With home prices continuing to rise, there is a good chance that you have considered investing in real estate. You probably know someone who has done very well in this venture over the past few years. But as with any other type of investment, real estate is not without its risks. If you are going to invest, you need to do so wisely. To help you, we have put together our top tips for first-time investors who wish to get into the real estate market.
- Find out how much you can borrow.
Before you even start looking at properties, you need to find out what kind of a mortgage you can get on a rental property. Start by contacting your mortgage broker or financial institution to do this.
- Work with an experienced real estate agent.
If you are going to make any money on your investment, it is essential that you find the right property. To do this, you should work with an experienced real estate agent – preferably one who invests in real estate himself and knows what to look for in a good rental property.
- Find a property that has a positive cash flow.
Your rental property should be able to generate enough income to cover your mortgage payments, property taxes and utilities. You should also add about 10% extra to help cover the cost of repairs and maintenance.
- Have a home inspection.
Before you close on the property, be sure to have a professional home inspection completed. It is also a good idea to find a reliable contractor who can give you advice on minor repairs – this is especially true if you are purchasing an older property.
- Talk to your lawyer and accountant about your ownership structure.
There are benefits to creating a limited company and holding the ownership under that company rather than as an individual because it gives you a certain amount of liability protection should someone get injured on the property. As well, there may also be some tax planning benefits.
On the other hand, to set up the company, it will likely cost you $1000 or more in additional fees and you will have to file a separate tax return each year.
- Keep records of your income and expenses.
Keep separate records of all income and expenses you have for your property. Be sure not to mix these in with your expenses and doing so will make things more difficult for you at tax time.
- Consider hiring a property manager.
While some investors may see hiring a property manager as an added expense, they can more than make up for that expense in the time and aggravation they can save you. A property manager is someone who vets potential tenants and takes care of the day to day maintenance and repairs on the property – so you don’t have to worry about getting a 2:00 am call about an overflowing toilet.
- Don’t buy and sell property too quickly.
Once you start investing in property, you should be careful not to buy and sell it too quickly as this could be viewed by CRA as an income activity and they could tax you on the entire profit. Rather, you should plan to hold the property for the long term and that way when you sell it, any profit will be viewed as a capital gain and only half the profit will be taxed.
Are you considering investing in a rental property? If so, we would love to help. Call us today to set up an appointment.