With market prices on the rise, real estate can be a gold mine for investment. Another perk to property investment is that anyone interested in real estate can learn how to become successful in the field. All it takes is the right guidance, purchase and management.
Follow these five basic tips for the best way to make the most out of your money:
1. Figure out your budget.
While it may seem the most obvious, figuring out your budget is a step that is often overlooked. You may have an idea of how much you can afford, but purchasing property for investment is not the same as purchasing your next home. If you still have outstanding debt such as student loans, it wouldn’t be the best time to be purchasing investment property. Don’t bank on your new property to immediately return cash.
Lenders will also have stricter approval rules for when you are trying to finance the down payment of your investment property. They only consider a portion of the money you receive from rent when qualifying you for a mortgage. Taxation will also play into your budget, as money received from rent is considered income. Renovations and minor fixes might also need to be done, so set aside some additional cash when calculating your budget.
2. Recognize valuable locations.
As with most cases of investment, you will need to be able to recognize the value in the properties you purchase, and a majority of that value will come from its location. A popular location will make even the shabbiest of fixer-uppers seem desirable. For example, in Canada, investors are particularly attracted to Vancouver real estate and condos for sale in Toronto, both of which are located in major metropolitan cities.
You may want to keep an eye out for upcoming cities with major transit and development plans underway, or even new post-secondary institutions, which can draw tenants from outside the city. Places with low property taxes, a growing job market, amenities and low crime rates make for ideal home investments.
3. Enlist the help of a professional.
If this is your first time purchasing real estate for investment, it’s normal to enlist the help of an agent who can guide you through the process. Diving first-hand into property investment with the knowledge and experience of a professional can make the process more difficult. It’s also a big purchase and investment of your money, so hiring an agent can go a long way. They will also be able to advise you with what markets are good for investment and whether a property has value in it.
4. Don’t flip properties.
Unless you’re a seasoned real estate investor who knows the best way to handle fixer-uppers, flipping properties is a lot more grunt work than it seems. You either have to find a contractor who does quality work for cheap or, if you’re skilled at home improvements, do the work yourself. Otherwise, there is a good chance you can walk away from the property with more expenses than revenue. You will be risking taking on a project that will span over months, eating up both your time and money.
A better alternative is to look for a decent home that requires only minor touches. By adding a washroom or a room, the property’s value can increase significantly. If you build equity over time on your property, it can later be claimed as a capital gain.
5. Manage your property.
Your work doesn’t end after you’ve found the perfect investment property. A good or bad tenant can greatly impact your experience with real estate investment as well. Make sure to properly screen all your tenants to avoid future headaches and issues. This includes a good credit score, a clean criminal background, and a proven track record of financial responsibility and rule-abiding behaviour. Don’t take the risk of renting to a mutual friend or acquaintance if they don’t meet the requirements.
You will also want to drop-in every now and then to check for damages in need of repairs, to maintain the place and subsequently, the property’s value.
Zoocasa is a full-service brokerage that makes buying and selling your home smarter and faster. Our in-house agents have been recruited for their professional experience and notable track records and will lead you through your purchase or sale, negotiate to get you the best value, and educate you on everything from the transaction process to selecting the right neighbourhood.