4 things to know about buying an investment property

In today’s economy, it’s a natural instinct for people to seek additional sources of income. For some, this may include buying an investment property. Not only is purchasing a second property a monumental step toward achieving your financial goals and generating additional income, but it’s also a big responsibility that comes with a lot of considerations. It’s important for buyers to ensure they’re educated and ready to move forward with the purchase – especially if they hope for it to be a long-term investment opportunity.

Here are a few pointers to keep in mind:

Be clear on your investment goals

What many buyers don’t necessarily know is that there are several different real estate investment strategies. From fix-and-flip to buy-and-hold to wholesaling, it’s important to educate yourself on the options available to ensure you’re making an investment decision that aligns with your goals.

For example, a fix-and-flip strategy involves buying with the intention to renovate and resell quickly for a profit. If your goal is to make money at a faster pace, this could be the option for you. On the other hand, a buy-and-hold strategy involves keeping the property in your portfolio long-term, and renting it out over time. Ultimately, the choice you make is all dependent on the type of property you’re looking to buy and the timeframe in which you want to benefit from the investment. Therefore, getting clear on these elements should be your very first step.

Ensure that you are financially prepared with considerable savings

Purchasing an investment property is different than buying your first home. Although the intent is to gain additional income, an investment property actually adds to your financial obligations in the beginning. Buyers should keep in mind that they will be required to make a minimum down payment of 20 per cent, and carry the mortgage of the property until they find a qualified renter. You also want to factor closing costs and other expenses into the budget – as well as any repairs and ongoing maintenance.

Not to mention, if you still have a mortgage on your primary home, you’ll need to budget for expenses there, too. In some cases, buyers may be able to use their home as a potential financing source to borrow up to 80 per cent of their current home value to help pay for the investment property. It’s best to speak with a qualified mortgage specialist such as those at Homewise, who can walk you through the process and educate you on all of your options.

Be ready for the added responsibility

It’s easy to get lost in the excitement of buying an investment property and generating an additional source of income. However, buyers need to remember that it also comes with more responsibility and commitment. If you’re buying a rental property, you’ll be required to find qualified tenants and maintain the upkeep of the home – as well as any repairs or potential damages that arise. Even if your goal is to fix and flip a home, you’ll still have added responsibilities on your hands, such as balancing budgets, overseeing contractors and managing trade schedules. No one said it was easy, but if you’re prepared, it’s worth it.

Work with a team of qualified professionals

Get in touch with a professional real estate agent and mortgage specialist who can walk you through the steps of buying an investment property and securing the best financing option. The process may be slightly different than when you purchased your first home, which is why it’s important to be informed on all of the key details before moving forward. Be sure to work with a real estate agent who is knowledgeable and can help you find a property in the right location, at the right price. For example, the Homewise real estate team often advises buyers that in order to attract high-quality tenants, you must focus on neighborhoods with nearby schools, hospitals, public transportations and a thriving retail environment.

Buying an investment property is without a doubt a great opportunity that comes with favourable returns. However, it’s crucial for buyers to understand what it takes and what’s involved before making any big financial decisions.