Buying a rental property is a great way to start growing your investment portfolio and building a long-term wealth plan. Rental units can give you a steady income each month and help you work your way up the investment ladder.
Buying a rental property isn’t as simple as just securing a mortgage and signing the paperwork though! There are many steps involved in the process to ensure you get yourself set up on the best path possible.
Steps to buying your first rental property
Make a plan before you start
Jumping into the rental real estate market is a great investment move, but it’s one that shouldn’t be made without a solid plan of attack. Deciding whether you’re looking for an apartment, duplex or single-family home is the first step. From there you can consider location, price range and your end goals with a rental property. Are you hoping to add more properties to your portfolio? Will you enlist a property manager to help you? Having a plan before you start can help you get the most out of your investment in the long run.
Clear any debt you have first
Debt may be a normal part of investing, but you should avoid entering in the rental home market with a lot of debt behind you. If you have any debt from medical bills, student loans or credit cards you should clear this debt before proceeding too far. Adding to your debt load without enough guaranteed rental income to cover it all can set you back.
Consider where your investment loan is coming from
There are many options for how to come up with the money to buy your first property. If your credit isn’t high enough you might want to consider getting a parent or partner to co-sign for you. If this isn’t part of your plan, you’ll want to do research on the most suitable source for your goals and needs.
Be ready for a high down payment
If you’ve ever bought property before you might think you know what to expect when it comes to down payment but in reality, the down payment on investment properties is much higher than in a non-rental property. In this same vein, interest rates and homeowners’ insurance rates will be higher on an investment property than on a standard mortgage as well.
Stay ahead with the math
If you’re not taking in more in rent than you’re paying out in mortgage payments, maintenance fees and any other costs, your investment property isn’t a very sound investment. Before you are ready to sign on the dotted line make sure you’ve dug deep into all the expenses you can expect. Things like homeowner’s association fees, property taxes, landscaping costs, home repairs, insurance fees and insurance payments can all add up quickly, and might end up being numbers that you’re not prepared for. Financing and carrying costs, of course, is a big deal and there’s financial calculators that make it easy!
Location, location, location!
Did you know that within Canada, the Greater Toronto Area has remained hot even when other markets cool off? In fact, with most immigration into Canada moving into the GTA, areas west have become especially attractive, including Burlington and Oakville – rated among the best cities in Canada for quality of life!
Naturally the location you choose for your first property will play a role in how easy it is to rent. Neighbourhoods with all the amenities like schools, parks and shopping nearby will make your property easier to promote to new tenants. In fact, savvy investors consider “would I live there”?
Choose a good real estate agent
Navigating the world of property buying is a very different game when your goal is to buy an investment property vs your own home. Having a real estate agent on your side to help you find a property you love for a great deal will help you step into the investment property world on the right foot.
Consider the renovations needed
With TV shows about flipping homes and rehabbing fixer-uppers to make a profit all over TV, it can be tempting to go this route. But with your first rental investment this is most likely a bad idea. Home renovations can end up costing way more than you bargained for, causing your well-priced initial purchase to put you into unnecessary debt. Start with a home that needs only minor repairs for the best opportunity for financial pay off.
Don’t start with a super expensive property
It’s no surprise that the more expensive the property you choose, the more expenses you will have. Starting with a lower cost investment property will help you get to a place of profit sooner, and help you create a more manageable budget from the beginning. Once you’ve gained experience in this space you can consider expanding your profile with a more expensive property.
Investment real estate is a great move
Deciding to get into real estate as an investment is a great way to build your portfolio, gain experience and create an income. But it’s not as simple as just buying a home and throwing in renters! Use these points to help you make the best decisions possible so that your investment will start working for you.
