When Purchasing An Investment Property
Finding the perfect income property is no easy task. There are a lot of things you need to consider in order to streamline the process and increase your chances of a successful investment.
1A. Prepare yourself financially
- You need to be aware and have a clear understanding of your financial readiness in order to gauge what you can afford and how much mortgage you can take on.
- You will need to understand how much you can put forward for a deposit, how much you are able to borrow, the maximum threshold for monthly mortgage payments.
- You will also need to consider the tax liability and obligations for your income property. While there are ways around it but is best to consult an accountant or financial planner to fully understand and devise a plan for this particular consideration.
1B. Consider what kind of investor you are going to beAre you going to be an absentee investor or would you prefer to live in the property while renting it out to tenants (in other words an owner-occupied investment property). Both options have benefits and drawbacks that are entirely dependent on how you want to shape your investment.
You need to consider:
- Your Cash Flow – rental income will generate cash flow from the amount of units you will be rent out which can go towards the expenses and costs of the property or help offset your own property and lifestyle.
- Your leverage – the more units you can rent out on a property, the more positive leverage you have and the more risk you share out
- The state of the rental market – this will depend on the area your property is in which will overall affect the vacancy rate, your zoning laws, property taxes and monthly expenses and many other municipal rules and regulations to be aware of
- Your ROI and Capital Gains goals – if you have an intention to sell the property at a future time, you will want to enhance your capital gains to sell the property for more than what you bought it for. This can also work if your goal is to maximize your return on investment
- Location – this will impact not only your monthly expenses but also the amount of income you can receive. Be sure to note commute times, access to transit, schools, shopping and entertainment when considering what location you are looking for
- Budget – purchasing a home includes more costs than the listing price of the property. Consider your budget constraints and how much you want to spend as well as what kind of renovations might be needed prior to opening it up to potential tenants
- Features of the home – do you want on-site parking available? Do you want a large backyard? Do you want multiple kitchens and bathrooms? Do you want the ability to renovate? All these things will be considered when looking at homes.
- The type of home – there are many types of investment and income properties available to you. Multiplex properties are a great option for income properties. You can find duplexes, triplexes, quadplexes and more across Toronto.
2. Search for properties
- There are so many resources available to you in this step. You can use online tools including MLS systems and many online platforms to view real estate properties across Toronto
- You can also use a real estate agent to help you find listings that are specifically tailored to your requirements. You can always contact the Fridman Team at 416-418-1059 and we will be happy to assist you with this.
- When visiting and viewing properties, make sure you keep your list of needs and requirements in mind. You’ll need to be aware of technical and maintenance considerations such as plumbing, windows and electrical wiring. You can always recruit the skills of a professional inspector to assist you in this area.
3. Make an offer
- Once you’ve found a property that suits your investment needs, you can make an offer with your agent which will include important details such as the expiration of the offer, the closing date and conditions for the purchase as well as the amount you are willing to pay
- Conditions vary but can include financing, a home inspection, inclusions and exclusions and the title of the property
- Along with your deposit, your offer will be submitted to the seller
4. Acceptance of offer
- Once the conditions have been met and the offer has been accepted, the offer becomes binding for both parties so it is imperative that you understand and accept all conditions and terms of the offer as dishonouring the agreement opens you up to losing your deposit or being sued.
- There are additional costs the will be incurred prior to you being able to formally acquire the property. This includes but is not limited to the transfer of the property title, proof of insurance, land transfer taxes and legal fees.
- Once all this is complete and all the paperwork has been signed, submitted and approved, the home is yours!