Purchasing an investment property can be a great way to make money and build equity. It is a tremendous financial step, but it is not without risk. If you do not take the proper precautions, you may encounter issues like difficult tenants, high vacancies, costly repairs and more.
Are you thinking of purchasing an investment property? Here are six things to consider to mitigate the risks.
What Kind of Property do You Want To Buy?
First, you need to consider what type of property you want to buy. Are you looking for a fixer-upper or a turn-key rental property? A fixer-upper is a property that needs work before you can rent it out while the turn-key rental property is ready to occupy from day one.
Typically, fixer-uppers cost less upfront, but they will require more time and money to get them rent-ready. On the other hand, turn-key rental properties may cost a bit more, but they will be ready to start generating income immediately and prove to be less stressful.
According to Buildworld research, 53% of buyers who bought fixer-uppers went over their budget, while 15% of buyers who bought turn-key homes did not. And while fixer-uppers are often thought of as “budget-friendly,” that isn’t always the case depending on your experience and resources available.
You will also want to consider the type of building that best suits your investment goals whether that be a condo, a townhouse, a multi-res, and so on.
Before choosing which property to invest in, it will be very wise to do your research and weigh the pros and cons of each option and the actual costs involved.
How Much Can You Afford?
Before you search for your dream investment property, it’s crucial to figure out how much you can afford. Analyze your finances and determine how much you can spend on a piece of property.
Don’t forget to factor in the cost of repairs, renovations, and furnishings. Once you have a rough idea of your budget, you can start looking for properties that fit your price range.
The Location of the Property
A property’s location is a key factor to consider when choosing a rental property. It is best to pick a location with high demand and growth potential. A good location will make it easy to find tenants and naturally increase your property’s value over time.
Also, consider the surrounding area when selecting a location for your investment property. Is it a safe neighbourhood? Are there any schools and parks nearby? What is the average income of residents in the area? Answering these questions will help narrow your search for the perfect investment property.
Do Your Research
Conducting your own research is one of the most critical steps in purchasing an investment property. This is a big investment and merits the extra effort. Be sure to complete a home inspection by a qualified home inspector and seek out professional advice.
Do your best to make sure that the property in question is in good condition and is priced reasonably. You do not want to overpay unnecessarily.
Are You Ready for the Responsibility?
Owning an investment property comes with a lot of responsibility. You will be in charge of finding and screening tenants, collecting rent, maintaining the property, and paying taxes along with insurance.
Another major issue you have to face as a landlord is dealing with difficult tenant situations. Even the best screening process does not guarantee that you will not run into any issues at one point or another. Are you prepared to deal with difficult scenarios and evict a tenant if necessary?
Alternatively, you can hire a property management company to take on the brunt of the work. Seeking the services of property management companies comes at a cost, but it’s worth every dime if you want to forego the hassle of being a landlord.
Summary
When buying an investment property, keep these crucial considerations in mind. Do your homework and speak with an expert before making the commitment. A rental property is a great way to create long-term wealth and is worth the work when done correctly.
Can we assist you in your real estate transaction? Email our legal team today at info@tblaw.ca to learn more about our virtual services.
