When looking for something in which to invest, there are countless types to consider. Many will think immediately of stocks, bonds, and mutual funds. Others will think of precious metals such as gold and silver. Virtually anything that will appreciate in value can be an investment, including art, stamps, coins, and even comic books or toys. Today, it is common to hear about cryptocurrencies. And most people with any sort of online presence have been approached at least once about investing in them. Perhaps the oldest type of investment, however, and one which has been with us from the very beginning, is property.
In recent years, investment property in BC has become even more attractive following a long period of increasing home values, but as with any kind of investing, there are always things to keep in mind to ensure the best possible outcome.
Here are the top 5 need-to-know tips for your next investment property in B.C.
Know Your Purpose in Investing
Virtually any decision you ever make will be better if it is an informed one. That applies to business, relationships, and investing. Investing in property is typically done for one of three reasons: to create a new source of income, to earn quick cash, or to keep it as an investment.
If you are hoping for an ongoing source of income, take your time in choosing the right location. You will want to find a good property in a prime location which will continue to be desirable in the years to come, generating income and capital appreciation. Trying to earn quick cash is riskier, requiring the right timing to be profitable, otherwise, you could find yourself unable to sell quickly and having to wait for the right price under the right conditions.
Be Financially Prepared
By their nature, investments of any kind typically require some time to pay off. Be sure that you are not only able to commit financially but stay committed for an indefinite period. Understand that lenders tend to view rental properties as riskier than, say, buying your own home.
As a result, you will probably face higher borrowing rates with more demanding qualifications. Additionally, you will still face all the usual expenses such as legal fees, appraisal costs, and property taxes that vary by location. Make use of a mortgage calculator for BC to determine your expenses.
You must also remember to expect the unexpected. Can you afford surprise repair bills or increases in interest rates? Being prepared for financial issues in advance can help you to ride out any difficulties rather than being forced out of your investment.
Positive Cash Flow is Your Safety Net
Once you understand your financial situation and what you can afford, give some thought to how much income the property will produce. Don’t rely on property appreciation alone; you will need positive cash flow, which will also be important to have as a safety net. The local market will determine factors such as rent and the frequency and amount of rent increases. This is important to be aware of if you are going to keep up with inflation.
Any time you are considering a property, come up with a reasonable cash flow estimate. Take your projected annual rental income and deduct all of your expenses such as borrowing costs, property taxes, insurance, and cost of maintenance. Do you plan to include utilities as part of the rent? If you do, deduct those as well. You want your end result to be a positive cash flow with a sufficient return.
Keep in mind that expenses incurred as part of renting out the property are typically deductible against your rental income. If you end up with a deficit, the loss can be applied against your other income, reducing your overall tax bill.
Consider Your Level of Involvement
How involved do you want to be in the management of your property? There will always be issues to be dealt with such as irate tenants, paperwork, and overdue rent. If this is not something that you wish to handle on your own, you can hire a property manager, but this, of course, will be another expense to manage.
Research and Then Research Some More
There are several factors to consider when looking at an investment property, such as the neighbourhood and community themselves. Is the neighbourhood on the rise? Is the property in a highly desirable location? Even things like the local crime rate should be considered when making a decision.
Is there good local infrastructure? Are there schools in the area? A local university might mean a large number of student renters, resulting in difficulty keeping the property rented year-round. How about shopping and recreation? These add to the livability score of the neighbourhood. Is the area easy to access? This may be important for you if you are managing the property itself and are required to travel there frequently.
When you are considering an investment property in BC, careful planning, being well-informed, and consulting with a local mortgage professional is vital to your success.