Purchasing an investment property is a common way for Canadians to seek an additional stream of income. While a second property can bring you one step closer to reach your financial goals and earn extra funds, it's also a big responsibility. If you’re considering buying a second property, you’ll want to educate yourself on what’s involved and the steps required to purchase, manage and maintain your second property.
Get clear on your investment goals
Did you know that there are several different real estate investment strategies? Many buyers are unaware of this. From fix-and-flip to buy-and-hold to wholesaling, it’s important to understand all of the options available to ensure you’re making an investment decision that fully aligns with your goals.
For instance, a "fix-and-flip" involves buying with the intention to renovate and resell quickly for a profit. If you're eager to make money at a faster pace, this could be the option for you. On the other hand, the "buy-and-hold" option involves keeping the property in your portfolio long-term and renting it out over time. Essentially, the choice you make is all dependent on the type of property you’re looking to buy and your investment time horizon. For this reason, identifying which strategy is right for you should be your very first step.
Be financially prepared with comfortable savings
Although the objective of buying a second property is to gain additional income, doing so actually adds to your financial obligations at the beginning. Buyers should know that they will be required to make a minimum down payment of 20% and carry the mortgage of the property until they find someone to rent it out to. There are also closing costs and other expenses that need to be factored into the budget like a home inspection, property taxes and home insurance. Not to mention, the home may require repairs before it’s suitable for someone to move in – which could also impact your budget.
If you still have a mortgage on your primary home, you’ll also need to budget for expenses there too. In some cases, buyers may be able to use their home as a potential financing source and borrow up to 80% of their current home value to help pay for the investment property. If this is something you’d like to consider, get in touch with one of our mortgage advisors who can walk you through the process and educate you on all your options.
Ensure that you’re ready for the extra responsibility
Buying a second property and generating additional income is without a doubt exciting. But, buyers need to remember that it’s not always fun and games and that owning a second property comes with greater responsibility and commitment. If you’re buying a rental property, you’ll be required to find qualified tenants and maintain the upkeep of the home – this includes any repairs or possible damages. And don’t be fooled – if you’re planning to fix a home and flip it, you'll still have the extra task of balancing budgets, overseeing contractors and managing trade schedules. It’s not easy, but if you’re prepared, it’s worth it!
Get in touch with a team of qualified professionals
Off the bat, our best advice is to work with a professional real estate agent and mortgage advisor who can walk you through the steps of buying an investment property and securing the best mortgage financing option. This experience might be a bit different than when you purchased your first home, which is why you should inform yourself on all of the key details before moving forward. At Homewise, our team of real estate agents are incredibly knowledgeable when it comes to helping buyers find a second property – all while considering the right location, at the right price. We often advise buyers that in order to attract high-quality tenants, they should start their search in neighborhoods within close proximity to schools, hospitals, public transportation and a good selection of retail stores.
When it comes to your mortgage, our team of dedicated mortgage advisors can help you navigate the market to find a solution that aligns with your financial goals today and tomorrow. We’ll walk you through all of the fine print and ensure that you know exactly what’s involved when making this investment.
Buying a second property is without a doubt a great opportunity that comes with undeniable benefits. However, it’s crucial for buyers to understand what it takes and what’s involved before making any big financial decisions. Connect with us today and start the process in just five minutes!
