Mississauga is the primary city on the shores of Lake Ontario and near Toronto and attracts a considerable number of visitors, many of whom are looking for a place to stay. More and more individuals are seeking a peaceful place to raise their families. Not only that, but students make up a large portion of the population, many of whom fall into the Mississauga condo price range.
There are several reasons why people want to rent a condo, so there should always be sellers when there are buyers. Real estate agencies and brokers are the most reliable sources for matching people with homes that satisfy their needs, making it one of the most profitable businesses.
But how can you tell if your efforts are paying off or will pay off as an investor? This article answers that question, so you know if you are making the right decision.
The Area
Just as you should research the property you’re considering, you should also conduct research on the neighborhood where the property is located. The community will affect the kind of tenants that live in the condos and its vacancy rate.
Students are likely to constitute the majority of the potential tenants if you buy a condo near a university, and you may find it challenging to fill vacancies every summer. Be aware that some towns try to discourage rental conversions by imposing high licensing fees and red tape.
When analyzing the area, another factor you should be aware of is the crime rate. Neighborhood crime data should be available from the local police or public library. Check the rates of vandalism, major and minor crimes, and check whether criminal activity is increasing or decreasing.
Low Vacancy Rate
Another factor to consider is the vacancy rate in the area. If you invest in an area with a vacancy rate of more than roughly 5%, you may be taking a risk. Ideally, you’ll want to look for a region with a lower or declining rate. This is especially critical if you’re in it for the long haul and want to invest in homes with high rental demand.
Make Some Calculations
Now it’s time to get down to business by running some numbers to see if a property is worth the investment.
The 1% Rule
The one-percent rule is a simple rule of thumb that investors use to rapidly and effectively limit their selections. The one-percent rule states that a property should rent for at least one percent of its total upfront cost. A $200,000 house, for example, should rent for at least $2,000 per month.
This guideline considers a property’s entire upfront cost, which includes the purchase price, closing expenses, and an estimate of the total repair expenditures required to make it rentable. If a property meets the 1% criterion, it’s worth looking into.
The Cap Rate
Compared to other investments, the cap rate aids in determining the projected rate of return. Calculate net operating income, which is estimated yearly rental revenue, taxes, and maintenance expenditures, to establish the cap rate. Be conservative when calculating rental revenue because there will undoubtedly be vacancy times between renters. Then double the net operating income by the home’s current market value.
For instance, if a home’s net operating income is $30,000 and the property value is $300,000, the cap rate is 10%. A cap rate of 4 to 10% is typically thought to be a decent rate because it is similar to other assets like Treasury bonds or equities.
Make Comparisons
One of the greatest methods to figure out if a property will be financially worthwhile to you is to look at the rent prices in the area. Check out condo rental websites, and once you’ve made a decision, go to a property manager to see what advice they can provide you about rentals in the area to see whether your rental predictions are realistic.
Analyze the Job Market
Tenants are drawn to places where job opportunities are increasing. Check with the labor statistics or a local library to see how a specific location ranks in employment availability. If a large corporation announces a relocation, you can be sure that workers looking for a place to reside will swarm to the region. Keep in mind that can affect the price of condos in the area as well.
