Buying an Investment Property is an excellent way to make some supplementary income. Some people even focus their entire careers now on having investment properties. But, of course, there is lots to consider and a lot of work involved before jumping in. So, before you decide to become a landlord, read these seven tips for buying an investment property that you should know.
Check the Down Payment Requirements
The down payment requirements on a rental property are not the same as your primary residence. You will need a minimum of 20-25% down payment to purchase a rental property. This down payment must come from your own resources, either savings or perhaps accessing equity in other properties
Know in advance how much money you can get from a mortgage lender to purchase your investment property. Skipping this step can leave you in the dust at the bargaining table.
Do the Math
Before you purchase make sure you understand the numbers and are prepared for every scenario. This includes calculating your estimated income, as well as your operating expenses, to confirm that you can make a reasonable profit. Consider the maintenance costs, property taxes, insurance, utility bills, mortgage payments, typical repair costs, marketing costs, staging costs, and the cost to pay staff. You’ll generally want to see a sizeable profit on your numbers for it to be worth it, even if you must do most of the work yourself at the beginning.
Find the Best Location
A property that is right downtown and close to amenities will have a higher profit margin than a house in an area that is off the beaten track. Renters want safe neighbourhoods close to transit, parks, restaurants, shopping, movie theatres, jobs, and good schools. Unless you know the market, talk to a real estate expert who can help you find the best location to purchase a profitable rental property.
Avoid a Total Fixer-Upper
If this is your first rental property, you may not have lots of extra equity sitting around to fund a big home improvement property. It’s tempting to get a bargain purchase, but the cost of contractors and renovation costs can far outweigh the benefits. Instead, look for a home that has some minor repairs that price it adequately below the market rate.
Have It Inspected
Having a home inspection done in advance is the best way to find out what kind of major expenses you may have to face in the future. Since it’s an investment property, you want a building that is in good condition where you don’t have to put significant cash into it before your renters move in. A home inspection will reveal all the serious issues and help you decide if the home is worth the investment.
Talk to a Professional
There is much more to consider when purchasing a rental property over a primary residence. And going at it alone without professional advice is never a clever idea. Speak with a mortgage advisor today who can help guide you through the process and help ensure you are making the right decisions for you.
Before you get ready to buy an investment property, talk to us first at the Mortgage Advisors. Our professionals can set you off on the right foot and point you in the direction that is best suited to your goals and financial state.