NEARHOOD: Readying to buy real estate

Life At Ground Zero

edwinaIn the last column, we walked you through the preliminary decisions required to move forward on a real estate investment.

You have put your advisory team together, formulated a sound financial investment plan. You have committed to using real estate as your investment platform. You have decided that buying in the Peace River Regional District works for you. You are going to self-manage your first property in your home town. You would like to put a 35 per cent down payment. You have decided to purchase a strata-titled duplex, which offers more liquidity down the road. A strata-titled duplex allows you to sell only one unit if liquidity is required. At this time, there is some evidence that illustrates a small discount in the purchase of a non-strata-titled unit, however, liquidation can at times become more difficult when market conditions harden and vacancy rates rise.

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During the low vacancy rates and high rental rates, as Fort St. John experienced in 2014 there was little or no difference between the two types of duplex ownership. Today there may be a discount between strata ownership and no strata ownership.

 

Focus on what type of product you want

Where do you begin? Are you a savvy buyer? Do you want to buy privately? Is it a buyers’ market or a sellers’ market? Should you be using the services of an investment real estate agent? Should you build, buy turn-key or buy older existing product? Quality investments attract quality tenants. Modest investments attract lower rental rates and long-term tenants. Older product offers opportunity for upgrades and renovations, which is something that many people like and many run from. You decide.

There are many shift workers in the region that have good chunks of time to work at renovations. Make sure you are qualified to take on the project, have the money and budget to get the job done well. Be certain to maintain the integrity of your investment.

Should I build?

What does building a duplex look like? Work back, look at your budget, look at the rental rates, mortgage costs and expenses. Does it make sense? Does it pay for itself? Will you be the general contractor? Can you or your builder qualify for new home warranty? What do the references of the builder look like? Are they reputable? Should you buy turn-key? Realtors can help create a sound turn-key contract. Work with your lender and understand the funding schedule, contract and pay out process well.

What happens if there are timely delays? Will there be a penalty clause? Be tough on the final inspection. Have a qualified inspector go through the house. Was your contract precise enough to cover any deficiencies, penalties, defaults? Does the contract specify the building components clearly? Are there tenants available for lease? Can I offer a pre-signed lease prior to completion?

Should I buy existing product?

The pros of purchasing an existing duplex might include existing tenants. Understand and review the terms and expiry of existing lease documents. Are the current rents considered to be market rents? Understand the residential tenancy laws and how they will impact your investment. Have an inspection by a qualified inspector, not your friends brother who is a builder—sorry Bob!

Edwina Nearhood is a life-long resident of Fort St. John. Her 30-year experience in the appraisal industry offers a unique lens on the challenges associated with the economic forces impacting real estate and the community. This column will offer insight for local residents on the impact of the boom-bust cycle in remote northern BC and the challenges local businesses and residents face in the land of the north.

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Real Estate Reality Check

Have a real estate problem or question you want answered? Email editor@ahnfsj.ca to have it featured in a future article and analysis by Edwina Nearhood.

© Copyright 2018 Alaska Highway News

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