Are you in the market for an investment property? While there is no denying that buying real estate can be one of the most sound ideas you could make in terms of investments, it does come with a high price tag (and a much higher risk). Like all investments, a good rule of thumb is to always have a solid understanding before diving face-first into the waters.
Below we have made a list of five (5) important things you should consider before buying an investment property. Scroll on to learn more!
Property Location
Location is still king when it comes to property investments. Buying the right property in the wrong location won’t be the most profitable choice. It might seem backward to think about it this way. After all, it’s the building that you’re going to buy.
However, people like convenience. The closer your property is to amenities, green spaces, scenic views, market places, free-ways, and warehouses, the more attractive it would be to prospective clients.
The location of your investment property also plays a massive role in future property valuation.
These new condos in Mississauga, for example, are located near the main thoroughfares of the city of Toronto. For those looking to invest in Canada, such access ensures that the property values would always be positive
Property Valuation
If you haven’t heard of property valuation before, it’s basically a report summing up your property’s current market price. It helps investors find out the real worth of their investment properties based on their condition, location, and other factors.
Knowing the property valuation of an investment real estate can help you determine whether it’s the right buy for you or if it’s best to look for another option. It also helps you come up with a fair and competitive rental price for your property if you were to rent it out to customers.
Property valuation can also help you determine mortgage prices, transfer fees, tax prices, and many others.
Property Purpose
One of the most common mistakes that new real estate investors make is not thinking about the purpose of their investment. Not knowing what you want to do with your investment property can lead to unexpected negative results, such as financial distress. This is especially true if your property is mortgaged.
Here are a few examples:
- Buy and self-use
- Buy and lease
- Buy and sell
Try to identify your purpose before finalizing any transactions.
Existing Debt
Plenty of investors carry debt as part of their portfolio investment strategy. Your credit score affects the way mortgage lenders view you, and it also affects the terms your lenders are willing to offer you. This is why having a high credit score is important, especially if you’re planning to invest in real estate.
People with higher credit scores are more likely to get smaller interest rates on their mortgages, not to mention rebates from their lenders for being good mortgagors.
Here are a few tips to help you get your credit score up:
- Always pay your bills on time — if possible, set up automatic payments so you never miss a date
- Pay down debt before taking on larger debt
- Aim to spend no more than 30% of the amount you plan to loan
- As long as there are no annual fees, don’t close unused credit cards
- Make time to review your credit reports and dispute inaccuracies
Personal Readiness
Investment properties should be treated like a business. Whether you’re renting or selling, the responsibility of getting a substantial ROI now lies in your hands. This can be an overwhelming responsibility, especially for new investors. Before finalizing any purchases, ask yourself if you are ready to take on the role of being a landlord or landowner. If you find that you’re not quite ready for the responsibility, we suggest you find ways to slowly ease yourself into the mindset of being a real estate investor.
The Bottom Line
Buying investment properties can be intimidating, to say the least. But as long as you have the right strategy in place, you can expect high returns on your investment. Keep in mind the five important factors we have mentioned above. Feel free to look for more tips if you think that there’s something that we missed.
