Investing in real estate is no small feat. There are many things that can go wrong if you don’t plan in advance and anticipate all the ups and downs that come with owning rental property. If you want to make a solid return each and every year, here are 5 things to consider when buying your first investment property.
Most people think that as soon as they purchase an investment property, they’ll start enjoying returns right away, but that’s rarely the case. A solid rental income can quickly dwindle away if you have high operating costs, a monthly mortgage, taxes, and insurance fees. With these combined, you’ll be lucky to be left with a few hundred dollars from the rental income. And that’s before you spend any money on bills, maintaining the property, marketing to new tenants, and covering any vacancies. In reality, most first-time investors only break even after the mortgage has been paid. So, if you’re hoping to buy an investment property to turn a fast profit, you need to be financially positioned to do so. If you already have debt or another property with a mortgage, it might not be the best time to invest in real estate.
Is your credit in good standing? If not, you might be rejected by an institutional lender, forcing you to use a private lender which means more risk and higher interest rates. Before you consider buying your first investment property, it’s important to obtain your credit score and see what avenues you can take to improve it, if need be.
How much rent you can charge is closely correlated to the location of the property. To attract high-quality tenants, you need to invest in a neighbourhood where demand for rental properties is strong with an abundance of available services and amenities. But you shouldn’t necessarily be only looking in the areas that are hot spots. An area that borders a highly desirable neighbourhood is likely to grow and gentrify quickly, which can provide a huge uptick in property value and rental income in a rather short period of time.
Extra space in a condo often means higher maintenance fees. So, a big 2-bedroom condo might not be as profitable as a smaller and more conservative one. And just because it’s bigger, it doesn’t necessarily mean you can charge a lot more for it, which will impact your bottom line. Choosing the right property can provide you with better returns.
Before purchasing, make sure you have a marketing strategy in place to attract tenants and keep the building 100% occupied. Any vacancy will eat away at your cash flow. If you’re not marketing savvy, it’s wise to have a property management team behind you to ensure high-quality tenants are vetted as quickly as possible.
As you can see, there are many factors to consider when buying your first investment property. That’s why it’s essential to have an advisor on your team to help you achieve your goals. When you need help managing your property, contact us at Medallion Capital and we’ll help guide you through the entire process and ensure you have the support and professional advice you need.