Investing in real estate is a wonderful way to create wealth and passive cash flow for yourself now or in retirement. Whether you are considering buying an apartment condo or single home to rent out as an investment, or looking to purchase a multi residential investment such as a six-plex or larger building, or possibly a commercial building – you will be becoming an investor. You will also become a landlord. Here are a few tips to assess what investment would be right for you.
- Decide what type of investment is right for you – Residential or commercial Investment properties offer their owners a manageable risk and stable investment, and provide ongoing revenue streams when managed properly.
- Commercial investments such as office and retail investments are far more subject to shifts and risks in the economy.
- Residential investments are considered more stable since people always need a place to live.
- Dig into the vacancy rates for your chosen investment in the area you want. In Guelph, being a University town we have enjoyed a very low rental vacancy rate for several years now. Currently we have < 1% (less than one percent) vacancy rate for residential rentals. This is not great if you’re needing to find a rental, but if you’re an investor these are fabulous numbers!
- Understand your risk tolerance for vacancy. Multi residential properties have a lower vacancy risk than single family homes. Single family homes lose 100% of their income when they are vacant – however, one (1) vacant unit in a 6 building unit would only account for 17% of their income if it were to become vacant.
- Consider your role as a landlord. Single or Multi residential investments seem secure but they are not for everyone, especially if you don’t want to be a landlord. You will need to find tenants, dealing with problem tenants, handling maintenance issues, and being available for tenants. Now, if you want to give up some of your income to hire a property manager or property management company that will alleviate some of the day to day from you – the investor.
- Know the laws / legislations in your area. For residential properties in Ontario, you should be familiar with legislation such as Residential tenancy act, Ontario Human Rights Code, Ontario Fire code, the Landlord and Tenants board (LTB) dispute process, etc.
- Secure your Financing – For a secondary property, you will need to have minimum 20% downpayment in order to purchase for a secondary property, and qualify for mortgage. If you’re looking for an insured load through (CMHC), you will be able to get this with 15% downpayment on a multi-residential property (minimum of 5 units, which is then considered commercial property.
- Determine what you want from your investment. CASH FLOW vs. CAPITAL GAINS or combination of these?
- A cash flow investor is typically a long term investor. You’re looking to purchase a property and hold on to it with the goal of generating income through rent or other income such as laundry, etc and experience appreciation over time.
- The capital gains investor are typically more risk tolerant and looking to buy property at low price and sell high. Similarly purchasing a property with future opportunities and sell it for a profit, such as with changes in the market, tenant turnover to be able to trigger rent increases, controlling expenses, and carrying out repairs and renovations to increase revenues.
- Work with experienced and reputable professionals that will look out for your best interests.
If you’re considering purchasing an investment property or starting a real estate investment portfolio in the Guelph area, call me at 519-824-9050 ext. 235 or contact me here:
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