Choosing to invest in real estate can be a great way to generate monthly income and set yourself up for success with a long-term investment. While it is exciting to reach the point of being able to put your savings towards something, it is important to make sure you are financially prepared to take on risk and you are aware of the differences in owning a rental property and your primary residence. If you’re thinking of expanding your real estate portfolio and investing in a rental property here are a few things to consider.
Financing
To get started you will want to look at your current financial situation and determine if now is the right time for you to buy. A hot rental market can be alluring, but can you afford both your principal residence and a rental? Even in a hot rental market you are not guaranteed to find tenants, so making sure you can afford both properties, and for an extended time, is important as this is something lenders will look at when qualifying your loan. Additionally, you will need to consider things like closing costs, property taxes and putting forward a large down payment. In most cases you are required to pay a minimum 20% down payment on a non owner-occupied residence in Canada.
Type of Property
Condos are a great entry point for investors since they are generally lower priced and less maintenance than a semi or detached home. Condos can have a lower return on investment since you can’t charge as much as you would on a detached home so, if you’re thinking of investing in a condo, your best bet to successfully earn money is to make sure it is in a desirable location with a good pool of tenants. Also remember, not every property you come across is going to be turnkey. Fixer uppers can be really alluring with a lower list price, and they bring an excitement of making the space what you envision. Unless you have a background of home renovation and have a strong understanding of the time and effort that it takes to take on the project it may be best to avoid a fixer upper until you have more investment experience.
Obligations as a Landlord
Typically, first time investors choose to be landlords themselves and while it's cheaper to go this route you want to make sure you research your responsibilities and review your specific Provincial laws. In Ontario, the Ontario Residential Tenancies Act governs tenant and landlords’ rights as well as details things like maintenance, repairs, and evictions. Being well-versed in your responsibilities will help set the stage for a good relationship between you and your tenants and help avoid any disputes that may arise.
If you’re feeling like you won’t have the time to be a landlord due to other obligations, consider paying for a property management company to handle it for you. Keep in mind this will cost you 5-10% of your rental income, so if your margins are tight you may want to start off trying it yourself.
There are many things to consider when purchasing an investment property and I hope this has given you some insight on where to start. As someone who truly believes in and has experience investing in real estate, please let me know if you have any questions. I would be happy to help and share what I have learned!
