What is a “good investment?”
A good real estate investment, in our mind, is one that generates or has the ability to generate cash flow to offset the property costs. By using this simple evaluation method you are enabling yourself to withstand a reduction in rents should that occur.
How do I choose what type of investment property to purchase?
There are many types of investment properties to choose from – everything from houses to apartment buildings to commercial strip malls to industrial buildings. Choosing the right type of property for you depends on the improvements the property requires (physical and in tenancy) and the return you are seeking. When someone with little real estate investment experience comes to us looking to buy a property we often discuss the following:
What are your goals for the return (is it required for day to day expenses or do you want income when you are no longer working full time)?
How much cash do you want to invest?
How much leverage (financing) are you willing to take on?
Have you discussed tax strategies with your accountant and a lawyer?
How much do I need to begin investing in real estate?
Typically, most banks are looking for you to put a down payment of 20 – 30%. However, you can buy investment property with no money down by financing your down payment. This can be done by taking an equity mortgage on your existing property, using an unsecured line of credit (usually at a higher interest rate), or by a vendor take back on the property. From time to time we see properties that would make excellent investments with high amounts of financing on the properties. These properties can sometimes be had with minimal down payments, however it really limits your choice of properties. Most times it is simply best to find the right rental property that best suits your situation.
What is a good time horizon for holding investment property?
We advise clients that when looking at purchasing an investment property you should look at a time horizon of no shorter than 5 years. Time is key when it comes to investing in real estate. The longer you own the property, the more time it will have to appreciate in value. Rents will increase over time creating increased cash flow. Most of our clients have never sold their investment properties and those that did sell, did so only in order to buy either larger properties with more revenue potential or a different class of property (ie./ apartment or commercial).
[Happy to have Westhawk Property Management]
What are the biggest risks of owning investment real estate?
The biggest risks to owning investment properties are forced sales in a short period of time, and vacancies. The expenses are high to buy and sell properties. The mortgage penalties, legal and closing fees add up to a considerable expense, and if you are forced to sell before your property has gained equity, you may be in a loss position. The other major risk is vacancies. It is important to choose properties that are attractive to as many potential renters as possible. Having a professional Property Management company keep your property well maintained and efficient plays an important role in minimizing vacancies.
Where do I start?
If you can answer the four questions above, then a good first step is to contact your favourite realtor.
Source - Westhawk Property management Oct 2020