Considerations Before Purchasing an Investment Property

An investment property is a building, a set of legal relationships and an ongoing operating responsibility. Each deserves scrutiny before purchase.

The building

Commission a qualified inspection and budget for the systems that will need replacement: roof, windows, heating, plumbing and electrical. Older buildings frequently hide deferred maintenance.

Legal status of every unit

Confirm that each unit is permitted under zoning and was created with the necessary permits. An unpermitted unit may need costly work to bring it into compliance, or may not be lawful at all.

The tenancies

Existing tenancies continue after a sale. Review each lease, the current rent, payment history and the date of the last increase. Whether a unit is subject to the rent increase guideline depends on when it was first occupied for residential purposes.

Operating costs

Property tax, insurance, utilities paid by the owner, repairs, management and, for condominiums, monthly fees and potential special assessments all reduce income. Use actual figures where possible rather than estimates.

Municipal requirements

Some municipalities require rental licences, inspections or registration. Requirements vary by city and sometimes by neighbourhood.

Financing and tax

Lending rules for rental properties differ from those for owner-occupied homes. Rental income is taxable and the sale of an investment property may give rise to capital gains. Professional tax advice is worthwhile before buying, not just at filing time.