Prior to purchasing, you need to refer back to the bylaws section. This is the most important part of beginning your search to purchase.
Do not invest in property as an STR if it may not be an STR!
Use Airdna and research to see what you can expect as a return on investment (ROI) for each property that you’re interested in. When defining your budget, you should be investing in a piece of real estate that you can afford if, in the worst case scenario, you end up only being able to list your space as a long-term rental.
Look at the effects of the global COVID-19 pandemic. If you are going month to month or paycheck to paycheck and there is a hiccup in the world of short-term rentals, will you be okay? Will you be able to offset the cost of the property by utilizing the long-term rental market? Do you have reserve funds to pay for these expenses?
If you purchase a property and have to sell shortly after, know that you aren’t only at risk of decreased market value and heavy fees associated with your mortgage penalty for termination. Combine negative equity with early buyout fees and you potentially have a recipe for an investment that is going to set you back for years financially. So, research the property’s monthly income potential and consider the short term rental income as a bonus.
As a Realtor I make sure that if you’re purchasing a stratified unit to verify the city bylaws and zoning of the building as well as the strata bylaws. The zoning may allow it but the strata doesn’t allow it, this purchase is not viable. Essentially, the homework doubles when purchasing in a stratified unit. Not to worry I make sure we fact check everything!
Look for units that have as much sleeping space as possible. Ideally, look for a space that has the same number of bedrooms and bathrooms. When people travel in groups, having your own bathroom is a huge plus. No one likes to share a bathroom, let’s be honest.
This does come down to pricing and ROI. How much more is that extra bedroom and bathroom? How does that price increase compared to your estimated revenue? Do the research and compare your numbers per unit side by side to identify the space that offers your best ROI.
The more bedrooms and sleeping areas you have, the better the investment. People like space! Firstly, you can charge more for more sleeping units. Larger spaces also accommodate families. A two bedroom with a pullout sofa far outperforms a one-bedroom in my experience.
Start the buying process by understanding the hidden costs of purchasing. Be well prepared. There are fees that people don’t consider when purchasing that are important factors when converting your ROI.
Know your expenses. Hidden fees can really chew up a profit margin. Expenses such as a home inspection, property transfer tax, bank appraisal fees, lawyer fees and your strata moving costs. If you’re purchasing anything brand new, you’ll likely have the added expense of GST. Don’t forget to add strata fees to your monthly budget and confirm exactly what they include. Also, know what annual taxes your property is subject to and how much your property tax will be. Are you subject to speculation tax? What is the cost of your business license? Property and rental insurance? Utilities?
Will you need to renovate this property? How about furnish it? When looking at furnishing a property, don’t forget that you need to create a guest-ready space. In other words, it must be inclusive of linens, consumable items as well as other odds and ends that we will touch on later.
You need to know the numbers for ALL of these items. Gather your estimates for all of the above and anything else you know is going to be an expense to you throughout the buying process, then add 10%.
Know your expenses
- Inspection moving
- Property transfer tax (1% of the Purchase Price on the first $200,000 and 2% of the Purchase Price on the balance)
- British Columbia Speculation Tax of 0.5% of the BC Assessment Value
- Utilities
- GST
- Moving Costs and strata move in fees
- Business licensing
- Bank apprasial
- Property Tax
- Legal Fees
- Insurance
- Furnishing costs
- Renovation costs if any