It’s no secret that buying an investment property can be a wise financial decision. When done right, you can expect a strong return across multiple revenue streams. From passive income to tax breaks and equity gains, property investment can lead to substantial financial gains. With that said, a return on investment is not guaranteed and like any financial endeavour, it requires strategic thinking and efficient planning. You need to pick the right piece of property while working in line with market trends and real estate guidelines.
Whether it’s your first time investing in property or your tenth, the process can be overwhelming. However, with proper professional guidance from the best realtors in Langley, Cloverdale, and Surrey, property investment doesn’t have to be a shot in the dark. To help you through the process, here are some of the major factors to consider before buying an investment property…
1. Location, Location, Location
As with any real estate investment, location is of the utmost importance. For example, you wouldn’t purchase a stunning vacation home in the middle of nowhere when you could have greater financial gains from purchasing a more understated home in a great, accessible, and highly visited location. It may seem backwards, but when investing you want to think location first, property second. No matter how beautiful the structure may be, it won’t get many bites if it’s in the wrong place.
2. Determine Why You’re Buying
Before you jump into the world of real estate investing, it’s important to consider your financial situation and the reasons you’re buying property. There are several reasons people invest in property; understanding which category you fall into can clarify the risks and gains. Here are the main three:
- Long-Term Investment. If you’re in it for the long-haul, you can take the time to research the property, neighbourhood, and generate income and capital appreciation over time.
- Source of Steady Income. When you buy with the intention of renting, you’re opening the door for regular returns, however, there’s work involved with managing a rental property.
- Quick Return. Speculating for a quick win is all about timing. If you invest in the market during an upswing, you can make money quickly, however, the flipside is also a possibility. This goal takes a combination of time and prime conditions to reap the benefits.
3. Are You Interested in Property Management?
What are your short and long-term goals for your investment property? Are you comfortable with dealing with the day-to-day responsibilities of property management or prefer to hire someone else to manage the property? Depending on the type of property you buy and how hands-on you want to be, you may need to fix it up, calculate rent costs, find renters, deal with repairs, provide maintenance work, chase late payments, navigate tenant issues that may arise, address complaints from neighbours, and more.
Now, in most cases, property owners receive monthly rent payments like clockwork and never hear a peep from their tenants. But it’s important to understand the responsibility that comes with owning and managing property. If property management isn’t for you but the financial gains are, another option is to hire a property management company to take care of all the nitty gritty details while you wait for the cheque each month.
4. Abide By the 1% Rule
The 1% rule is a real estate investment term used to determine whether a property purchase is worth making. It’s important to use when calculating the expected return on a property. Under the 1% rule, each month should bring in no less than 1% of the price you paid for it, including the purchase price as well as repairs and renovations. For example, say you buy a property for $400,000 and invest $50,000 worth of renovations, totalling an initial investment of $450,000. To abide by the 1% rule, you’d want to be bringing in no less than $4,500 a month in rent and other financial returns.
However, like most rules, there are exceptions – caveats if you will. If you’re buying a million-dollar property in an up-and-coming neighbourhood, there likely won’t be a 1% return for some time. Instead, your focus will lean to the long game; where your investment pays off overtime, but initially the returns may not be as strong. In such cases, you can still aim to have your monthly mortgage payments at 1% or less than your initial investment.
5. Consult With Your Local Realtors
When it comes to buying an investment property, there are many factors to consider. This process can be difficult to navigate for new and experienced buyers alike. In a market that’s constantly changing, being up-to-date on the trends and having insider knowledge on up-and-coming neighbourhoods is an asset. If you’re considering buying an investment property, preparation and planning are the key to reaching financial success.
At Kim Phillips Real Estate, our team has been serving the Fraser Valley and surrounding areas for over 21 years. Voted the best realtor in Cloverdale for five consecutive years, we know we can find the perfect investment property for you. For the best real estate broker in Cloverdale, Surrey, and Langley, contact our team today.