VANCOUVER REALE STATE INVESTORS GUIDE

Thinking about a buying a Vancouver real estate investment property to renovate and flip? Maybe you are a speculative investor looking to get in on the latest condo development and resell your assignment to Vancouver’s available buyers. Here are the essentials:

What you need to know about investment properties in Vancouver

Financing – Though you will be able to count a portion of rent income towards qualifying for a second mortgage, in general this will be much more difficult than borrowing capital for your primary property. You will need at least 20% of the purchase price as a down payment and likely closer to 50% down for commercial properties.

Tax – Increases in the value of your investment property (from the time it becomes an investment property to the time you sell it) will be subject to capital gains taxes. Any rent based income from tenants living on the property will also be taxed. Ensure you speak with an accountant to understand all tax implications that are involved.

Timing – As an investment, your second property should have longer rather than shorter-term objectives. You need to be able and willing to prolong access to your capital in order to preserve and maximize your ROI (return on investment), which is an investment efficiency metric calculated by adding the cash return, mortgage pay down and appreciation.

How you can make (or lose) money in the Vancouver real estate market

  1. Cash flow (cash return) – Cash flow is typically defined as a net result of the difference between recurring monthly cash you pull out of your investment property (tenant rent) and your recurring ongoing costs (renovations and utilities) while you own the property. Positive cash flows are somewhat uncommon in high value Vancouver investment properties, though many owners do break even each month with renters. Cash flow can be influenced be external factors as well including the financing rates on your mortgage.
  2. Appreciation – When you eventually sell your investment property for over what you paid for it, that’s called appreciation. You might have bought a town house in 2016 for $550,000 and later sell it for $850,000, that $300,000 difference is the appreciation in the value of your investment.
  3. Equity (mortgage paydown) – When a tenant rents from you, this helps to pay down your mortgage and build equity (free and clear capital) in the investment.
Information on cash flow combined with the purchase price determine your Capitalization Rates (cap rate). Capitalization rates are the rate of return on a real estate investment property based on the income that the property is expected to generate. Operating Income / Purchase Price. In addition, statistics on cash flow, equity accruement, and appreciation in combination will determine your overall Return on Investment (ROI). This financial performance metric displays the efficiency of your investment.

Condo investments

What we like

  • A well-rounded investment condo will, more often than not, be cash positive (or at the minimum break even) with a standard down-payment
  • Opportunity for both cash flow and appreciation in value over time
  • Finding qualified tenants is easy in the low vacancy, high-demand Vancouver rental market
  • With a strata system in place you can (in general) be more hands off with your tenants

What we don’t like

  • Less flexibility on maintenance
  • Strata can be a double-edged sword in terms of rules and regulations
  • Condo’s don’t appreciate as much, or as fast as, detached houses or townhomes do.

Houses with income-generating suites

What we like

  • A cash flow stimulating suite can make affording the kind of house you want a reality. $1,000 in rent can cover over $200,000 in mortgage equity.
  • Typically houses appreciate faster than condos, so if you want to net value when you sell, then an income-generating house property could be your best option, especially for the short term.

What we don’t like

  • For properties that you plan to co-occupy with your tenants, you will need to put up with all of the noises and extra headaches that can go along with this like asking for rent, managing pets, parking, etc.
  • Houses require more repairs, renovations, and maintenance, which you will need to complete and pay for out of your own pocket.
  • Lease based tenants add “baggage” to a property deal and will involve additional considerations.

Flipping

What we like

  • Flipped properties in the right neighbourhood can be extraordinarily valuable in the marketplace. Characteristics of modern styling paired with the high build quality of an older home, can make flipped properties very in-demand.
  • If done right, a house in Vancouver could be flipped to produce a substantial net gain.

What we don’t like

  • Renovations always take longer and cost more than you expected. Every month of mortgage paid and specialized trades expert brought in will eat into profit margins.
  • It is grueling work and risky for anyone who isn’t a contractor, tradesperson, or well-versed handyman. Be prepared to learn all about “sweat-equity”
  • It doesn’t always pay off.

Hybrid Properties

Many investors turn to Vancouver’s mixed-use properties for their ROI. Mixed use properties have both a residential and a commercial component and if purchased in up-and-coming neighbourhoods, can be an excellent investment. Growing cities like Surrey and Maple Ridge have plenty of options like this (condo’s with ground floor shop spaces, etc.)

Pre-Construction Investment

What we like

  • Prime choice of units and location, as you aren’t at the mercy of what happens to be on the market

What we don’t like

  • Currently, it’s cheaper to buy a resale condominium
  • Uncertainties in the shorter-term condo market mean that your new construction condo could be worth less than you’ve paid for it by the time you take possession.
      So ready to invest in the Vancouver Real Estate Market?  Contact us today about how you can get the most ROI from your investment property.