By Kimme Myles
Having an income property in your investment portfolio is beneficial for a number of reasons. The most obvious of course is the income generated by the property as an additional cash flow source whether your property is a triplex or a 20 unit apartment building. You are also insulated from fluctuations in the real estate market as long as your property is earning positive cash flow.
However there is a certain amount of finesse involved in being successful. Long before you even consider this type of purchase, make sure you’ve had conversations with professionals such as your banker or other lender, your accountant, and your realtor. They will all be able to assist you in planning a budget and preparing your finances.
Your agent should be experienced in working with these types of properties and as such will assist you in reviewing the comparables and assessing value. Not only is location important, preferably in a desirable area easily accessed by public transit but profitability is crucial.
The idea is to minimize expenses and maximize income in order to be profitable. You may find that certain buildings cost way too much to manage and maintain in comparison with the maximum income the property is capable of producing. A simple formula to determine positive cash flow is to subtract the expenses (utilities, maintenance costs, management fees, insurance, mortgage and interest) from the income (rent). As with a large condominium building, it is necessary to have a “reserve fund” for when unexpected repairs or services become necessary such as when your building needs a new roof or furnace. This allotment of funds is included in what it costs to operate the property.
Keep in mind that when dealing with tenants, it is important to thoroughly understand the rules and regulations of the Residential Tenancies Act. You’ll want to know what to do when you have a tenant who is late in paying rent or worse, has stopped paying rent altogether. The eviction process is not as straightforward as one would think.
If you continually find ways to increase revenue and decrease expenses you’ll be sure to have a great investment property that you can potentially leverage into other real estate endeavors.
Kimme Myles is a Sales Representative with Royal LePage R.E.S./Johnston & Daniel Division. Kimme is a regular contributor to the Muddy York Blog. Kimme’s email address is firstname.lastname@example.org and website is located at www.kimmemyles.com