31 May Buying An Investment Property
An investment property can be a great way to have a ‘second income’ for you and your family. Buying a condo, townhome, house, or multi-unit building has a lot of advantages including monthly rental income, property value appreciation, tax deductions and the ability to use the bank’s money to make more money for yourself.
However, you have to invest in an investment property with your eyes wide open. Here are some potentially expensive mistakes to avoid:
- Treating the property purely as an investment and not as a business. You can’t simply but the property, rent it out and forget about it. Decisions have to be made from time to time regarding maintenance, upgrades, rent reviews and new leases.
- Accidentally breaking the law. Before you buy, do some research. Make sure you understand landlord laws, your responsibilities and liabilities, and the ins and outs of property leases.
- Mortgage Pre Approvals a Must. Talk to a mortgage expert before you start your search so you know how much you can qualify for and you know what you are going to require.
- Consider your running costs. The price of the home is only the first of a series of home ownership expenses. Before you rush off at buying consider some of the costs such as property taxes and strata fees if applicable.
- Working with a buyer agent. Work with a trusted real estate agent that has experience and knowledge on buying investment properties. Buying an investment property is about numbers while buying your own home is about an emotional purchase.
- Don’t buy a property you haven’t inspected. This could be a disaster. Unless you do a site inspection yourself or have your real estate agent who knows exactly what you want. This is a big investment – you need to take the time to inspect it.
- Dial your home inspector and ensure perfection. Having the property professionally inspected can help avoid unexpected expenses. There are many potential problems with any home that you are not likely to pick up yourself.
- Not having enough funds to cover unexpected expenses like leaks, natural disasters, unrented property. What if your property sits vacant for a few months? Will you have enough to cover your mortgage payments? What if you suddenly need a new roof or furnace?
- Expecting too much. If you expect to get rich quick, you may be tempted to set the rent too high and lose your tenants. Research comparable and be reasonable.
- Criminal, reference or financial check or all 3. Ask for references (especially their past landlords) and follow them up. Run credit checks. If applicable, drive by the prospect’s current property and see how well it’s cared for.
- Not doing regular (at least annually) financial analysis. Remember, this is a business. All business owners regularly review their financials. Your property manager should provide you with monthly and annual statements of receipts and expenditures. Consider doing an annual market appraisal to see how the value of the property is going. Sometimes it is strategic to sell of some assets and purchase new ones.
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