Are You Ready For An Investment Property?

By: Laura Ubaldino

Are You Ready For An Investment Property?

Tags: homes in toronto, toronto property shoppe, Laura Ubaldino, remax, real estate in toronto, toronto real estate, Etobicoke homes for sale, investment property,


How do you know if and when you should buy an investment property? 
 
There are several factors to consider – what type do you buy, how much to invest, what does buying an investment property really mean, what are the risks, is the timing right and how does the financing work? Do you want the low maintenance of a condo? Do you want the property control of a detached home? Do you want a recreation property you can use but also collect rent from? 
Below are some areas worth reviewing and discussing before moving forward with an investment property.
 
Type of Investment Properties
There is a wide array of investment properties so it’s important to learn which one is best for you. In the GTA, here are the most common investment properties along with some of their pros and cons.
Long Term Rental Properties: 
Long term rental properties can provide equity growth and cash flow. These properties can have 1 or more income producing units. They can be homes, townhomes or condos.

What are the pros?

 
Property Flipping
Property flipping can entail several types of projects – interior renovations, topping up or bumping out a home, or rebuilding it all together. Most property flips are detached homes, townhomes and condos can also be flipped with limitations.
 
What are the pros?
 
AirBNB
Gaining popularity over the last few years, AirBNB’s can be anything from a condo, a house or recreation property. Properties are rented on a short-term basic (days to weeks) and have a high turnover of Tenants. 
 
What are the pros?  
Recreational Properties
Cottages, cabins, ski chalets, etc. are all popular as short-term recreational rentals and demand high rental rates. 

What are the pros?  
Financial Requirements 
When purchasing an investment property, mortgage lenders can provide up to 80% financing, which means Buyers are required to put down no less than 20%. Lenders will also need to know the prospective rental income of the unit or review existing lease documents. 

If you currently own a property, you can borrow up to 80% of the equity in your current home to go towards a new investment. The bank will have to requalify you in order to refinance, but this is a great way to have your current money work with you to grow your real estate portfolio and help build wealth.

If you own multiple investment properties, lenders may tighten their lending guidelines as your liability increases. Lenders could require appraisals of your current properties and request all rental contracts amongst other requests.
 
Income Tax
Talk to your accountant before you purchase or sell an investment property. If you purchase a property under your name, capital gains tax will be paid when you sell, and any annual profit you receive is considered taxable income.
Purchasing under a corporation changes you tax and personal liability, so talk with your accountant to decide which avenue is best for you.

Property Management
Whether you live in the same area as your investment property or not, you will need to decide who will be the main property manager – you, or a management firm. On a month to month basis, management of the property can include property visits, landscaping, accounting, property maintenance (more so with homes over condos), delivering of Tenant notices, contact person for Tenant, etc. If you decide to hire a management company, monthly fees range between $125.00 - $300.00 a month, depending on the services rendered and company. If your investment property is a renovation project, consider if you will hire a contractor or if you will take that on yourself.
 
Risk
As with any investment, there is always a level of rink involved – decide what you are most comfortable with. Review and discuss the risks of the investment you’re considering. Some potential elements to discuss are:
 


Additional Funds 
Expenses for investment properties extend beyond monthly carrying costs, and these costs can arise at any time. 

Do you have the funds to maintain, repair and update the property as required? Can you handle the cost of an emergency that may arise with the property? Following the move out of Tenants, properties require a deep clean and often fresh coat of paint and repairs. These costs start around $1200.00 and go up based on the size of the property. As a property ages, items like new flooring, new appliances, etc. will need to be replaced and updated.

If you’re renting a property furnished, do you have the funds to furnish the unit fully? Kitchenware, rugs, lighting, beds, tables, chairs, etc. are all necessary purchases for furnished units.

Are you renovating or rebuilding a property? How much money do you have liquid? Can you fund the renovation yourself, or will you require a loan?
 
Where are you in life? 
Investment properties can be bought in any stage of life, but it’s important to see if purchasing an investment property works for you. Consider your current needs and lifestyle, and where you see yourself in the next couple years. Do you want to travel, grow your family, move into a larger home, buy a cottage? Be sure to share these wants and needs with your accountant and mortgage broker to see if you will still be able to do the things you want.

The idea of purchasing an investment property is exciting, and something to be discussed thoroughly – for a confidential meeting to discuss buying an investment property, contact me directly and we’ll grab a coffee.
 
Until Next Time, 
Laura