Buying

Your first investment property

A commercial property earns money two ways: rent coming in, and value going up over time. Your first one should do both, at a risk you can live with. Use the real rent roll and statements, keep cash for repairs and vacancy, and make sure the rent covers the mortgage with room to spare.

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Buyer representation

What a first investment property involves

A plain explainer if you’re new to this.

  1. What it is

    A property bought for income

    It could be a strata retail or office unit, a small industrial unit, or a small mixed-use building. You own it for the rent and long-term value.

  2. How the income works

    Rent minus costs

    Your return is the rent minus taxes, insurance, repairs, strata fees and mortgage payments. Commercial leases are often net, so tenants cover many of those costs.

  3. Money and tax

    Down payment and closing costs

    Commercial lenders usually want 25 to 50 percent down. Budget for property transfer tax, legal fees, and GST on some commercial purchases.

  4. What I check

    Tenant, lease and strata

    I look at the tenant and lease, rent against market, strata documents if it’s a strata unit, and what happens if the unit sits empty for a while.

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.

What should I gather, ask and watch for?

Documents to gather

  • Down payment and lender pre-approval
  • Your target: cash flow, growth, or both
  • Accountant’s advice on ownership structure
  • Budget for repairs and vacancy

Questions to ask

  • What is the real NOI from the leases and statements?
  • When do the leases end, and are the tenants strong?
  • What capital repairs are coming?
  • What is the debt service coverage at today’s rates?

Common mistakes

  • Buying on the pro forma
  • Too little cash for repairs and vacancy
  • One tenant with a short lease left
  • Underestimating management time

Typical timeline

  1. Months 1 to 3Financing, criteria, search
  2. Offer to conditions30 to 60 days typical
  3. Completion30 to 90 days
  4. Year 1Learn the building and the tenants

Typical ranges. Your lease, lender and the City set the real dates.

Go deeper

If you’re looking for more details

First-investment checklist
  • Know your down payment and financing before you look
  • Read every lease and the rent roll
  • Price in vacancy, repairs and management
  • Work out the cap rate and your cash flow after the mortgage
  • Get a building inspection and environmental review

Why buyers buy

What do you want the property to do?

Most buyers are after one or two of these.

  • Income

    The property pays you.

    Rent coming in every month, with room for that rent to grow over time.

  • Growth

    It should be worth more later.

    A better tenant mix, a renovation, a rezoning or a neighbourhood on the way up.

  • Returns

    The numbers meet your target.

    The return on your cash after financing, and how the property fits alongside what you already own.

  • Strategy

    It fits a bigger plan.

    Owning the building your business uses, adding to a portfolio, or putting money somewhere solid for the long run.

The takeaway: Buyers buy when they see value that matters to them. Work out which of these matters most to you before you start looking.

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Next step

Looking for your first investment property?

Tell me your budget and what you want it to do. I can tell you what that buys in today’s market.