When it comes to growing your portfolio of investments, investing in one property or multiple properties can be an exciting and fruitful choice.
However, investing in property also comes with a host of considerations and money-management decisions which may be intimidating, especially if you have never invested in property before. Here, Tony walks you through 5 tips to keep in mind when purchasing an investment property.
1. Find The Right Location
While it may be a cliché at this point, the real estate mantra of "location location location" never gets old. When it comes to deciding on an investment property, location is king: it can make the difference between a successful and unsuccessful investment.
When considering the location of a potential investment property, make sure to check how property values have grown in the area in the past 5 and 10 years. This will give you and sense of what kind of growth you can expect on your investment's value in the short term. Neighbourhoods with easy access to public transit are highly desirable. Depending on where your potential investment property is, people who will be renting from you will be interested in that.
It is also worthwhile to consider investing in a new development. This will give you a good return on your investment, however, there will be a waiting period where your investment doesn't grow at all.
2. Making The 20% Down Payment
When investing in property, there is no mortgage insurance to allow you to make a less than 20% down payment. For those who are interested in investment properties, it becomes a bit tricky to afford, especially if you are still dealing with your first mortgage. If you don't have the money on hand to make the down payment, you may be able to leverage the equity of your home (the value of your home minus the amount you still owe on your mortgage) to help you reach that number. When doing this, it's extremely helpful to work with a real estate broker you trust who has an excellent backup team of mortgage brokers.
3. Prioritize a Low-Cost Home
While you likely purchased your own home in a neighbourhood you could afford, you should have different priorities when it comes to investment properties. When making the decision about the price of your investment property, you should avoid both the most and least expensive houses in the area you are considering. Both will often come with more ongoing expenses for repairs and maintenance. Instead, a modest middle-of-the-road home is usually your best bet. These kinds of homes have a lower barrier to entry for you and are also more likely to consistently attract tenants.
4. Account For Property Maintenance And Other Expenses
It's important to go over your margins with a fine-toothed comb when looking at a new investment property. When calculating your ongoing expenses, make sure to take everything into account, from an estimate of annual maintenance to the taxes on your rental income.
A good rule to go by when budgeting based on your income from your rentals is to mark 50% of the money for managing the property and accounting for other expenses.
5. Invest in Landlord Insurance
It is critical that you take Landlord Insurance out in addition to your homeowner's insurance. This insurance is able to cover a wide range of situations you may eventually run into: from lost rental income to property damage and even injury to tenants or visitors caused by issues related to property maintenance.
You should also keep petty cash on hand to cover any unexpected or unforeseen repairs, just like you do with your own home.
Are you considering purchasing an investment property?
Tony Matharu is here to help cover all your bases and support you as you take this exciting step in investing in your financial future.