Basic Tips for Investment Properties

April 7, 2013

Basic Tips for Investment Properties

An investment property can be a smart way of increasing your income, if decisions have been made wisely. In the past years property values have doubled and rental prices have increased in the GTA, however there is no guarantee that this trend will continue.

The major factors in selecting the right property is based on value appreciation and generating a steady income. The basic calculation for the monthly income would be total rent minus operating expenses (such as mortgage, property  tax , insurance and maintenance costs).

Here are some basic tips to help with the decision-making:

  • First of all, start with your budget. Determine how much you can afford and get a mortgage pre-approval. Keep in mind that the down-payment for a second property is usually a minimum of 20%.
  • Even if you can gain a good cash flow, don’t rely on an income property as your sole income source. There’s always a chance that you have no tenants for a period of time. Be prepared to arrange your mortgage payment for the time your property remains vacant.
  • You can deduct some of the expenses from your income;  such as mortgage interest, property taxes, insurance, utility bills, property management costs, maintenance and repair costs
  • Do your research on the local market conditions. Find out about the area’s vacancy rates and average rental prices.
  • Before buying a home, find out legal requirements for a basement apartment. Every city has its own rules.
  • Work with a Real Estate Agent who is a also a seasoned Real Estate Investor. Buying an income property is different than buying a home to live in. An agent with personal experience in investment properties has a broader perspective and can guide you through all the additional details.
  • Get a qualified home inspector to ensure the unit adheres to all existing building and fire codes. An inspector can also discover hidden repair and renovation costs that could affect your budget.
  • Don’t be emotional when choosing the right property: It should be in a good livable condition with a cozy layout, but you are not going to live there.
  • Ask yourself whether you want to be a landlord. This can be challenging since you will have to deal with different people and sometimes tenants can be problematic.
  • You can hire a property manager to manage your property, deal with the tenants and take care of the maintenance.