top of page

Looking to buy your first investment property? Here is what you should know.

Updated: Oct 31, 2022

Buying an investment property is a big step for every investor. Often times, as a first-time buyer the information available can be overwhelming. In this article we will outline the most important things to know when purchasing your first investment property.


Though owning an investment property can be an excellent way to generate passive income and wealth, the road to profit can be quite complicated for a first-time buyer. The rewards can be great, but every important purchase comes with significant risks too.


Here is what you should know prior to purchasing your first investment property.


What property type is right for you and do you know what your goal is ?


You should first consider the type of investment you are looking to start, commonly speaking there are two types: house flipping and rental property investing.


House flipping implies purchasing a property with the purpose of investing a minimal amount into its renovation and quickly selling it taking advantage of its appreciation to cover your cost and make some profit. While it can be a great way to make money it is often a short-term one-on one-off profit.


In this article we will focus on rental property investing which is a long-term type of purchasing where you buy a property in the purpose of leasing it to produce a steady passive monthly income.


Generally speaking, the rental property investing present less risks and requires a smaller upfront capital.


1) Are you ready to invest?


Prior to making your purchase and spending your savings and or taking a mortgage, you have to evaluate if property investment is the best route for you.


Investing in a real estate asset is a good way to develop steady and long-term passive income but it does require, commitment, time, effort, knowledge and a very specific skill set. Purchasing a property is a lot more challenging than letting it out to tenants.


You must take into account the different variables first:

  1. Do you have the necessary funds to cover not only the down payment but the closing costs, and several months of mortgage?

  2. Do you have the time to dedicate to your property? Schedule repairs, meet tenants, hire staff, deal with daily decision. If not, do you have a team in place that can do that for you?

  3. Can you handle the uncertainty? Finding tenants is not always an easy task and your property might stay vacant for a while.

These are just a few points to consider before making your decision. You have to factor maintenance, repairs, vacancy rates and capital expenditures into your projections.


If you decide to move forward, you must do some research in regard to the real estate market you are considering investing in. You'll want to have a better understanding of the location in which you are investing, the current market rent rates, the property types demand, etc...


2) Having the right team to support you in this first purchase.


Having the right team will help you minimize your risks; many first-time buyers work directly with an asset management company which helps them navigate the Real Estate Market and advise them on the most profitable deals currently on the market based on their needs and budgets.


The Asset management's objective is to generate the best possible return on your investment (ROI), they commonly already have a good network in place that will also help you with the different aspects of the purchase. They can help you at every step from finding and contacting a real estate agent, to finding a real estate attorney and a trustworthy property insurance provider, and more.


In addition, often times following the purchase you might have to do some improvements to the property to bring in tenants. The asset management can also help with setting up all the property management team and hire electricians, builders, plumbers, landscapers, maintenance workers and leasing agents.


This team will allow you to take full advantage of your property and to have the best Return on Investment (ROI).


3) Get the Right Mortgage


Most first-time investors do not have the cash to pay for a property. If that is your case, learning about mortgages and how to leverage them to your advantages is primordial.


Negotiating a good rate on your mortgage can help you keep your monthly expenses as low as possible. This is a great way to save some cash for possible renovations or future investments.


A good mortgage is extremely important so don't hesitate to shop around and see what options are out there and do not forget that mortgage advisors are there for that.


4) Make sure that your financials are solid enough.


When purchasing your investment property, you have to make sure that you have a sufficient cash reserve to cover unforeseen costs of renting your property. These might be:


  1. Extended vacancy periods: In the case that your property remains with no tenant for a period of time, you will still have to cover all your costs.

  2. Urgent and unforeseen repairs: unfortunately, part of owning a property comes with the responsibility of fixing a lot of what breaks.

Taking into account all these factors, it might be a good idea to save a year's worth of expenses before purchasing a property. This should include mortgage, insurance, leasing agents' costs, maintenance, and taxes.


5. Understand how to benefit from your property and your obligations.


One of the advantages of investing in a property are the tax benefits. A great way to lower your tax liability is to deduct the rental expenses from the rental income. The expenses can comprise mortgage insurance, maintenance costs, property taxes, property management costs and any other expenses associated with renting out the property.


Another type of tax deduction is through depreciation. Rather than taking a tax deduction on the year that you buy or do renovation to a property, you can spread the deduction across the life of the property.


The IRS has some requirements to depreciate a property. These are:

  1. To own the property.

  2. To own the property for the purpose of generating income.

  3. That the asset has a lifespan which can be determined.

  4. That the property will be leased for a period of longer than a year.

Purchasing a rental property comes with some legal responsibilities. Regardless of who is managing the property, the landlord remains responsible of the investment property.


As such, it is important that the owner understands the laws that governs landlord and tenants' relations in the area in which your property is located.


Find the right help to find your first investment property.


A team of experts that understands the local market will be able to answer all your questions and work with you to ensure the best ROI.

11 views0 comments

コメント


bottom of page