6 Important Questions to consider before Investing in Real Estate

Whether you are a seasoned real estate investor with many properties under your belt or a brand new investor eager to purchase your first property here are some important questions to ask yourself to prepare for the next step.

More consideration might be placed on these questions if you are purchasing your very first real estate investment, but I personally find myself running through these questions when I am presented with a particular opportunity or if I am actively looking for a property. The more you have figured out from the beginning, the smoother the whole process will be.

What is my budget?

If money wasn’t an issue it would make investing a whole lot easier for all of us! But since money does not grow on trees it is really important to consider what you can afford comfortably. Your savings and monthly income will play a big part in this. In general, most investors will be putting 20% down on a purchase so having those funds available is important. The amount of those funds will also dictate the purchase price that will be most comfortable in your budget as well.

What are my financing options?

While most people will not be paying for a property in cash, that leads us to requiring a loan in the form of a mortgage from the bank for the purchase. Many of the brokers we use specialize in working with investors and can help guide you in the best direction going forward. It is advised to speak with a few different brokers and banks to ensure you have found the best financing options for your individual situation. After going through the process of getting a pre-approval to purchase properties this will also help you better focus your attention on the specific price point that will work for your budget. At this point you have the green light to seriously start shopping for an investment.

What is the best location for my investment property?

Location, location, location….“good homes in good areas” is something we strongly believe in to ensure you are purchasing a solid investment. You can buy a fantastic property based on condition and purchase price, but if it is located in Timbuktu will you be able to count on strong rents, a large tenant pool and year over year appreciation? This is where your agent will become a huge resource to help educate you in the best locations for the type of investment you are interested in purchasing.

What kind of property is best for you?

If you are new to investing the thought of owning a 6-plex or a student rental with 8 rooms can be very overwhelming and intimidating. This is the time to figure out your comfort level with the type of investment you are about to purchase. If that is the case, start off with a straight single family rental or maybe a rent to own where you are dealing with just one tenant. We have many extremely successful investors whose entire portfolio is entirely single family homes. While others may start to dabble in duplexes or student rentals as their confidence in investing grows over time. Make sure to discuss your strengths, goals and fears with your agent as you get into a purchase as they can help guide you in the direction that would be a good fit for your personality.

Should you hire a property management company?

This question can directly tie into what kind of property is best for you. If the thought of dealing with collecting rent, tenant issues and maintenance and repairs has you sweating and running for the hills then considering a property manager to handle your investments might make most sense. 

Another great reason to hire a PM would be distance from your property. Say you live in Oshawa but have decided to purchase a great student rental in London. Chances are you will hire a PM for that property. In general though I always urge clients to at least try to manage your first property to see if it is a good fit for you. Some people love the interaction with tenants, the thrill of signing your first lease and doing showings and might not even mind the random maintenance calls. It is all a personal preference and you should choose the option that will allow both yourself and your properties to be most successful!

Should you invest on your own?

Investing in real estate is something that you can do completely on your own or you may be considering another investor or partnership. A joint venture partner can bring many advantages to the table especially for first time investors. Another partner may be able to offer additional financing options, more cash, various expertise and more experience especially if they already own other investment properties. They can also help to share the risk and the workload involved in managing and maintaining the property. 

Although there can be many positives there may be some negatives or things to consider when involving a partner. Things like sharing the profits, dealing with a partner and not always seeing eye to eye when it comes to managing the property, tenants and each other’s expectations. Like any business decision there will always be pros and cons. Many investors like to start off purchasing on their own if they are able to and overtime may explore the idea of a partner to help them grown their portfolio.

Take the time to run through these questions the next time you are looking to purchase a new property. Hopefully it will make the process nice and clear so your main focus can be on finding the perfect property!