tenants for the foreseeable future. There’s no looking through rental applications or worrying if they will take care of your home.
The only issue with purchasing a property that is already tenanted is that you cannot increase the rent upon purchase. The current lease would continue to be valid, and upon renewal, it will only be able to be increased based on the provincial limits.
You cannot evict the current tenants if you plan to rent the property yourself. So, even if you could get $500 more per month based on market comparables, you cannot charge that or evict them to charge someone else.
This is only an issue if the current lease agreement and rental amount are outdated and inconsistent with the current market conditions.
Ready to Start Your Residential Investment Journey?
If you want to get into the rental market, contact us! We’d love to connect you with our investment experts and give you personalized advice based on your goals.
