Investing in rental property

It's all over the television these days. Programs showing you how you can buy rental properties or put a rental suite in your home to offset your mortgage payments.

There is no doubt that real estate can be an excellent investment, so here are a few questions to consider before you start looking for your first rental property.

Are you ready to invest? —  I’m sure you are already doing this but take time to get educated about real estate investing. Read blogs and real estate books. Spend some time on real estate forums or attend seminars. The more you know, the better prepared you will be.

What’s the plan? — Will this be a long-term investment? Or do you plan to renovate and then flip? Will the property be used by a child who is attending school or a family member?

Have you spoken with a mortgage broker? — Discussing your financing options is one of your very first steps so you know what rates and terms are available when it’s time to finance your rental property purchase. Can you qualify for mortgage financing?

What type of property do you want to buy? — Are you looking to purchase a condo or single family home? Or an apartment building? What strategy will best fit your lifestyle?

Do you know all of your expenses? —You need to complete a cash flow analysis on any property that you are considering for purchase. Have you factored in all of the costs both for the acquisition of the property and ongoing expenses such as regular maintenance and vacancy rates?

Are you going to self-manage the property or hire a property manager? — Whether you hire a property manager or not should be based upon your overall plan and lifestyle. A good property manager can decrease vacancy rates and have a maintenance program in place that may reduce your costs.

Do you have sufficient funds to cover the down payment? — Rental property financing requires a minimum of a 20 per cent down payment so you need to ensure that you have access to assets to cover the down payment.

What’s the exit strategy? — This is part of the big picture plan so know what you are going to do with the property before you purchase it and then have a back-up plan as you never know what is going to happen in the real estate market.

Purchasing a rental property can be a great investment to build wealth, so get educated and enlist the assistance of professionals.

If you would like a complimentary cash flow analysis of any property you are considering or to discuss your financing options, please give me a call.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.