Your first investment property

General information, not tax or legal advice. Rules and rates change, and every situation is different. Talk to your lawyer and accountant before you act on anything here.

Decide what you want it to do

Some buyers want steady income with little work, like a small retail strip with long leases. Others want growth and are happy to do work for it, like a building with short leases at below-market rents.

Most first-time buyers want a mix. Being clear about this first saves a lot of wasted viewings.

Good first properties

• Small mixed-use buildings with shops below and apartments above. Common in Vancouver, though the apartments come with residential tenancy rules.
• Retail strips and street-front shops with a few tenants, so one vacancy doesn’t sink the income.
• Industrial strata units leased to a business. Simple to own and in steady demand in Metro Vancouver.

The numbers that matter

1. Net operating income (NOI). Real rents less real expenses, before the mortgage. Rebuild it yourself from the leases and the statements.
2. Cap rate. NOI divided by price. It’s a quick way to compare properties. The cap rate guide shows how.
3. Cash flow after financing. What’s left each year once the mortgage is paid. This is the number you’ll actually feel.
4. The leases. Who pays which costs, when each lease ends and whether the rents are above or below market.

Look hard at the tenants

A building is only as good as the rent it collects. I look at each tenant’s business, how long they’ve been there, what their lease says about renewals and costs, and how easy the space would be to re-lease if they left. Most of the risk in a small property sits there.

Closing costs

Budget for Property Transfer Tax, legal fees, inspections, lender fees and GST where it applies. The PTT guide has a worked example.

Questions people ask

How do I value a small commercial building?

Start with the net operating income and compare cap rates on similar sales. Then look at the leases, the condition of the building and what you could do to improve the income.

Is a mixed-use building a good first investment?

It can be. The residential units follow the Residential Tenancy Act, which limits rent increases and sets rules for ending a tenancy, so factor that into the numbers.

What does a buyer’s agent do on an investment purchase?

Finds properties, checks the numbers, reviews the leases with you, negotiates, and manages the conditions and completion.