9 Tips for First Time Real Estate Investors

Tuesday Aug 29th, 2017

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Many people consider investing in real estate as a way to build a nest egg and have tenants pay the mortgage. There are many pros and cons to taking this leap. Here are nine things to know before you jump into real estate investing:

1.    Find out how much you can afford 
Before you start searching for an investment property, I recommend that all of my clients meet with their mortgage broker first to determine how much money they can afford to borrow responsibly.

2.    Look for properties that will generate positive cash flow
The term positive cash flow means that the rent you collect from your tenants will cover your mortgage payment, property taxes, utilities, insurance and any other monthly fees. I also encourage my clients to budget an additional 10% on their payments to save for repairs and maintenance that may pop up over time.

3.    Invest in a home inspection
Before purchasing an investment property, have it inspected by a professional home inspector. This can save you a lot of headaches down the road – and money too!

4.    Consult with your accountant and lawyer as to how you will take ownership of the property
There are some benefits in taking title in the name of a limited company, in order to protect yourself against personal liability and for other tax planning purposes. However, you will also have to pay about $1,000 in incorporation fees and have to file a separate tax return each year for your company. Your lawyer and/or accountant is a good person to speak with.

5.    Keep proper records of income and expenses for your investment property
Regardless of whether your investment property is in your name or a company name, I recommend that all of my clients have a separate bank account, apart from their personal account, to track expenses. This will make tax time much less of a burden.

6.    If you are buying with a partner, make sure you are protected
Ensure that you both have a proper partnership or joint venture agreement to protect you should things not work out as planned. In particular, provisions should be made if one of the partners wants to sell and the other one doesn’t or one partner is not paying their share of expenses.

7.    Hire an experienced property manager
Owning an investment property comes with a lot of work. To assist you in finding suitable tenants and dealing with any ongoing maintenance, repairs or other complaints, consider hiring an experienced property manager. 

8.    Be careful not to buy and sell properties quickly
It is preferable to buy properties for the long term, rent them out and use your positive cash flow to reduce the amount of your mortgage owing, building equity in your property. If you then sell years later for a profit, it will likely be classified as a capital gain and only one-half of your gain will be tax-free.

9.    Take your time
Finding the right investment property to fit your budget and expectations takes time. It’s a decision that shouldn’t be rushed!

Your Mississauga Real Estate Sales Representative
If you are thinking of buying an investment property, such as a home, townhouse or condo in Mississauga or the Greater Toronto Area (GTA), please contact me for more information.


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