Real Estate Talk: Lower risk in
purchasing income property

Buying property in more affluent areas and screening tenants to avoid problems

By Joseph Marovitch

It is wonderful to own income property and collect continuous rent each month, but at what cost? If the landlord must chase the tenant for the rent each month, if the tenant is continually disturbing the neighbours or damaging the rented space or not congenial and keeps cockroaches in the apartment, is it worth the headaches? If the landlord has tenants who leave in the middle of the night without paying last month’s rent, is it worth the hassle?

There are ways to reduce the risk of having all these painful headaches. The first way to reduce the risk is to purchase property in more affluent areas of town, units that demand higher rent. It may cost more but at least there will not be graffiti on the walls, rodents in the basement and people passed out in the hallways from substance abuse.

If the landlord answers in the positive, the lesser is good to go. If the previous landlord answers in the negative or refuses to provide an answer, alarm bells should ring.

The next way to reduce risk is to properly screen new tenants. There are questions to ask prospective tenants such as:

1) Request a name and phone number to the applicant’s last landlord(s). Ask the previous landlord:

– How long the tenant rented the space?
– Did the tenant always pay the rent on time?
– Did the landlord have any issues with the tenant?

If the landlord answers in the positive, the lesser is good to go. If the previous landlord answers in the negative or refuses to provide an answer, alarm bells should ring.

2) Request the applicant to provide a credit check
Good credit means the applicant can pay the rent and pay on time.

3) Request the applicant to go to the local police station and provide a criminal check indicating no past issues. (Only if you think it is warranted.) It is always good to know your tenant is not an axe murderer or a mob boss.

DO NOT base the decision to rent to an applicant based on race, religion or colour. These are not criteria that indicate good or bad character or credit.

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Have a great week!

Next article: Who benefits by advertising, the seller or the broker?

STATE OF THE MARKET

Pricing can be a struggle between a seller and the broker. Brokers are supposed to price a property based on comparable past sales and current properties for sale in the area, which are the competition.

However, it has been and still is an active and growing market where prices have continuously risen. Sellers are aware of this and more often than not, will insist that the broker price the property higher than suggested. Some brokers will agree to raise the price higher on condition that, after thirty or forty-five days and upon a review of the campaign results, they will either maintain the price or reduce it.

‘Brokers are supposed to price a property based on comparable past sales in the area and current property for sale, which is the competition.’

Some brokers will just agree to provide an inflated price of the property just to get an agreement. This is good for the broker and bad for the seller. With an inflated price, the broker may not sell the client’s property but will attract buyers in a higher price range category. The broker may not sell the client’s property but will end up purchasing more property for the buyers at other locations.

The seller, meanwhile, will burn their property, meaning after several visits, visiting brokers and their clients will know the property to be overpriced and avoid it. The seller will then have to wait for a period of months until a new wave of buyers is on the market.

If you have a broker who has several properties for sale and may be overpricing your property, find out how many property listings have either expired or have been cancelled under their service. If the broker has several expired or cancelled listings in a one-year period, the broker may be acquiring signatures but not selling the properties, as they are supposed to do.

Image: Tembela Bohle from Pexels

Read also: other articles by Joseph Marovitch