There are few investments as versatile as property. Property grows in multiple ways: it both appreciates in value and brings in rental income. With the right investment property, it can be both a business and an asset. Here are four important tips for making sure that your first investment property is a successful one.
Finding the right investment property begins with determining how much you can spend. There are four important numbers to consider:
It’s likely that you’ll be taking out a loan for your investment property. Not only will you need a downpayment, but you’ll also need to present a certain Debt-to-Income (DTI) ratio. This part is much like purchasing your first home.
However, there’s another thing you need to consider: how much you can make in your rental market. Some rental markets will bear larger numbers than others. If you have a shortfall in your rental income, you may find yourself paying into your investment, rather than profiting from it.
But how do you find the right location? Often, it comes down to buying what you know: buying in markets that you’re experienced in. If you purchase an investment property halfway across the country, you won’t know whether it’s in a good neighbourhood, what the average rates are, or whether the property is nearby to the most popular amenities.
Here are a few ways you can find the right property for you:
Remember: even an affordable rental in a great market is going to do well, but a luxury rental in a bad market isn’t likely to be successful. You need to consider all available factors to determine whether an investment is truly viable.
Apart from the location, you also need to consider the property itself. Some properties are inherently more desirable than others. In hotter rental markets, you may be competing with a substantial number of other units; every little advantage will matter.
A few things to look for include:
It can help to look at other rentals within the area to determine what the current market is interested in. Trends change from decade to decade — sometimes even year to year in the hottest, fastest-growing markets.
What kind of tenant are you interested in? Students want different things than large families.
Determine what type of tenant you might want, and think about what could appeal to them.
Ask yourself the following questions:
From there, you’ll be able to narrow down your list to the properties that are truly likely to be profitable. You can also compare the properties you’re interested in with the properties that your tenant would likely be looking at locally.
Your first investment property is only the beginning.
Once your first investment property is successful, you’ll be able to leverage it to purchase additional properties. Over time, you can grow an empire of small property investments, which can be used as primary income, investment capital, or even retirement. It all begins with your first.
To get started with your first investment property, contact the experts at Shore Financial.
Disclaimer: This is general information only and should not be taken as financial advice. Please speak to a Shore financial planning professional before making a decision on your home loan.