When it comes to investing in real estate, there are some major things to consider. Whether you’re looking to start your real estate investment portfolio or you’re already a seasoned investor, it pays to know what will help you return on investment… literally!
Property Location
There’s nothing new here and that’s why we’re putting it at the top. Location matters and is tied directly to a property’s market value. If a place is in an established location and close to everything that people want, this will be reflected in that area’s residential valuations. Similarly, when we talk about an area that is on the come up, we’re referring to an area that’s developing and becoming more interesting to people — which will be reflected in the market!
When you’re considering a location for real estate investment purposes, you want to have an idea of where things are going in that area. In the shorter to mid-term, you want to know that the investment will be working for you and providing cash flow. In the long term, you want to make sure you’re not investing in an area where there are plans that might impact value negatively. Try to find information on:
- What rent is in the area to get an idea of expected cash intake
- Other sales of similar properties in the area to help get a baseline value framework
- What the construction costs will be if purchasing property and building on it
You can collect information on an area of consideration via municipal channels. For example, the City of Ottawa has a planning, development and construction resource that provides information covering regulations, plans and projects, conservation efforts, as well as applications. A property’s location, and therefore valuation, is important during the purchase financing phase, for your investment strategy, taxes, and what you sell it at later (if you choose to do so).
Cash Flow
We mentioned cash flow in the first section (i.e. how much money you’ll have after expenses) and this is another important investment factor. The ability to have consistent and positive cash flow also adds to the future value of your investment while making you money each month! Part of your investment considerations, which will also factor into lending and financing, will be mapping out your projected revenue and expenses. You’ll want to have an idea of:
- Mortgage rate forecasts
- Available tax benefits and write-offs
- Anticipated rental income and expenses
- Renovations and upkeep over the investment timeline
- The long-term property value appreciation
If you’re purchasing property to then build on, this offers the benefits of customization and the ability to use more modern systems and amenities, which can make for more desirable rentals and increased cash flow. That said, the period between the property’s purchase to when you start having cash flow is longer and there are construction considerations like supply delays and price changes during construction that can impact this timeline.
If this is the route you’re going, we’ll want to make sure to:
- Thoroughly research different constructions companies and contractors
- Review previous projects they have done that are similar to yours
- Look at land surveys, deeds, and appraisals on existing properties in the area
- Consider monthly costs both during construction and for projected future cash flow
Lending & Financing
When it comes to securing the best possible financing for a real estate investment, lenders also have their considerations. The better you look financially to lenders, the better the deal — which impacts your investment return too. Generally speaking, you’ll want a higher credit score whether you’re going the mortgage route or a loan. Some sage financial advice in this respect is to:
- Make sure bills are paid on time and pay down any outstanding debt
- Try to have a credit utilization rate of less than 30% (ideally 10%)
- Don’t take on new unnecessary credit but don’t close unused cards (unless they’re costing you)
- Review a recent credit report and ensure its accuracy (and dispute discrepancies)
When seeking loans, the gambit is essentially committing future income for immediate monetary access and utility at the cost of interest spread over x number of years. You want to make sure to avoid situations of “over-leverage” where you’re dealing with very high and unmanageable debt. Depending on the specifics of your situation, we’ll need to consider:
- Which type of mortgage is best (fixed or variable rate) and optimal down payment
- Current as well as projected interest rates to time things best
- Loan terms and conditions that can impact your situation
We all know it’s good to buy low and sell high but how do you know when this is the case? The market changes and is affected by things like construction, inventory, recent sales, mortgage rates, etc. So, who knows the real estate market? We do, we live and breathe it! A solid real estate investment can provide you with steady cash flow, property value appreciation, as well as tax benefits. We’ll help you on your real estate investment journey with services that cover:
- Market analysis
- Needs identification
- Finding suitable properties
- Excellent returns and cap rates
- Deal negotiations
Contact New Door today, we’ll help you identify and find the ideal investment property, provide insightful advice, and maximize your investment!