When I purchased my first house, I initially never thought of it as an “investment.” It was a place to call home. I had a few buddies that lived with me and covered most of my mortgage payment. After seeing the value of my house increase over a few years, I proactively started looking for more real estate investments opportunities.
I’ve had many unique real estate investment opportunities over the years present themselves. Being in the mortgage industry has allowed me to make educated decisions on real estate investing. I recommend anyone purchasing an investment property to do research and make sure that being a landlord is right for them. Owning an investment property is not for everyone. Dealing with tenants, property maintenance and market fluctuations can be stressful at times.
Don’t wait to buy real estate, buy real estate and wait. ~T. Harv Eker
Real estate is an excellent investment for many reasons. An investment property can provide you with cash flow, capital growth and create a nest egg for retirement. When you buy a rental property, your tenant is the one paying the mortgage down each month. It’s essentially a savings account that grows automatically, without you depositing money each month.
Rental properties are getting harder to finance each year. Banks are continually coming up with stricter rules to ensure you are financially prepared to cover your new mortgage payment. As well as unexpected costs associated with your rental property.
The first step to purchasing an investment property is to come up with a down payment of 20 percent, or higher in some cases. The down payment can come from equity in a home or savings. The reason you need such a large down payment is to avoid default insurance coverage (if you put less than a 20 percent down payment on a property in Canada, it is mandatory to have default insurance coverage.) Default insurance companies (such as CMHC and Genworth) do not insure rental properties. They are in the business of helping people purchase their first or second home.
The second step is to apply for a mortgage pre-approval, to ensure you qualify to purchase a rental property. Banks will use a portion of the potential rental income to help you qualify for the new mortgage, as well as look at your full financial picture. They take into consideration the down payment amount, access to savings for unexpected costs, the number of other rental properties owned, the condition of the rental property and reliance on the rental income.
Once pre-approved to purchase an investment property, you can start shopping for a house with a real estate agent.
I have the personal knowledge to guide you through the process of buying an investment property. If this is something that interests you, contact me to get started!