Tips to Buy Your First Investment Property
Looking to invest in real estate? Not sure where to start? It can be an intimidating venture for sure, so much to learn, read, review. We have seen more than one newbie real estate investor get discouraged and overwhelmed by the process that they quit before they even get a chance to realize the great returns that real estate can award them with.
Let’s be realistic though. Forget the “easy” button. Starting something new is never quick and easy. If it were, you would have much more company swimming in the real estate pool!
So how can you get avoid becoming overwhelmed and actually take steps to get started?
Create a plan. Heck, you wouldn’t leave Toronto to drive to British Columbia with taking a GPS with you and planning a route. Why would you do that with your real estate business? Create a plan that is manageable, realistic and tailored to your circumstances. Here are five tips to buy your first investment property:
1. Focus by writing down your goals
What do you want real estate to do for you? What is your end-game? What are you hoping to achieve by investing? List and DEFINE your exit strategy. This is the most important step. Get your plan together before you “jump” in.
2. Research Neighbourhoods
The neighborhood where you choose to purchase your first investment home will have a huge impact on the success of your investment and your bottom line. Here are some things we suggest you keep in mind when trying to decide where to invest:
– Look closely at crime rates. Buying in a high-crime area may help you snag a bargain but you need to ask yourself if it’s worth it. Areas with a lot of crime may not attract the best quality tenants, and you may find yourself dealing with the hassle and expense of frequent vandalism and break-ins. You will also be limited in how much rent you can reasonably expect to charge.
– Buy in the best neighborhood you can afford. If you are starting off with a small budget, purchasing a rental home in an ‘up and coming’ neighborhood that shows signs of gentrifying and appreciating in value can be a great opportunity. Just bear in mind that you will need to be patient as it may take years for rent prices in the neighborhood to go up significantly.
– Pay attention to schools in the area. If there are great schools close by, you will attract families who want to rent long-term. On the other hand, if you buy a home near a university you will always have potential renters but will have to deal with frequent tenant turnover and possible damage to your property.
-Be sure the property is close to transit to maximize rents and profits. A property close to the TTC or GO and/or highway access will have more value to your renters (think more rent) AND more value to you over the long run.
3. Look for a move-in ready home
Unless you are a contractor or have friends that are and will help you with any renovation projects you want to tackle, we suggest looking for a move-in ready home for your first property. There are too many variables with a flip or renovators dream when you are buying your first property. Unless you are doing a rent to own (where you aren’t responsible for repairs or maintenance), be sure to look for a property that will easily pass a home inspection so you don’t have to worry about any large out-of-pocket expenses on major repairs.
4. Be conservative when calculating profits and expenses
Most look to cover their expenses and look long-term to enjoy their profits in a rental. Not sure that is entirely the case with today’s market (rental market is just as hot as the buying market with great demand and lower supply) which has allowed for higher rents and in some cases, more monthly cash flow. This is the perfect situation of course but just be conservative and certain that you can cover the expenses on your investment property through the rent to ensure you aren’t sinking money into the expenses and taking a loss (this includes condos – where we hear many stories of landlords covering the cost of the condo fees outside of their monthly rent amount).
5. Consider Hiring a Property Manager
Unless you have plenty of time on your hands and like to involved in the day-to-day management of your property (most of us don’t have either), you should definitely consider hiring a property manager. A Property Manager will handle many of the time-consuming tasks involved with being a landlord, all for a small percentage of the monthly rent. They will find and screen tenants for you, run background checks, collect rent, call repair workers and house cleaners, and even perform basic maintenance. Treat the hiring of your property manager the same way you would treat hiring an employee. Interview. Ensure that you like how they communicate and definitely meet each in person as in-person meetings are key to getting the “feeling” about the people you are going to trust your rental property (also know as your business) to.
There are many real estate investing strategies to do your due diligence on and it can be overwhelming for the novice investor. We get many people coming out to our meet ups and asking plenty of questions about how we got started. Rent to own removes some of the steps from the equation as you just need to really make sure the numbers work for you rather than having to research areas etc. but we thought we would post a blog on some of the most important tips to buy your first investment property. Hope it serves you well.
If you would like more information on investing in rent to own (which eliminates landlord headaches), please contact Rachel.