By: Sylvia Smith
Considering Getting Into Real Estate Investing?
Tags: REAL ESTATE, REAL ESTATE INVESTING, FINANCIAL SECURITY
Have you been considering getting into real estate investing? Are you aware that real estate has been one of the top investment options in North America? Real estate investing is also one of the safest long term investments strategies and many people have become millionaires and billionaires from investing in real estate
But of course like anything building a real estate portfolio takes time, knowledge, and effort. When you are just starting out it is critical that you build a team of real estate professionals to guide you and give you advice along the way. So make sure you are working with a team consisting of a realtor, lawyer, accountant, and mortgage broker who owns investment properties and who specializes in real estate investing. And if you do not plan to manage the property yourself a strong property manager will make a huge difference and take the day-to-day burden of managing the property off your hands.
Before you consider buying an investment property buy your first home as your primary residence is a tax-free asset and it makes more sense that you pay down your own mortgage rather than your landlord’s mortgage plus build some equity. Plus buying your home is a great education in developing knowledge and skills of looking for your first investment property.
Here are some tips on getting started:
Finding Your First Investment Property
It is critical to treat real estate investing as a business and the number one rule in real estate investing is that the numbers need to work in other words the property needs to cash flow – income earned needs to cover expenses. Cashflow is king and emotions should stay in check when purchasing an investment property.
Although it can be harder to find a cash-flow positive property in higher-priced markets it’s not impossible, particularly if you have strategies to increase your equity – such as making building improvements or saving up for a larger down payment.
Of course, before you start looking for that perfect investment property make sure that you have been pre-approved for a mortgage.
Managing the Risks
Real estate investing offers passive income and provides a great way to diversify your investment portfolio but if you do not manage your investment properties like a business you will increase the likelihood of running into headaches and risks. Here are some steps and strategies to mitigate the risks:
1. Taking on Additional Debt - most investors will require a mortgage to purchase rental properties. This is actually the benefit of purchasing real estate as you get to leverage bank money to make money. However, taking on additional debt can alter your debt ratios which can impact whether or not you get the best mortgage rates. To mitigate this risk keep close tabs on your credit score, you can review your credit score on sites such as Equifax or Transunion.
2. Spending on Costly Repairs or Maintenance – as mentioned earlier the number one rule of purchasing an investment property is that it needs to cash flow. As a result, don’t forget to budget for repairs and maintenance when you are crunching your numbers. If the anticipated monthly rent covers all the monthly expenses, including a repair fund, then the property cashflows.
3. A System for Getting Great Tenants – it is important to spend the time and carefully select and screen tenants. Develops a system and protocols for screening tenants so that you never miss a step. Getting great tenants will be key in having a successful investment portfolio. Become familiar with the tenant and landlord laws.
4. Hiring a Property Manager – if you do not have the time or inclination to manage your investment property hiring a property manager is the way to go. Make sure you spend the time up front to screen and select a strong property manager. A property manager will take the responsibility of finding tenants and managing the property day-to-day at a fee of course.
As an investor, the pandemic has halted risky moves, and since real estate investments are a safe, low-risk investment it’s natural that the market is still thriving. In addition, the pandemic has placed a spotlight on the need for housing across Canada as more and more people are forced to share personal space and work and study from home. The opportunity for buying homes outside the larger city areas is appealing to the younger generations. But investors are noticing these outliers and buying up investment properties in rural areas. The smaller communities are actually seeing stronger property appreciation than the larger areas such as the Greater Toronto Areas.
If you are considering investing in real estate reach out, it would be my pleasure to help.