Is Real Estate Investment Right for YOU?
Before you jump on the landlord bandwagon, make sure you’ve done your research. Although it can be quite profitable, Real Estate investment is not a “get rich quick scheme” for everyone.
This report has been especially prepared to assist you in learning some strategies and provide the type of information you’ll need before you make the decision as to whether or not investing in Real Estate is right for you.
Will you be purchasing property for resale only or do you plan on renting it out? Maybe you enjoy taking run-down properties and turning them into elegant homes. What are your short-term and long-term goals? Determine how much money you’re planning to put toward the property, how long you plan on keeping it and your expectation of return on your investment.
Type of Property
One of the things you will need to do is decide what type of property you’re buying. Will it be a single family, duplex, apartment, commercial property or land that is waiting to be developed? Will you live in the property yourself, while renting out part of it, such as a duplex or basement suit? Do you want to purchase a property that needs upgrading or repairs?
How Much Should I Pay for a Property?
If you are purchasing a dedicated multi-family property, then the value is related closely to the net revenue that it generates. For example: If the property generates $30,000 annually after expenses, the value range would be $400,000 – $500,000 based on a 6-8% capitalization rate. Of course condition of the property will have a bearing on the value, but lenders will use the capitalization rate as a large factor in determining the amount they will lend against the title. The typical capitalization rate range in Saskatoon is 6%-9%/ A realtor that has experience in revenue properties can be a great asset in making the decision on what a realistic value is.
Do you have working capital? If not, it’s important to have something in place. You’ll need to contact potential lending institutions, and advice from a financial planner can determine if you have enough assets to handle the ups and downs that could come with owning investment properties. If you plan to rent out the property, there may be times of vacancy, so you need to be sure you’ll be able to make the mortgage payments, therefore it would be a good idea to have a few months of worth on mortgage payments in savings. You may also need that money to make repairs from time to time on the rental property.
Determine what types of homes or properties are in demand. How many long-running ads are there for condos for rent? You don’t want to buy an apartment building that’s been empty for months, because there’s no one to rent it. You also will need to know how to survey a property to determine whether repairs are needed and if the structure is sound.
Find out what areas are good for renters or where businesses are looking to ‘set up shop’. What areas are ‘family friendly’ (if that’s who you’re hoping to attract) What is the neighborhood like? Check if there’s a lot of traffic, a bus route (could be positive or negative) or does a train rumble by every night?
You’ll Need a Team
Get advice from people who are experienced in real estate investment and remember that not all advice is good. Find professionals that compliment your expertise. You’ll need a good realtor who has good market knowledge, a mortgage broker and maybe an accountant, an architect or a property manager. It depends on what your talents are, how much time you have and what you’ll need in your particular investment situation.
Know The Law
Make sure you know what the landlord and tenant laws are in your area, so you know what you can expect and are prepared should something go wrong. There are usually three common complaints among landlords: unpaid rent, continual late payments and misconduct or damaging of property. The best thing is to be consistent and not to get involved emotionally.
Have a Contract
List your guidelines for the tenant, rent amount, due dates, etc. Provide copies signed by both parties to your tenants and keep good records. Always provide written notice of any changes or additional information. (Contract examples are available from The Gustus Group office)
How Do I Calculate the Value of What I Own Before I Sell It?
To find the market value of your investment property, you divide the capitalization rate by the net profit EG: net profit of $15,000 and the capitalization rate you would expect is 7%. You will do the following calculation $15,000/7% = $214,285.00, which is the market value of the property.