Posted by John Doe
An investment property can help you accumulate wealth, make extra money and grow your portfolio. If you are interested or have been researching what is required to purchase and maintain a rental property, you may be familiar with investment property mortgages and other options for financing in Canada. You may also realize that while it sounds great and the potential for profit is there, it isn’t always so easy.
There are many factors that you need to consider before finally purchasing your first investment property. Below, we will discuss the top 10 tips you need to know before investing in a rental property in Canada.
1. Avoid the fixer-upper
While it may be tempting to buy a fixer-upper property for a low price and renovate it, or DIY to turn it into a moneymaker, this doesn’t always go according to plan (or is as easy as it looks on TV). Unless you are experienced in home renovations or know someone who can help, it’s better not to take this route. You may end up spending more money than you had hoped and wasting time and effort.
If you purchase a property that doesn’t require much work and is already move-in ready, you will save yourself a lot of hassle and you can start renting it out right away.
2. Location, location, location
When choosing a neighbourhood to buy your first rental property, a place with low crime rates and accessibility to schools, groceries and stores is key. Potential renters will most likely be students, families with young children and those who want to live close to amenities or their place of work.
While you don’t have to choose a property in an expensive neighbourhood, ensure that the area is decent, affordable and close to schools and stores. This will make your property more valuable and sought after than those that are in the middle of nowhere, with no real community.
3. Account for maintenance
Owning any property takes some amount of work and maintenance. When you are a landlord, you will be the first point of contact for repairs, leaky roofs and essentially anything that goes wrong in the house. Make sure you are prepared with money saved for potential repairs and damages.
Besides, while your tenant should be reliable and on time with payments, it’s always wise to keep extra money on hand should they lose their job or request some extra time to come up with rent money. After all, if you still have a mortgage to pay on the home, it is first and foremost your responsibility.
4. Research laws and regulations
Before you take on the responsibility of becoming a landlord, it is very important that you research the law and rules surrounding tenants, property maintenance and evictions. Ensure that you understand your legal obligations and that you are following all regulations in your province.
5. Finance wisely
Unless you have saved up or accumulated enough money to pay for an investment property in full, you will need to consider financing of some sort in order for you to be able to pay for the property in question. Never leave this to the last minute. You will need to have a stellar credit score and be able to show that you can make payments, should your tenants not be able to.
Some popular financing options for those looking to buy investment properties include home equity loans and investment property mortgages. If you are unsure what is right for you, make sure you consult and talk with an experienced mortgage broker who can help pinpoint your best option.
6. Save a sizeable down payment
Rental properties generally require a 20% down payment. Because they are not your primary place of residence and banks consider them as riskier investments, they prefer a bigger down payment than with regular mortgages. Make sure to keep this in mind when calculating your total purchase fees and taxes.
7. Report rental income
Another tip to keep in mind when considering a rental property is that you need to report any rental income you make come tax time. Even losses need to be reported. It’s important to have a good accountant to help you deal with your tax statements.
8. Hire property management
If you like the idea of owning a rental property and generating some extra cash flow but find that your work and daily life may not permit it, you can also consider hiring and working with a property management company to outsource some of the work and maintenance.
Property managers can help look for suitable tenants, collect rent, offer advice and address concerns and questions from tenants. This takes some of the responsibility and work off your shoulders although it comes with a price. Expect a property management company to take a cut of around 10% of your rental income for their services.
9. Stay for the long haul
If you aren’t invested and committed for the long haul, an investment property may not be for you. Most rental properties start off slow and take time to start generating profit. So consider the patience, maintenance and strong will that it may take from you to start seeing profits on your investment property before you buy.
10. Consult a professional
When dealing with purchasing any new property, it’s always good to have professional advice and consultation on matters such as financing, location and expenses. Make sure you do your research when you decide to work with realtors, mortgage brokers, lawyers etc. Good, professional expertise can make your home buying experience go smoothly and prevent you from making mistakes or losing money in the process.
Ultimately, buying an investment property takes some extra research and a reputable, knowledgeable mortgage broker at your side will definitely help. Finding a lender who deals with these types of mortgages and properties is a top priority.
If you would like to know more about buying an investment property in Canada, call Mortgages, Mortgages at 866-307-0747 or contact us here.