Why You Should Consult with a Property Manager Before Buying a Rental Property

Announcer:

Welcome to Canada's Property Management Podcast, your number one resource for investing, managing, and maximizing the value of your real estate assets. And now here's your hosts, Carla Browne and Adrian Schulz, Canada's rental property experts.

Adrian Schulz:

Today we're talking about why you should consult with a property manager before buying a rental property. Now, Carla, you've got a vast amount of experience both in the real estate world, as well as the property management world. Why do you think it's so important to speak with a property manager before you make that purchase?

Carla Browne:

Most investors have a goal in mind and I'll simplify it because this could take a long conversation, I don't want it to go there, but usually they either want to look at this property as this is going to be a long term investment property, and they're needing to buy something for tax reasons, they need to put this money somewhere. So they're looking at it on a very long term basis. But what I see for the most part is people who are investing in real estate want to cash flow. So they want to see that they're able to buy a property that they're actually going to be able to see some cash after they pay all of the regular bills with that right off the bat from renting. And markets go up and down a little bit, there's cycles in markets, there's all kinds of facets that play into this.

Carla Browne:

So I always say before you write the offer, or even as you're talking to your realtor, engage in some knowledge from one of your property managers. And I will tell you, if a property manager isn't willing to give you information at this stage, move to a different property manager. I'm going to just point blank. We all have to be in this together and we have to realize that it is a team that makes this successful. So a real estate professional is going to sell the real estate and they need to be somebody that is well versed in investment real estate.

Carla Browne:

There's all different kinds of people who specialize there. So you want to check that out. And then also your property manager, those two people should be talking together. They should be conversing and that realtor should feel comfortable going to that property manager and saying, "These are the properties I want to show this person. What are you thinking for rental rates? And then we can work those numbers together to make sure that at the end of the day, once it's rented, this investor is happy with outcome of that." So starting at the get-go is really important in my mind. I love those first conversations with investors and trying to point them in the right direction.

Adrian Schulz:

You know, I am reminded yesterday of a client who purchased in fact, a rental property and unfortunately, the client had not spoken to me before. And one of the requirements of financing was actually a market rent analysis. What does an appraiser say that unit can fetch in monthly rent? And I firmly believe had that client and I spoken earlier on in the process, we may have been able to have investigated what market rents would be in advance prior to the offer having been accepted and now financing needing to be placed. So there's so many different reasons on why that conversation that you pointed out is so crucial right upfront.

Carla Browne:

So you're a mortgage professional, so in my market or the market where we have one office here in Saskatchewan, we don't see that very often where the financial institutions or the lender is looking for rental market analysis. Are you finding that more and more that they're actually asking for a formal analysis? So similar when you're buying a property... I mean, CMHC gives you that information when you're buying a property, but you don't necessarily get all of that on the rental side, which I think we've already talked to in a previous episode. So what's key there for an investor?

Adrian Schulz:

So it used to be that when you purchase a rental property, if an appraisal, and in most cases, an appraisal is required. And along with that, in most cases, if a lease is not currently in place on that home, then a market rent analysis has to be ordered or included with the appraisal. And that's essentially the feasibility of the rents that are going to be charged, the anticipated rents. Recently lenders have actually started validating the rents on currently owned rental properties. It used to be used to provide a lease and proof of rent payments coming in. Now because some rents in certain markets have gone up so fast that those high rents, just like some of the higher real estate prices that we're seeing, lenders are just surprised and questioning of it. And that's why even when assigned lease is in place, they're actually starting to ask for the market rent analysis, even on non-subject rental properties, that meaning on the other rental properties that you may already have in your portfolio. And I think that that will continue to evolve and grow, the need for that portion of an appraisal.

Carla Browne:

I love that. I think that that's such an important piece, so I'm really happy to see that. Love that.

Adrian Schulz:

So as a property manager, you have a very deep understanding of the relationship between the investor and the tenants or the residents. What can someone in the process of buying a rental property learn from you in relation to that relationship?

Carla Browne:

Yeah, the consumer behaviors of the investor and the tenant or resident can be very different. And when you look at it, you're really this matchmaker as a property manager and you are a neutral ground. So by far, we're here to protect our investor's investment. That is number one goal is obviously we're looking after this investment. I want to see it be able to create that wealth for our investor and see it grow, protect it. That's our number one priority. But number two is making sure that we're providing safe and clean homes to our tenants and finding that right match.

Carla Browne:

So a tenant often will come to a property manager realizing that they're in between or they're mediator, so to speak, when they're trying to negotiate rents or trying to negotiate something that they want done on the property. So talking to a property manager and really understanding what's important to a tenant, what's important to an investor, those things, that you're going to find that out in having those conversations with them. They'll be much more in tune than just going out and placing the ad and start talking to people. You're going to know what's important and trying to recognize the problems, finding different alternatives that might work for tenants.

Carla Browne:

All of those things come out in those conversations. So I feel like we're pretty in tune with the psychology of both of those groups, if makes sense.

Adrian Schulz:

No, it does definitely. Realtors or real estate professionals, no market trends as it pertains to product and pricing of real estate. How do property managers fit into what's going on in the market and what value, or what benefit can you offer in that conversation before they make the purchase?

Carla Browne:

We spend a lot of time really looking at what's happening. So what is important to the tenant? What are we seeing as far as importance? And I don't want to date this, but going through COVID was a big one, is that we had to make people aware of what was important to tenants. There was lots of things that changed through that. We were able to bring that. So if investors are looking at buying a property and maybe doing some renovations, I can guide them as to what is going to make that a higher rental desired property increasing the rental value of that property.

Carla Browne:

It's not what's going to make it look prettier, it's all about what is important to the tenants that we're seeing. And it's just like anything, it's like the clothes that we wear. Right, Adrian? I mean, there's trends that follow fashion, there's trends that follow real estate and those things, not to downplay them, but they can be very similar is that, real estate goes in a cycle, trends go in cycles, all of these things a property manager can help bring to the light through those conversations, the early conversations before an investor actually gets out there and starts looking at property.

Adrian Schulz:

And I think through our experience, that team that you described, the realtor, the property manager, the mortgage broker, potentially there's even a legal and insurance advice on that team, we've got the foundational knowledge through our experience that will actually enable you to make an investment that truly does have a long term benefit.

Carla Browne:

100%. It's being able to have that well rounded look, which I think we totally do. And it's so important because it's almost like buying one and getting three or four for free when you look at it from the big picture. And I talk a lot about that, that you need to form this team and we can help you do that pretty easily.

Adrian Schulz:

Carla, thanks for your time today.

Carla Browne:

Talk to you next time.

Adrian Schulz:

Now that's real property management.

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