The ins and outs of investing in property and the costs included.
Over the last few years, many people in Canada have turned to property as an investment class and entered the property market as investors. Like any other investment, you need to understand how the investment works before you decide to invest your hard earned money. It would be foolish to rush into an investment without understanding that investment.
Bear in mind that you are interested in:
- Wealth creation; and
- Wealth protection.
In other words, once you have created wealth, you need to also protect it and sustain it. In addition, you may have other people who depend upon you and you need to worry about their futures as well
It is important to remember that…
Take the initiative and be pro-active. Your circumstances may change and as a result it may become necessary to modify your investment portfolio. Things that may happen include:
- Having a child
- Starting a new business
- Getting married
- Getting divorced
- Being involved in an accident
- Getting a new job
- Paying off your debt
Property as an Investment
The purchase of your home is probably the largest purchase that you will ever make. The same care that you take when buying a home should go into the property that you wish to purchase as an investment. Perhaps even more so, because of the financial implications of the property that is bought as an investment. It is important that you are not pressured by Real Estate agents, your spouse, yourself or anyone else. You need to take your time over your investment decision and consider all of your options. The principles of investing in property is a vast subject area. I aim to introduce you to some important concepts and to point out certain issues to keep in mind with respect to the purchase of investment property.
Costs excluded from the purchase price:
It is important not to forget that there are significant costs that you will incur when buying or selling investment property. These costs have to be taken into account when buying a property as an investment, because they will affect the return on your investment. Some of these costs are:
- The purchase price ( plus GST)
- Lawyer or Notary Fees and Expenses
- Mortgage costs –may include( appraisal, Land Title Registration Fees) most people require the assistance of a bank to purchase their property. The bank will loan you money and in return you will have to provide the bank with some form of security, which is usually a bond registered over the property. The bond allows the bank to take the property away in the event of default.
- Sales Tax/ Goods and Service Tax ( if Applicable)
- Costs of Clearing Title
- – Miscellaneous costs – people often forget to add up all the other costs, such as, levies, new carpets and curtains and various little maintenance jobs that may need to be completed before a tenant can move in.
- Monthly costs of ownership – remember that you also have your monthly costs to pay, such as, rates and taxes, levies, water and electricity, home loan charges and administration fees, homeowners and loan protection insurance, household insurance, and so on.
- Real Estate agents Commission – ( plus GST) when you sell.
- Capital gains tax – incurred when selling at a profit.
- These are just some of the extra cost.
WHY INVEST IN INCOME PROPERTY WITH –Jeff Wanless-MaxSave?
Having a well-structured income property investment portfolio is one of the best avenues to financial freedom. Savvy investors enjoy the benefits of smart investments:
- Supplement existing income to relieve stress and pressure.
- Secure opportunities for long-term growth and stability.
- Set up a plan to achieve financial goals; such as an elite education for your children, or a comfortable retirement.
Simply put–I will help make it easy to own income property. It’s easy to acquire, easy to manage, and easy to grow your portfolio. You benefit from ownership at every stage of income property investment. Above all, you’ll discover how simple and accessible real estate investing can be when you’re working with the right people. Every investment decision you make will be a smart one.
I know how to find my clients the best opportunities in the Prince George and Area markets.
How to Profit When You Buy Your Investment Property
As the popular real estate quote states, you “make your profit when you buy.” In most cases, you will not start your investing career by landing a big fat check; these checks come after you successfully implement your investment strategies. The profits you make, however, can be made or destroyed at the time of purchase . . . So what does it mean to “profit when you buy?”
To make your profit when you buy, you must purchase a property at a price that ensures you make your desired profits based upon your ability to execute your exit strategy. In other words, you need to buy smart. If you vastly overpay for a property, no amount of wishing, hoping, or improvement is going to make your investment worthwhile.
While you can’t predict with 100% accuracy where the market is going to go, you can know where it’s at today.
Also be sure to check out: https://realtyjw.wixsite.com/mysite-11
Understanding “The Rules” of Investment Property
It’s often said by experienced investors that appreciation is the “icing on the cake.” In other words, don’t count on the market swinging upward. You make your profit when when you purchase a property based on what it would be worth today, not what it might be worth someday. If an investment makes no sense without appreciation, don’t invest in it. This is known as “speculating,” and, while it may be profitable for some, is a risky venture for both inexperienced and experienced investor alike.
An important thought is the financial component. If a deal doesn’t make sense financially, it’s not going to be a strong investment for you. If we looked at some of the basic math surrounding real estate investing, such as income, cash flow, and return on investment. However, generally speaking, a listing is not going to tell you the important information you want to know about the financials of a property. Yes, you can generally determine the amount of income the property makes, but you won’t know immediately how much monthly cash flow the property produces, how overpriced the property is, or what you should offer. Additionally, it’s not going to make sense to get out your spreadsheet and do a full property evaluation on every single deal you glance at. This is when “rules” come into play.
A “rule” is short for “rule of thumb.” Rules can help give you a quick way to evaluate a property’s financials on the fly. As with any “rule of thumb,” using rules is not an exact science and should never be relied on entirely to decide if a property is a good investment. However, they can help you quickly filter a property and decide if it’s worth further evaluation.
The 2% rule states that your monthly rent should be approximately 2% of the purchase price. In other words, a $100,000 home should rent for $2,000 per month; a $50,000 home should rent for $1,000 per month. This is a very conservative estimate that is very simplistic, but can help in deciding if a property warrants a deeper look. In most parts of the country, the 2% is very difficult to achieve, but the closer you can get to that, the better cash flow you’ll receive.
The 50% rule is a great rule-of-thumb that helps you to fairly accurately predict how much your expenses are going to cost you each month for a property. The 50% rule simply states that 50% of your income will be spent on expenses — not including the mortgage payment. As mentioned above, most real estate listings will let you know what the monthly income of a property is. By dividing that number in half, you are able to easily see how much you’ll have left to pay the monthly mortgage (principal and interest). Any income left over after the 50% of expenses and the mortgage payment are taken out is your cash flow. The 50% of expenses includes all expenses, including repairs, vacancies, utilities, taxes, insurance, management, turnover costs, and the occasional “big ticket” repairs that must be saved up for — Capital Expenses, like roofs, parking lots, furnaces.
The 50% rule is especially helpful in teaching that expenses are almost always more than one might think. One common mistake that new investors make is underestimating how much the expenses are going to cost. The 50% rule helps to show that there are always costs that are unexpected, so plan for them.
The 70% rule is used by investors to quickly determine the maximum price one should pay for a property based on the after repair value (ARV). Though most often used by house flippers, the 70% rule can actually be used for any strategy when you want to find a good deal. The 70% rule says that you should only pay 70% of what the after repair value is, less the repair costs.
Remember, a rule of thumb, like the ones above, is used only to quickly and efficiently screen a property and decide if it’s worth further investigation. Never use a “rule of thumb” to decide exactly how much to pay or if you should invest or not. If a property passes the above rules (or gets close), it may be worth a more detailed analysis on paper or via a computer spreadsheet. Don’t confuse a rule of thumb for a license to skip doing your homework.
Talk to me about your property investment goals and how to get started. Contact me anytime..