The Suite Sound of Kaching! Thinking of Buying an Investment Property in the Comox Valley?...

Posted: Apr 30, 2012

A few considerations and recommendations…

With real estate prices and mortgage interest rates relatively low at the same time, it might be the right time to take that next step toward securing a solid retirement – which to me means including my regular Rhodos Coffee Shop lattes. The next step in your retirement / investment portfolio (which could be your first step) might be buying a rental property. But is it the right investment for you? Let’s look at the basics.

Pros:

• Minimal cash down (maybe even borrowed against another property which means no cash out of pocket or savings account) (People have savings accounts?)
• Someone (a tenant) pays off the loan on the asset (Hello!)
• Over time, real estate has ALWAYS appreciated in value. (Ahem, always.)
• Income tax deductions and other advantages (Yes, I wrote ‘income tax’ and ‘advantages’ in the same line.)

Cons:

• Well, you do need a lump sum for the darn down payment (Sorry, credit cards are not allowed to be used for this, can you believe it?)
• Not all tenants will treat your property the way you would. Not for the faint of heart or easily stressed.
• There will be times when the property is vacant for a period of time and you’ll need to make sure you’ve got a contingency fund ready as well as for other unforeseeable maintenance items (also for foreseeable items.)

From a financial perspective, it makes so much sense it’s almost ridiculous, but keep in mind the author is a REALTOR®. Nonetheless, I put my $ where my mouth is, and do own an investment property.

A diversified investment portfolio is a wise decision overall. That old saying ‘don’t put all your eggs in one basket’ is true. Markets (stock, bonds, commodities, dollar, real estate, etc) ebb and flow and you’ll want to make sure you have the right range of investments for your goals – be they long term or shorter. In today’s volatile markets, there are few short term investment options that don’t come with big risks (I’m not even talking Vegas here.) If you’re not a sophisticated investor, please please please talk to a professional advisor. In fact, do it anyway. (Side note on advisors: keep in mind that financial planners want to sell product as do REALTORS®, which means there may be a bias there. True story. Talk to them both anyway, and a knowledgeable CGA. CGAs aren’t selling anything.)

Right. So you’ve decided real estate is the next step. Now what to buy?

Author’s brief and general recommendations based on the Vancouver Island and Comox Valley real estate market:

1. Condominium. They key here is price point. You’re probably going to need to keep the purchase price under $150,000 to make this work, as the revenue numbers generally don’t work above that. This is a great option for starter investors (but also great for those with a large portfolio) as you need less cash for a down payment, there’s no maintenance to worry about and if you ever need to liquidate, lower priced real estate always has the probability to sell quicker. Lastly, when you do sell, you’re taxed on 50% of the increase in value (so far) so it’s likely a lower priced investment will also have lower overall increase to be taxed on.
2. Single family house with a suite or suite potential. You get double income without double the sticker price. If one unit is empty you’re still getting some income from the other in the meantime. If you buy in the right price range, the rental income may more than cover the costs which would give you a positive cash flow. Positive cash flow will pay you back your down payment and allow for that contingency fund for the ‘what have yous.’ Plenty of opportunity for income tax deductable improvements. (Keep the purchase price under $300,000 if work needs to be done; $350,000 if no improvements needed – give or take, depending on area and anticipated rental income.)
3. Fixer upper renter outer. Any stick frame dwelling on land that makes the average buyer go ‘ick’, but has good bones, can be a great investment. If you have the wherewithal to do the work yourself then sweat equity is your friend. You can have significant increases in value (though in this market not enough to flip it) by putting in your own elbow grease. Look for a house that mostly needs cosmetic work and that has had the major repairs (roof, windows, septic if applicable) already done. Since you’ll be renting it out, you’ll also need to make sure the rent you’ll get in the end will still make sense. For example, don’t buy a $500,000 fixer upper; you’ll never get enough rent to cover the loan with or without improvements. Under $350,000 for sure and much less if it won’t have a suite.
4. Duplex / triplex / fourplex +. As long as the numbers work and you’ve got the larger cash down payment for a bigger (price-wise) asset, these can work. Not my first choice as they can take longer to sell (fewer buyers have the means) and you will be taxed on what could ultimately be a larger increase in value. (Whereas if you had 3 or 4 low-priced condos you could sell one a year etc.) Typically, larger buildings (including full apartment buildings) will be held by a registered company. Later in life, you draw income or dividends from that company so you’re not taxed to an early death! These investments are for the savvy but can be a great addition to an already diverse real estate portfolio.
5. Commercial real estate. It only sounds scary. Okay, it is a little scary. Some of the best returns are on commercial real estate, but so too are the long waits with vacant space. If you’re going to go this route you must talk with someone who knows what they’re talking about and have it managed by someone with experience (that’s not me, but I can give you names if this applies to you.)

A couple of wrap-up notes: If you are renting right now, it still may be a good idea to buy an investment property even if you keep renting – in fact, you may be best off to rent for yourself and buy an investment. Or buy a house with a suite and rent that out. The right choice depends on your personal situation, but yes, sometimes it does make better sense to rent, whether or not you own elsewhere.

Finally, where to buy…

If you want to be able to sell quickly, buy in the areas that have quick turnover. Courtenay city, east Courtenay and Comox are the best options – in that order. For an investment property to make sense, it needs to be price sensitive, which correlates to these areas. (Note: Cumberland is also low-priced but if you need to sell quickly, there’s a lower guarantee of that in funky town. Which reminds me, don’t get attached to your investment! Just because it’s within walking distance of Dark Side Chocolates won’t make the numbers work. I’m surprised, too.)

Generally, investing in the Comox Valley is a wise move: 19 Wing Comox, NIC, Mt. Washington, St. Joseph’s Hospital (and a brand new hospital to be built by 2017!) and outdoor recreation amenities will continue to provide a stable economy and destination of choice. Invest in the right real estate and you won’t go wrong.

©Anna Jorgensen

REALTOR® Royal LePage Comox Valley

P.S. By the way, buy in Cumberland to live in Cumberland; it’s a quirky, quaint, cool town with an artsy atmosphere and a lot of amazing mountain bike trails – at the very least stroll around downtown for an afternoon.

Special thank you to Leigh for professional editing. If you would need a great editor, let me know and I'll pass your name along!