Tips for Buying an Investment Property
It sounds like a dream, doesn’t it? Buy an apartment, find some nice tenants, and collect rent cheques every month. Investing in real estate is not that easy. The financial factor is huge, but there are other things to consider like the market, the economy, and the location. Educating yourself is underrated in the field of real estate. There are lots of books and references for you to consider, and you should err on the side of overdoing it. In this article, we want to share some simple tips that will educate you on making your investment property purchase.
Clarify what property type and price point is right for you
The sky’s the limit with real estate. There are apartments near Raleigh, skyscrapers, and private islands for sale. Choosing a property that will increase in value is the key. So do not settle for a low-value property. You will know a bargain when you see it. Do not be tempted to buy a low-cost property hoping to flip it into a space that you can rent out, especially if it is your first property. The expenditure on renovation might prevent you from breaking even
Practice the math
Know how to analyse an investment by the numbers. You will need to factor in your investment, mortgage repayments, and costs of property maintenance. Taxes and tax benefits are also a huge factor to consider. Consider how long you intend to hold the property before re-sale.
Seek out the help of a professional advisor, consultant, or accountant. Or, you could run to the library, make a computation yourself, and show it to a knowledgeable friend or family member. It’s important to know how the math on your investment will work, so practice your formula until you get great at it. Find a deal online and try to work out how the numbers would work for you, as a practice run.
Find a real-estate agent
Inform a real-estate agent of exactly what you want and have them send you automated emails on properties that fit your criteria. Every time you get an email, take the time to run the numbers to evaluate the investment, as you have practiced.
Secure your financing
Cash or mortgage: a question that many first-time property investors have. Paying cash will enable you to reach your investment goals quicker. However, not many people have that kind of cash laying around. Opting for a mortgage, you will need to arrange enough money for your deposit. You will need to ensure you can meet the repayment amounts, which will usually fall due each every month. Also, if your credit score is not clean, you may be saddled with a higher interest rate or have difficulty securing finance.
One of the biggest mistakes of property buyers make, is searching for a property before getting approved for a loan. Did you know you can get pre-approved? You can think of pre-approval as an examination of your finances by a lender. A lender evaluates your income and balance sheet to inform you of your borrowing capacity and on what terms they would offer you a loan. A pre-approval will enable you to make an educated search for an investment property.
Understand your legal obligations as a Landlord
Rental contracts are complicated documents with lots of terms that you should know about. How much bond will your tenant be required to pay? What are your property maintenance responsibilities? You are legally required to provide safe and habitable living conditions for your tenant.
You need to also understand what protections are available for you and your tenants. Going through a few sample rental agreements will give you an idea of what you will be required to do as a landlord. Consider engaging a real estate agent to manage the rental property for you. You will of course also need to consider the cost of this service.
Protect your investment with insurance. In addition to homeowners’ insurance, investigate landlord insurance that will aid in mitigating risks arising from property damage and loss of rental income.
Also ensure your mortage broker, holds Professional Indemnity insurance*. BizCover Can assist your mortgage broker with this type of insurance.
Tying it all together
The first steps are research and getting pre-approved. Although you may be eager to purchase a property and start earning rental income, do not skip these steps.
Also, be realistic in your expectations. It will require some investment for your venture to yield a return. For your first property, consider engaging an experienced professional.
*As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording. The information contained on this web page is general only and should not be relied upon as advice.
Investopedia (2020). 15 Tips for Buying Your First Rental Property. <https://www.investopedia.com/articles/investing/090815/buying-your-first-investment-property-top-10-tips.asp>
Mortgageport (unknown). Our Top 10 Tips for Buying an Investment Property.
RBC Royal Bank (unknown). What to know before buying a rental property.
RocketHQ (unknown). How do you buy your first investment property?