Buying an investment property

Spoiled for choice: there are plenty of options for investors, but how do you determine which is the best one for you?

When we purchase a home for our own use, our criteria – size, location, amenities – is based on our own personal needs and preferences. But when purchasing for the sole purpose of investment, the choice can be overwhelming. Residential or commercial? House or Condo? One bedroom or three? These are the dilemmas  that many new real estate investors face and we will help you to make a right decision that will save your time, money and most important the frustration.

Choosing the right property

People buy investments- whether socks, a bond or a house, for two possible types of returns; the monthly or annual cash flow the investment will generate, and the capital appreciation. People will choose what kind of investment they are going to buy based on what is most important to them.

Thus, investors valuing monthly cash flow may choose something more readily marketable to renters, such as a one or two bedroom condo that will rent towards the lower end of the cost scale. But by the same token, that’s not the biggest part of the market so it has less of a capital appreciation opportunity, it’s not that they don’t appreciate, but they often don’t appreciate at the same rate as a single family house, making them less appealing to investors prioritising long term market value gains. It’s not a question of which is the right choice, but which best fits your situation.

That’s not to suggest it’s a good idea to be subsidizing your investment property out of your own pocket each month in hopes of a generous payoff when you sell the property down the road. That’s a good thing when it happens , but rather then counting on that to make the investment make sense, ask yourself, if I sell it in a few years for the same price I paid for it, would it still have been a good investment? Will the rent cover the mortgage and costs of maintaining the property?  You don’t want to be sustaining it yourself with your own income. Rather, with today’s low interest rates it’s not difficult to find an affordable investment property where the rental income will cover the mortgage and then some. But.... what will happen when today’s low mortgage interest rates will start rising, especially if you are having a variable rate mortgage?

And ultimately, the best guideline for choosing a rental property it to play to your strengths. There are people looking to rent all types of properties, from single family homes, to townhouses and condo’s to commercial properties such as small warehouses and retail space. It depends on what you are comfortable with and where your knowledge is.

Next week article will explain how to make real estate investment affordable. Stay Tuned!!!