Buying an investment property can be a great way to invest in your future. Regular monthly rental income might add to your cash flow while paying for the property and increasing your equity. But to make the wisest decision, start by asking yourself the following five questions before you jump into being a landlord.
Where do you want to buy your investment property?
You might already have looked around your neighbourhood or visited the website of a local real estate agent in your search for a great rental property. But you aren’t limited to your city or even your province. Consider the housing market in locations across Canada. Look at not only the selling price of homes but also the average rental rates. You want to make money so find places where demand for rentals is high. Rates will inevitably be higher and you’ll be able to be pickier with the tenants you choose.
So how do you deal with a property and tenant if you aren’t close to them? Think about hiring a local property management company to handle the day-to-day tasks like collecting rent, taking care of maintenance, and searching for new tenants. In fact, a property management company might be a good choice even if your investment property is local to you. If you have a full-time job or aren’t prepared to deal with unexpected interruptions due to necessary or emergency maintenance, a management company can take those tasks off your plate and turn your investment into passive income.
What can you do to improve your chances of getting a good mortgage rate?
Before buying an investment property, take care of your personal debt. By paying down credit cards and other loans, you can improve your credit score, making you a more favourable debt risk to banks and mortgage lenders.
Once you’ve taken steps to raise your credit score as much as possible, contact a trusted mortgage broker to help you find the best mortgage rate available to you. As experts in the industry, they have the knowledge to seek out options you won’t find by walking into your local bank.
How long do you plan to own your investment property?
Real estate investment of any kind tends to be best over the long haul. Choose to think of your investment as long-term. While you will certainly see the market take a drop at times, you can focus on the future and ride out those fluctuations. Real estate generally trends upward over the long term, and with the end in mind, you’ll provide stability for your investment, your tenant, and your own peace of mind.
How much work are you willing or able to put into a property?
If this is your first investment property, you might be enticed by the glamour of all the fixer-upper and flipping shows on TV. They make it look so easy to buy a property that needs a lot of work, get it done in a short amount of time, and turn a tidy profit. But be sure to do your homework! How much work are you prepared to do to make your property income-ready? Do you have time or capital to get it all done? Or would you be better off looking for something that is closer to turn-key, even if the price is a little more?
Take time to know your numbers. If you get your property for a great deal, but then have to pour money into repairs, will it still provide the cash flow you’re looking for? If you’re considering upgrades, will they be worth the investment? Don’t rush past these important questions.
What are your legal requirements as a landlord?
Finally, you’re ready to market your new income property and sign a lease agreement with a tenant. But have you looked at the laws regarding landlords and tenants in your province? Each province has its own regulations that dictate the terms of renting property. Take time to do your research so you’re not met with unexpected or costly obstacles that you might have otherwise avoided.
Are you looking at buying an investment property?
Schedule an appointment today. Our mortgage brokers are ready to help you find success as you manage your new or growing portfolio.
Resources:
https://www.landlordandtenant.org/legislation/laws-across-canada/