Rule #1 – Location, Location, Location
The first rule of purchasing a revenue property is to buy in a great location. For Calgarians this is pretty simple as Calgary is clearly one of the greatest cities in the world to live.
That doesn’t mean however that all of Calgary is created equally when it comes to purchasing a rental property. In a cyclical town that is largely dependent on oil to power its economy, you want to make sure your rental properties are located areas that will thrive in good times and bad. Examples include obvious areas near downtown like Kensington, Inglewood, and 17th Avenue as well as areas near universities and colleges such as the University of Calgary and Mount Royal University.
When the economy does weaken a little bit, having a property in one of these prime areas will insure that there is still a high enough demand that renting the property will not be a problem.
Rule #2 – Buy the Right Property
The second rule of purchasing a revenue property is to purchase the right property. Sure, a one-bedroom condo is cheaper to buy than a two-bedroom, but when it comes to renting it out the two-bedroom will always be easier to rent.
Furthermore, just like with location, if the economy ever takes a downturn, a two-bedroom condo will have a distinct advantage over a one-bedroom when renters decide it is more cost effective to share the rent than to go at it alone.
Rule #3 – Have a Flexible Mortgage Plan
The third rule of purchasing a rental property is to have a mortgage that is flexible. Yes, a five-year fixed at 2.89% seems tempting, but if you ever need to unload the property quickly it could come with a large payout penalty that would eat up most of, if not all of your profits.
A variable rate mortgage has the benefits of only having a three month interest penalty and a lower interest rate. A lower rate means a lower payment, which means more cash flow and subsequently a higher return.
A smart landlord will use the extra cash flow from a variable rate mortgage to sock away some extra money for a rainy day or to pay down the mortgage quicker.
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