Real Estate Investment is the only type of assets you can get which are most of the time appreciating as well as income generating. Most people invest in rental property as a way to earn extra income, as an investment vehicle to safely keep their savings above inflation rate, as well as to grow their net worth or even for retirement planning. No matter what ever is your financial goals, there are a few things that the prospective landlord will have to be aware of in order to get the most out of their investment and also make sure that they get a return on their investment without much difficulty. Some of these things to consider are here below:
1. Your Income shall be sufficient: Getting a rental condo or rental house is not every body’s cup of tea. You shall be financially strong to look into this as it is not very liquid asset, which you sell the movement you want to. More can get you better but it still shouldn’t be beyond your income means available. Consult your real estate agent and your mortgage broker before you jump in this pool.
2. Be aware of the Mortgage requirements for Investment property; Different Lenders have different mortgage requirements when it comes to investment property. Based on current mortgage rules other then your income requirements, which shall be enough to qualify you for your current mortgage of your principal residence, you shall also qualify for atleast 20% of your rental property. Plus based on new CMHC rules, you shall have 20% down payment available.
3. Be aware of the property taxes for real estate investment; Property taxes can significantly add to your carrying cost per month and will therefore be a determining factor in the rent amount that you will charge to cover you for all your expenses.
4. Your Investment real estate insurance; Insurance rates and cover will depend on your particular area, but you will need to get insurance coverage to protect against various risks that may come with having rental property such as damages, fires or any other insurable risk. Freeholds require you to take fire insurance whereas condos you don’t need to consider that cost. Some insurers may not ever provide you coverage for Tenanted property or may charge a higher premiums.
5. Condo Fees for Investment condos: If you are buying a freehold, you don’t need to worry about this cost but if it is a Condo, this is another major cost you need to add to your per month costs.
6. Consider the maintenance requirements; Factor in some costs for regular property maintenance, which will vary depending or your property age and type.
7. Finding the right tenants; it may seem unimportant but finding the right tenant is one of the most important factor. I have seen some landlords hasting to get their property rented through free classified websites like craigslist or kijiji etc. Most don’t realize that one wrong tenant can change your belief in investment property all together. Checking them under microscope is of extreme importance. Don’t just rely on one credit score or job letter, as there is lot beyond that to check too. You are far better off keeping your rental condo or rental house vacant for few extra days rather then getting a non qualified tenant.
8. Is your rent amount inclusive of utilities? If you are planning on including the cost of utilities such as gas and water in the rent, it is advisable to first get an estimate from utility companies. This is a cost, which shall always be preferred not to be included in the rent specially for a freehold as it only leads to wastage when they know that they are not paying for this.
9. Consider Vacancy Period Cost: Consider that your property may not be occupied all year round and plan for such an eventuality with when setting the rent price. Most of the time 30 days vacancy period is the right factor to consider between the switch of tenants.
10. Which is better Investment for you, Residential or Commercial: There is no point you invest in property which have doomed future or have weak future prospects. Consult your Investments specializing real estate agent and do some own due-diligence to make sure you take an educated decision. Of course, everyone wants the maximum ROI (Return on Investment) but your financial limitations, the time you have available will define what can be your best options to consider. For example if you have time available, high net worth with larger amounts available to invest and hold, maybe commercial is the way to go for best ROI. But if you are entry level Investor with limited budget for investment and are already gainfully working somewhere for your bread and butter, residential real estate investment may be a better option for you. Maybe investment condo is good option for you or maybe a house. You still need to consult the experts and weigh all your options for judging the best investment vehicle available to you, based on your financial goals and limitations.
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