Thinking about investing in real estate? Here are a few tips to keep in mind. Although at first glance it seems only a little more difficult than any other transaction, the process is more intricate.
1. A down payment is always required when purchasing a property.
When looking at purchasing a primary residence keep in mind that there will be a minimum down payment required of 5% of the purchase price. If the property is not a primary residence, the banks will require you to have a bigger down payment, likely around 20%. A primary residence is defined as a property you live in at least 6 months of the year. One last tidbit to keep in mind regarding down payments is, a larger down payment leads to overall interest savings during your amortization period.
2. Numbers numbers numbers.
When buying a property, just looking at the price tag is not enough. You may know that homes, regardless of denomination, all come with extra costs. These costs are imperative to keep in mind while you finalize your decision on buying your investment property. Taxes (land transfer and property), condo fees, maintenance, and utilities, are the main costs that get miscalculated resulting in unfavorable return on investment.
3. Extra income brings extra taxes.
Just as your income is taxed, the income from your rental and capital gains are taxable as well. You are able to write off many expenses,which will decrease your net profit. However, your net profit will then be added to your total income and therefore be taxed as such. Regular and timely advice from your accountant will help keep this in check.
4. Be mindful when renting your hybrid property.
If you live in less than 50% of your property, with aims to get the most possible rental income, capital gains taxes will apply to your rental income. In addition to this you will lose your primary residence tax exemption.
5. A good credit score will allow for better offers from lenders.
A better credit score is obtained in many different ways. Some of these ways are paying bills on time and paying off debt, not using more than 30% of credit and reviewing your credit report regularly. Having a good credit score will equal better terms which in turn will lead to more savings in the long run.
6. Who will manage your property?
Upon purchasing a rental property you also obtain the title of landlord. This is a great opportunity and as such comes with responsibilities that must be fulfilled. There are options if you do not have the time or resources to handle the work of a landlord. Diligent and thorough research leads to success.
7. What neighborhood do you want to invest in?
Location is a very important consideration when shopping. What is the demographic? Are there local amenities, schools or transportation? How near is the local supermarket or hospital? Think of as many circumstances as you can that would require more or less of these types of items.
For any queries from financing to location to management, Freeway Group is your trusted partner. We have the expertise and the team to answer all your questions through educating you to build your confidence.
