While buying a rental investment property may seem like an exciting undertaking you want to be sure it is the right step for you and your finances. Buying real estate can be a good way to build a financial portfolio but do some serious research first. Be educated on what owning a rental property is actually like. Do not assume it means making money with very little effort as maintaining a second or third property can be very time consuming.
Once you have done your homework and decided to go ahead and buy another home, I suggest jumping in with both feet. If managed properly it can be a great place to invest your savings. If you like the sunny Okanagan, find a Penticton realtor to guide you in the right direction as there are many rental home opportunities there. Here are a few things you will want to take into account when contemplating buying an investment property.
- Set Your Budget
As with any big purchase your first step should be to create a budget to follow. This type of property is a medium to long-term investment so ensure you can maintain your payments over a number of years. When buying a home there are always costs above the mortgage so you need to be able to cover them all comfortably. You do not want a situation where fund shortages force you to sell early.
- Insurance and Tax Rules
As an investment house is not your primary residence you need to familiarize yourself with insurance conditions for rental property as well as how it affects your taxes. Most insurance companies charge a higher fee so factor this into your expenses. Also be aware rental payments are considered income so treat this accordingly and prepare for tax season by putting money aside.
- Rights of Tenants and Landlords
Tenant and landlord rights vary depending on where you live. You want to educate yourself on where you stand before putting in a potential tenant. Even before you buy I suggest taking the time to learn what is expected of you as a landlord. This will lower the likelihood of misunderstandings or surprises down the road when it comes to dealing with your tenants.
- Rental Location
The area you buy in is important when purchasing any home but with a rental property this is even more so. A home in the suburbs may be less attractive to renters than one near a university or college. I suggest buying a place that has good walkability and an active rental market. Having a rental house that is difficult to rent out is not ideal. It will add more stress and increase the time you spend finding and retaining renters.
- Quality of House
Do not buy a fixer-upper house due to the fact you want to start making a return on your investment as soon as possible. If you purchase a property which is move-in ready for renters your first mortgage payment is covered without having to dig into your savings. Renovating or remodeling can cost more than you think so opting for a new home may mean a better return in the long run.
- Property Managers
While many of those new to the investment property community chose to take a more hands on approach there are many benefits to hiring a professional property manager to deal with your rental home. It is their job to handle renters so they know all the ins and outs and they are used to dealing with any problems that may arise. They also do background checks, organize new renters and follow up on late rent.
- Saving for Emergencies
Ideally you will not be in a breakeven or deficit situation after the rent has been paid. As a landlord you should save up to 30 percent of your rental income for maintenance, repairs and emergencies. You never know when the fridge may quit working or the water heater will malfunction. Having funds to cover these costs is critical to owning an investment property.
- Hire a Handy Man
Unless you are lucky enough to be able to do repairs and maintenance on your own I suggest having a handy man in your contact list as being a landlord means you have to fix any issues your tenant have. Tenants often let things slide and your property may become rundown if you are not keeping up on things. Having a person who deals with emergencies and upkeep ensures a smoothly running rental house.