Making the decision to involve yourself in the property rental market is a big one. If you have weighed up the pros and cons and decided it’s the investment opportunity you need, then you begin the process of converting from standard person into a landlord. There are many steps along this path that you have to take, but the first is also the most important: the property that you buy.
There’s a lot to research here. There’s considerations like ensuring you find the right area for your target market; dealing with the financial issues like the mortgage you can secure. However, at the root of it, there’s the simple choice between the type of property you elect to go for. That choice is usually split between two types of property: do you go for a new build, or a fixer-upper?
While some of these considerations depend on the property itself, there are a few uniting factors in this decision. You might find yourself tempted by a glossy new buy like Transit City condos; everything will be ready to move into – so you’ll start achieving your rent faster. But then again… what about a fixer-upper, which may take longer to see a yield but will have a higher sale price when you have gone through the renovation? You can flip back and forth on the decision, but ultimately, you need something simple to cut through it.
So which is the best option for a first-time prospective landlord?
With a new build, as mentioned, you will be collecting rent far sooner than with a fixer-upper. It’s a relatively simple process where you buy and you can move a tenant in, potentially within a week.
The delay on a fixer-upper as you go through the renovation process is not to be underestimated. It might seem you can wait a few months, but will your finances extend to a constant drain of outgoings for months? It’s important to keep in mind the fact that even at the end of the renovation, it might take a few months for you to find a tenant. So factor in at least six months of running costs like the mortgage and taxes; this gives you time to renovate and find an appropriate tenant.
A new build will be more expensive up front but that doesn’t mean you’ll save money. Renovations have a tendency to be a money pit; most renovations inevitably go over budget, so you could easily spend the difference in purchase price just on the renovation work alone.
However, if you’re thinking long-term, then a fixer-upper is a good option. If you don’t intend to be a landlord forever but instead want to make money on the future sale of your investment, then the two options begin to equal out. A new build will not depreciate, but you might be able to get more for your financial buck by improving a fixer-upper and selling on at profit.
So the ultimate decision is: how soon do you want to make money? If you’re in a rush to get your property business started, then a new build is going to have money coming in much faster than a fixer-upper. If you’ve got more time and have a view to the future, then the choices are much the same – go for whatever feels right to you.