Anyone can buy an investment Property!

Anyone can buy an investment property. It really can be a very easy process and provide you with some great returns. Here's some things you should know.

1. You only need 5% down

It seems all the time I'm getting asked how much money is needed for a down payment on an investment property. 5 % will get you into any rental property that is either a single-family dwelling or a duplex. 10% will allow you to purchase either a triplex or a fourplex and 15% allows you to buy investment properties that are five units and above. Of course, it is true that these are insured mortgages and you will pay the insurance premium, but if you cashflow is sufficient with this, it makes a lot of sense to put the smaller down payment down. Of course, you can avoid this premium by putting 20% down on 4 units and below and 35% down on 5 units and above. The down payment can come from a variety of sources, maybe its money saved up, from a refinance of another property, a gift from a family member, or from a credit line. If you can get your properties to cash flow well, you may be able to take enough equity out of your personal residence to finance several rental units.

2. Cashflow is King

Many investors make the mistake of buying negative cashflow properties. Make sure that after all expenses like mortgages, taxes, and insurance you will still have a profit. This will allow you to continue to buy properties over and over again. A good rule of thumb is a 1.1 ratio, meaning make sure that your rent covers the expenses by 10%. This will ensure you can continue to buy investment properties over and over again. Not to mention, negative cash flow can put you in a bad financial position should something happen.

3. Watch Your Personal Financials

When investing 4 units and below your personal financial picture still plays a major component in getting approval, but once you go five units and above it plays less of a factor. That being said, there's some things you should keep in mind. Keep a good tab on your credit. Too many inquires, Overlimit balances, and of course late payments can really slow you down. Also, watch the amount of personal debt you carry, only borrow to buy more real estate or to renovate your rentals.

4. Establish Good Team Members.

Establish a relationship with a realtor that we find you something that fits your criteria. If you use the same realtor over and over again, they will be more likely to send you listings before they send them to anyone else. Consider using a property manager, they are usually 10% of the gross income. A poorly managed property will affect the cashflow very quickly, so consider a good property manager a cheap price too pay. Finally, find a good lawyer and accountant, there are many more risks associated with rental real estate in Canada, and it's important to have the right people looking out for your legal and tax positions.

The advantage of leverage is that you can buy a lot more real estate for less money than you can with any other investment. In addition to this, a few properties that are being rented at modest cash flow will see you obtain a sizable nest egg for retirement without ever having to save through RRSPs or Mutual Funds.

As always, I'm available to serve you in any way to help you reach any of your real estate investment goals.

Joel Olson
Pacific Mortgage
joel@c3revelstoke.ca
1.250.814.1627