Tips for Real Estate Investing
Investing Tips for buying a home for investment purposes! There are several ways to invest in real estate and it can be a lucrative opportunity to earn passive income. It is a great way to save for your future retirement as many times it is a long-term hold strategy. In this blog article, learn a few tips to get you started in investing in real estate in Canada. It is important to work with a real estate agent that understands real estate investing. Outlined below are a few steps for positive investment purchase.
Finding the Right Investment Property. In this step, you want to determine what is the best way to get into real estate investing. Are you looking for a flip property – buy, renovate to sell? This requires you and/your investor to time the market. When the market is hot and anticipated “market bubble” will burst, it is highly risky to invest in a flip property. The most ideal time to purchase a flip is when the market is in recovery, and anticipated hot market next season. Because it can take 3 to 6 months to renovate a project, purchasing a project in the fall/winter so that it can be ready to list on the market in the Spring is ideal in a city like Calgary as we are highly seasonal and most sales typically happen in the Spring and in the Fall.
Analyzing the Deal: Make sure you are working with an agent that can competently look at the numbers. Investment properties are much different from a home that you want to live in. Making sure things like the property is cash flowing, renovations analysis, and crunching numbers such as if you were to hire a property management company or looking at the condo fees to make sure that this will be a good investment property is key. We have a special investment calculator that will crunch out the numbers quickly so that you can make a viable investment solution.
Financing Strategy and possible Joint Venture Partnerships: Determine your financing strategy and knowing your numbers is important. It is wise to put down over 20% in any investment property so that you can bypass the CMHC Insurance premiums. Determine if you want to work with Joint Venture Partners at this stage so that you can look for properties accordingly. A good Mortgage Broker can help you determine your best probable rate and you want to have a good buffer for a rainy day fund.
Offer & Property Inspection, Lawyer Up: Once you’ve found your viable investment property, you would want to hire a good property inspector to protect your asset. You want to find something based on your strategy. If you are looking for a flip, you may want to bring a contractor to your showing to determine what may need work, as a property inspector cannot estimate dollar amounts for your renovation projects.
Using a REALTOR to negotiate your deal, they will draft up the offer including conditions for the sale. Typical conditions include Property Inspection and Financing. Some deals for the best price go in with a deal that doesn’t have conditions, this means that you may want to work fast if there are multiple offers and an unconditional deal is the most attractive to the seller if the offer price is comparable with other offers (in a multiple offer situation). Working fast may be key in a hot market, or if the list price of the home may be low. Within 2 weeks of possession is when the Lawyer may be involved to facilitate the deal. They check the title, past mortgage and any other details regarding the property. If you have a Joint Venture Partnership, this is where the partnership agreement will need to be reviewed well prior to the offer and possession of the investment home.
Your Power Team: Upon possession of the home, you may want to find a power team that will be helping to ensure the success of your investment property. This team may include: Property Manager, General Handyman, Accountant, Cleaner, Painters, Contractors, Landscapers, Lawn Maintenance/Snow Shoveler etc.
Hiring a qualified property manager should take care of the property and reduce the headaches of tenant issues, as well as filling in the vacancy of the home.
Having a good accountant and bookkeeper that specializes in real estate investing is also key. They will help to keep financial statements to help manage the property’s finances. Keeping proper records of all income and expenses and creating financial statements on a regular basis is required to manage the property.
Exit Strategy to your Investment: Having a good exit strategy is good planning from the beginning of your investment. Your exit strategy may determine how long you (and your Joint Venture Partners) may want to keep a property. A good investment with a buy-and-hold strategy would be to keep a property for at least 10-15 years.
There will be various costs along the way and understanding your numbers, you will have a better plan and contingency for the exit strategy. At the end of the term, you can discuss with you and your partners if you are going to refinance the project, sell the project, or keep it for another determined amount of time.