Low rise investment properties are more limited than their high rise counterparts which make them exclusive and desirable. Though purchasing a low rise apartment building is a larger investment with more expenses and more to consider than when purchasing a smaller property, low rise buildings have the opportunity for high rental yields and allow for economies of scale to work in your favor.
The following are important things to consider when purchasing a low rise for an investment property. The below can help you decide if a low rise is a good investment property option for you based on your capabilities and goals:
Tenants of a low rise investment property
Tenants of low rise investment properties vary, but tend to have similarities in the fact that they are frequently seeking less expense, smaller spaces to maintain and closeness to amenities and services. Baby Boomers and young professionals are two common biographic cohorts which often have the above needs. Though it is possible to find tenants of a low rise building who will stay put longer term, it is typical for this type of building to attract tenants who are a little more transient than those of smaller properties such as single family homes, duplexes or triplexes. There are opportunities at your disposal to attract tenants and keep them longer, reducing tenant turnover. Opportunities to decrease tenant turnover include enhancements to units and the building which are more difficult to come by in rentals such as laundry on-site, energy efficient appliances and security cameras for added safety. In comparison to high rise condominium buildings, low rise buildings are often found off from main roads and in quieter locations which tend to attract tenants looking for a bit more privacy and autonomy. As mentioned above, Baby Boomers looking to downsize may fit this profile as well as young professionals paying students loans preparing for their own real estate purchases. When interested in a particular low rise property, with your agent, find out the vacancy rate of the building. Your agent will find out what the typical vacancy rates are for the area which will help you understand more about the investment property of interest and its tenants.
Purchasing and selling a low rise investment property
Though investors require a larger amount of capital up front to purchase a low rise investment property, it can be easier for investors to increase their wealth by investing in larger buildings over smaller single family homes, duplexes or triplexes. The value of an income property is not just based on how much it’s selling for, it’s based on how much income the property generates. When a low rise property is well located, priced right and offers upgraded units it will be in high demand. High demand often translates to a more profitable investment. When purchasing a low rise investment property, investors should be sure that issues which may contribute to low demand are fixable. For example, in-unit appliances can be upgraded to energy efficient or stainless steel whereas low ceilings or poor location cannot be fixed.
When preparing to purchase a low rise investment property, more research, time, expenses and capital should be considered. Purchasing a low rise building requires additional expenses not usually seen when purchasing smaller housing such as roof inspections, environmental assessments and inspections of other major systems like electrical and HVAC. Though the start-up costs of purchasing a low rise building will be higher, diversifying your income across multiple units allows for lower ongoing maintenance costs per unit. Low rise investment properties also provide the opportunity for additional income sources which will create a community feel and provide amenities for your tenants such as coin-operated laundry and parking space rental.
Management of a low rise investment property
Once you move beyond just a few units, property management becomes a more important and intensive job. Management of a low rise investment property may be better taken on by an outside management company. Though an outside property management company will come at a cost, as mentioned above, owning an apartment building allows for economies of scale to work in your favor. When it comes time to renovate a roof for example, your renovations serve not just one unit, but the entire building. Smaller projects like painting also benefit from economies of scale as you’ll use the same paint colors throughout the building and materials are not too often wasted on one unit. Better economies of scale mean lower operating costs and more money in your pocket.
In the early stages of owning a low rise apartment building, the stabilization period of the property will be longer than that of a small rental property. You will need to maximize the performance of the property overtime by increasing income and decreasing operating costs. Increasing rent by small renovations to units can be a way to increase income over time. When owning a low rise apartment building as compared to a duplex or triplex, losing a tenant will have less of an impact on your income as you still have several other units to cover expenses and perhaps still generate positive cash flow.
Locations of low rise investment properties
Low rise investment properties which offer its tenants walkable amenities and services are generally more desirable and in demand. Walk Scores of locations are important to consider when choosing a prime location for a low rise investment. There is always a strong demand for affordable mid-quality apartments in urban city areas therefore meeting this criteria in your investment property will decrease the chances of vacancies. When it comes to considering cash flow, the better located an investment property, the stronger your tenant base will be. Higher quality tenants tend to care for your investment better, pay higher rents and in turn contribute to the appreciation of your investment building.
When searching for the right low rise investment property for your needs and capabilities, working with a real estate agent ensures you’ll have access to the largest inventory of properties for sale. It is also important to work with an agent who is more than competent in multi-unit property purchases and has a lot of experience to show this.
Our team at Sylvain Bourgon Real Estate have experience in all different types of investment properties whether it’s been in personal investments or facilitating successful investment property purchases for our clients.
If you are seeking buying an investment property in the Ottawa area, or have more questions for us, we are happy to provide you with helpful guidance and support. Email us at info@buyandsellottawa.ca or call us at 613-590-3036.