1. Lower Purchase Price and Entry Barriers:
One of the most significant advantages of investing in properties with lower income is the lower purchase price and entry barriers that come with lower revenue. In Quebec’s real estate market, high-income properties often come with hefty price tags that may deter first-time investors or simply cost too much for those with limited capital. On the other hand, low-income properties are typically more affordable, making them accessible to a broader range of investors. Usually when pricing revenue property we use an income multiplier ( 17 or 18 times the revenue), so the lower the revenue, the lower the asking price, no matter how large the revenue potential may be! By investing in a low-income property, you can enter the real estate market with less capital upfront. This lower barrier to entry allows you to start building your investment portfolio sooner and take advantage of potential appreciation in property values over time.
2. Less Competition and Higher Potential for Negotiation:
High-income properties in Quebec tend to attract more attention from investors seeking immediate cash flow. This increased demand can drive up prices and make it challenging to negotiate favorable terms. In contrast, low-income properties often have less competition, giving you more negotiating power and flexibility in the purchasing process. They typically sit on the market for longer even though already reasonably priced.. which means when the time comes you can negotiate a better deal for yourself! Additionally, sellers of low-income properties may be more motivated to close the deal quickly, providing opportunities for favorable terms or concessions.
3. Stable Tenant Base and Lower Vacancy Risk:
Properties with low revenue are often due to stable tenants that have been there for a long time, particularly in areas with high rental demand. While high-income properties may experience fluctuations in occupancy due to market conditions or tenant turnover. Buying a property that has stable tenants, although offering lower revenue might allow you to know that for X amount of years you will be generating X revenue, allowing you to work on the building until one of the tenant leaves and then allowing you to have the benefit of the work you put into the building and generate even more revenue! Buying with a stable tenant base, you can reduce the risk of vacancy and ensure a steady stream of rental income at the very beggining. This stability can provide peace of mind and financial security, especially during economic downturns or periods of market uncertainty.
While high-income properties may offer immediate cash flow, low-income properties can provide long-term appreciation and value. Buying a property that does not generate as much ROI immediately usually means the price of purchase is lower, once you are able to turn over tenants and increase your yearly revenue, you build equity quicker and the property appreciates much faster as well! As urban areas grow and evolve, buildings that once suffered from low-income may experience revitalization and gentrification, leading to increased property values over time.
