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toronto condo market 2013

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INVESTMENT BUG: The pros and cons of purchasing an investment property

We’re nearing the end of the second quarter now, and the real estate market is holding steady! And with more and more people looking at ways to invest their money and get the most for their return, I’ve had a few calls from clients considering investing their money in investment properties. I know from personal experience that the return on this type of investment can be great, and is definitely a great way to diversify your investment portfolio with an investment that will likely increase over time and pay for itself in monthly rental income, but I also know firsthand that the process isn’t as glamorous as it may come across on all our favourite real estate reality TV shows.

Firstly, let me make the difference between flipping properties, which has been popularized in the last few years, and owning an investment property. “Flipping” a property refers to the common practice of purchasing a “fixer-upper” property below market value with the intention of fixing it up to raise the value and re-selling in a relatively short period of time for a profit.

Owning an investment property that you plan to hold on to long term can be anything from purchasing a condo, duplex, triplex, building, etc. with the intention of renting out the unit or units on an ongoing basis.

If you’re looking at purchasing an investment property for the first time, it may be worth noting that most lenders won’t approve financing for properties of more than four units. So purchasing a triplex to rent out may be a good start, but maybe save the three-story low rise until you’re a little more experienced. Most lenders will require a minimum of 20% down, and if you’re looking to avoid mortgage insurance premiums, it might be worth it to put down more. Throw in land transfer taxes and closing costs, and you’ll see why it becomes super important to know your numbers and be sure of what your upfront expenses are going to be.

When it comes to tenants, I have one golden rule for all of my clients: you need the RIGHT tenant, not a tenant RIGHT NOW. In Ontario, the laws are usually on the side of the tenant, so do your background and pay the $29.99 for a credit check to cover your bases. If you don’t have a thick skin, develop one, quick! Complaints will come and you’ll need to know your tenants’ rights and your rights as well.

Be prepared for maintenance costs and repairs. Be prepared to put in work. Get yourself an agent who has knowledge of the type of investment property you’re looking to get into and who knows the area enough to work with you through area rental rates and capitalization rates. If you arm yourself with the right team and proper guidance, it could be the best financial decision you ever make.

 

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