Are you looking to purchase a property in order to rent it out? There are a few tips you should know before you do so.

• Is it right for you?

A landlord’s job is not easy and is one you should definitely be prepared for if you are looking to invest in a rental property. If you want to make a profit out of this property, you need to have an incredible eye for minute details to ensure that you manage the property properly are firm but also friendly.

Most people who fail at being landlords don’t realize how much effort and work will take before they invest in a rental property. Think hard before you decide to invest in rental property; you need to figure out if you can spare the time, skill, or willingness it takes to manage a rental effectively. One might argue that rental properties are considered passive investments, but that doesn’t mean that landlords need to be passive in any way while managing the property.

If you think that managing a rental property is too much work for you, but you still would like to invest in the real estate world, you should look into REITs, which are real investment trusts.

• Should you buy the property or finance it?

There are people that will tell you that you should not invest in a rental property unless you are willing to pay cash for it, but the truth is far from it.  If you buy a rental property for $500,000 in Canada, you only pay a down payment of $100,000. This means that you would have to get the rest from a bank in the form of a mortgage. But think long term; You rent this property out to a renter for $2500 a month, which essentially covers your mortgage payment in full. This may vary based on your interest rate. 

If you’re lucky, you may even have money left over after paying all the expenses. This way, you will only have invested $100,000 of your own money but will become a homeowner without having to pay the rest of the money to the bank that you have taken a mortgage out from. So whether you decide to buy the property in full or have it financed from a bank is entirely your own personal choice based on what you can afford.

• Have you found the right location?

Yes, it is important to the right location, but it takes an interesting turn when you apply it to income property investments. Suppose you find a location that has the most appreciation in the market; how does that translate for you in terms of rent? As a landlord, you will have some of the worst cash flow with a rental in the best location in town. 

Why does this happen? Most investors in high-appreciation areas want a higher cash flow so that they can compensate for a slower appreciation. No one is willing to pay that much rent for a property. However, if you choose a rental property in a new and emerging neighbourhood, you might find yourself renting out instantly to families that want to stay long-term and even agree with your rental terms.

Are you interested in finding out more? Contact Christine Smith of Homes at Blue Mountain to get started.