It's an exciting time when you decide to purchase your first investment property, but one should always take time to do their due diligence before the purchase.
There is a little bit of difference when it comes to buying real estate as your primary residence compared to buying it as an investment property.
If you are buying real estate as your primary residence you can get financing even with 5% down
(as long as you qualify) but for investment properties you typically need 20% down in some cases even 25% or more.
Some ``A`` lenders (big banks) won't finance an investment property after a certain number of properties; for investment properties there are certain costs associated with it that differ from primary residences. You get certain rebates and you can even buy under first-time home buyers plan while in case of an investment property it is not possible. If you are buying a brand new investment it is very likely you are going to pay HST on top of purchase price (the HST you pay, you will get back under one condition is that you cannot sell the property before one year period).
Let us look at where and what kind of investment property one should buy so that equity can build up fast and can be used in future real estate purchases.
Location is key! Do not buy a property in an area where you do not want to live. Good location must have public transit system accessible to everyone, good walk score and should be close to all amenities. I recommend purchasing an investment property close to your current residence. Less than as hour away type of rule. Sometimes you may need to go and check up on it due to the tenant needing some help or for some repairs needing to get done. If you cannot be close to the property have someone else look after it.
Check the vacancy rate in the area. A low vacancy rate in the area is an indicator that your property will be rented out quickly and more chances are that rent will increase in the near future.
Check employment rates in that area. Property prices are increasing at a very fast rate not only in the GTA but all over in Central and Southern Ontario and, as a result, more and more people are being forced to rent instead of owning.
Let us look at an example of a $400,000 pre-build condo property. We’ll assume it will be ready in 2-three years. By the time you take ownership of the condo you will see that property already has already appreciated by 3-4 % or approximately $50,000. If it is in a desirable location you will have no problem renting it out and in another 2-3 years you should have paid already approximately $15-20k of your mortgage and also at the same time your property is further appreciated by another approx. $30 - 40K. Now it is time to talk to your bank or your lender so that you can take money out and on your way to buy another property and in another 2-3 years next property and so on.
The more properties you own, the more cash flow you will generate. In times of inflation real estate creates hedge against inflation. One can reap the rewards of equity build up, not to forget many tax advantages of owning real estate and the appreciation.
Word of caution before you buy a rental property: it is very important you do your due diligence.
Contact me for more information about owning an investmemt property.