Getting Into an Investment Property
Welcome, friends! In today's episode, we're diving deep into the essentials of securing your first investment property. By the end of our chat, you'll be well-equipped with a robust understanding of key strategies and common pitfalls to sidestep.
Many of us live in our primary residences and enjoy a comfortable family income. Yet, the allure of real estate investment often lingers in the background. If you've spent years contemplating this move, daunted by the multiple factors at play, know that you're not alone. Like all ventures, real estate investing presents its set of challenges and risks. But not to worry, for I'm here to guide you through them.
Here's a roadmap of critical considerations before you make that big leap:
# Location – Location is the key to make the investment right, property’s location has the most prominent affect on how you can expect it to grow and perform in the next 5-10 years. Like with any other investment, we are doing this to see our asset grow with time and that’s the reason we want to ensure it is in the prime neighbourhood.
#Rentability – In Real Estate investment one has to ensure that where we are buying the property is an in-demand location and has takers in terms of tenants. This will ensure you have minimum vacancy time during turnaround of a tenant and your monthly mortgage liabilities are taken care of.
#Market Trends – Given the ever-fluctuating economy, especially in active markets like the GTA, it's crucial to analyze the average market price trends from the past 1-2 years. This will arm you with the insights to make a well-timed and informed decision.
#Property Type – You would need to find a balance between the location, and the ideal property type for your investment. High-density property types like low-rise or high-rise condos will work out economically and will be in a big metro, however, this would mean that t part of your rent is taken up to pay for the monthly management costs. This is not the case for freehold assets, where there is no leakage from the rental cash flow, however, it would also mean that you would need to go outside of the metro areas to find a suitable e investment. An investment which has a promise of consistent cash flow, at the same time which is in an upcoming pocket.
#Financials – When you get into your first investment property, you would need to think of it as a business. You have to have 4-6 months of runway with you for maintaining the fixed expenses related to the property. This would include any maintenance, including the principal and interest payments for the bank. This is needed to ensure you are not pressured it turns out a longer vacancy time and you are able to get a suitable tenant with credible income support to sustain the rent, and you are not in a rush to start the tenancy.
# Down Payment – Down payment for an investment property will tend to be larger than the payment you do for a primary residence. Mostly banks would require a 20% contribution if you want to get into a second mortgage for a rental property without occupying it. On the plus side to qualify for a rental property mortgage, the bank would generally consider 50% of the future expected income of the property for qualification purposes.
In addition, always account for property taxes and regular maintenance. Doing so ensures peace of mind with your first investment.
Remember, when executed with precision, real estate investments can serve as a robust hedge against inflation and market volatility. They not only amplify your equity but also provide a steady cash flow, mitigating your fixed interest costs.
For further insights, check the show notes for our previous episodes on topics like Tax Deductions, Leverage concept in Real Estate, Assignment Sales, Lot Shapes and Lot Outlooks, Fixer-Upper to big profits, Buy and Hold Investing, New vs Existing Homes and more.
