Five Things To Consider Before You Buy An Investment Property

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BY MAURICE ANDERSON

One of the most valuable commodities I know is information. Whether you’re buying your first or secondary property it is not an easy task. Confident and strategically mindful investors measure themselves against their stated goals and the steps they have in place to achieve them. Building a successful real estate portfolio intertwines both leverage and knowledge. A vast majority of individuals consider investing in real estate and contemplate renting out a portion of the principle residence to offset the mortgage. There are many ways to invest in real estate, if you are thinking about jumping the broom; here are five things you should consider before you make the move.  

Frequency of Transactions: If you frequently engage in the sale of capital property, Revenue Canada will investigate. Usually, the frequency of such occurrences suggests the carrying on of a business for profit. Assessment as ordinary business income will be the result of their investigation. 

Relationship to the Taxpayer’s Business: The tax court of Canada will unquestionably systemize profits as taxable under ordinary business revenue when a taxpayer uses acquired specialized aptitude in regular business activity to generate a profit on the purchase and/or sale of similar or related commodities. For example, if a dentist was to buy and sell real estate it would be considered capital gain and thus one half of your gain will be tax-free. 

Find a Property With Cash Flow: Try and find a good property with positive cash flow. What does this mean? One of the many variables that should be a part of your criteria is to find a property that is below market value in a neighbourhood that will continue to appreciate in value. The rent that you collect should be enough to pay your mortgage payments, utilities, insurance bills and property taxes. The rent received should exude positive monetary funds once all regular operating expenses are paid.  

Unexpected Expenses: Unexpected expenses after buying a rental property can be a weary and emotional task. Imagine, you just purchased your investment property that you have been saving for the past five years. It has an open concept kitchen embedded with white and black marble backsplash, granite countertops and recently polished walnut hardwood flooring. At first sight it’s perfect. A year later you realize you need to replace the furnace, sump pump and your knob and tube wiring especially if the property you purchased is an older home. You can end up spending hundreds of dollars on drywall repair and paint. 

It’s always best practice to put some of the rental income away each month to help cover unexpected expenses to pay for things like repairs and upgrades and whatever else may arise. Repairs always tend to come at the most unexpected and worst times possible. The worst thing you can do is be unprepared and turn around and dip into your personal savings when it could have been avoided. Take control of the situation and do no let the situation control you. This is one of, if not, the biggest investments of your life. There is no liberty available to make mistakes.

Home Inspector and Contractor: The property you are interested in should be inspected by a professional home inspector to avoid any major monetary pitfalls you might encounter in the future. In addition, search for a contractor who you feel is trustworthy and can provide expert consultation for any minor renovations or repairs that may be required.  

Proper Preparation: Buying the right property in general is a challenging, emotional yet exciting journey but the act of being a landlord is one of the hardest parts. Owning a rental property can be one of the ways you can achieve financial freedom if you do things right. Screen your potential tenants carefully and check in on your property on a regular basis. Never be afraid to lay down the law if need be, protect your investment. Save for the repairs you know about and the ones you don’t. When it comes to being a landlord anything can happen. To make it less stressful look into acquiring a property manager from a trusted property management company. Proper preparation prevents poor performance. 

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