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Scott McGillivray on choosing an income property

Buying a house is likely the biggest purchase you’ll ever make. Deciding to buy a property is big, but making the decision about what type of property to buy is just as important. Buyers usually have an idea about what condition their purchase should be in, but what are they basing that idea on? When deciding on fixer-upper vs. move-in ready, there are some conventional and not-so-conventional questions you should ask yourself before taking the plunge.

Do you like to shop vintage/second hand or new?

Does the thought of eating off a previously owned table gross you out? How about antique rugs that have been on someone else’s floor? What’s your take on vintage clothing? While these questions aren’t directly related to the home-buying purchase, when answered honestly, they can give you some insight into what type of property you should consider buying. If you’re not comfortable living with other people’s choices (and mistakes!) a fixer-upper might not be right for you.

How much free time do you have?

You know the saying that the only two certainties in life are death and taxes? There’s actually a third: your reno is going to take longer than you think. And unless you have the luxury of completing a reno before you move in, that means living in a construction zone. Most homeowners don’t have an unlimited renovation budget and want to do some of the work themselves – which I definitely encourage – but ask yourself honestly: do you have the time? I’ve known people who’ve spent years (yes, years) on renovations that could be completed much faster had they been realistic about their time commitment. It also gets really costly, really quickly if your contractor is dependent on you finishing parts of the reno, thus delaying their work. Fixer-uppers can be a great investment, but only if you can complete the renovation on time and on budget.

House budget vs. reno budget?

Speaking of budgets, what is your budget? Your house purchase price (and down payment) aside, how much money do you really have to spend on your renovation? More importantly, how much can you afford? If you’re using a line of credit, can you afford a monthly payment that allows you to pay off your loan in a reasonable amount of time? Mostly people significantly under-estimate their reno budgets and don’t put enough aside for contingency (you should be earmarking a good 25 per cent, by the way). It’s also vital to understand the quote from your contractor – does it include labour, materials and tax? Balancing your house budget against your reno budget can really make the fixer-upper vs. move-in ready decision for you. If you don’t have a lot of wiggle room when it comes to paying for a renovation, buying a property that has most of the work done for you might be your best option.

What’s your end game?

People buy properties for any number of reasons. Usually, it’s for a primary residence and if your end goal is to buy a home for you and your family to live in for the foreseeable future, the type of property you buy is more about personal taste, budget, and reno time commitment. However, if you’re approaching your purchase from an investment standpoint, the fixer-upper vs. move-in ready debate gets a little more complicated.

I’ve built my career on investing in properties then adding value through smart renovations. It’s the principle that Income Property was built on. If you have aspirations of buying multiple properties – some for investment – buying a fixer-upper that can be improved will expedite that process, as forcing appreciation in a property is the quickest way to build equity that can be used to buy the next one.