Buying your first rental property can be complicated. It can be challenging for beginners to know where to start. Here are 10 tips to help you with buying your first rental property in Ottawa.
It can be very stressful entering into rental property ownership as a beginner. There are many different strategies that can be looked at. Also, there are many different ways to invest in a rental properties and and in areas that you can purchase a property in.
Even after extensive research on a certain area and trying to calculate if it’s going to be a good investment for you, you still may feel uncertain.
It can be hard to know exactly where to start with buying a rental property. I wanted to share with you 10 tips if you are looking to purchase your first rental property to help you on your journey and give you some guidance.
The first thing is to know how money is made through owning a rental property.
It’s a good idea to first start with learning how money is made through investment properties.
There are three main strategies where money can be made through a rental property.
Positive cash flow that comes in from your rental property over and above the expenses.
Different expenses that are involved owning an investment property can be written off. Also, the interest on the mortgage can be written off as well.
Through the capital appreciation of the property.
Before you look at any rental properties it’s a good idea to set some potential goals. This is a great activity to do either by yourself, with your spouse or a partner that you are buying with.
It’s important to look at the long term and what you are hoping to achieve with owning rental properties.
For example, you could have a goal to eventually earn $40,000 a year in passive income from owning rental properties. This passive income can be an excellent supplement to your current employment income.
By deciding what you want to make and when you want to make it by, you can then see how rental property ownership fits into this.
Once you have laid out the different strategies and goals for buying your first rental property, now is a great time to pick the strategy that you are most interested in. As a beginner to owning rental properties, knowing your main strategy can be a little challenging at this time. So it’s best to go with the strategy that feels the most comfortable or motivating to you at this time.
There are many books about owning rental properties and making money through real estate which you can turn to. I invite you to contact me anytime if you need some suggestions on the best books to begin with. Books are a great way to stay motivated and to learn from those who are successful with owning rental properties.
Through discovering the different strategies of different real estate investors, this may help guide you towards the strategy that best fits your goals.
When exploring and learning about rental properties, you may come across some people selling get rich quick ideas, books or seminars.
Growing a solid net worth and income through rental properties is usually looked at as a long term plan.
If you are talking with anyone and they want to be paid upfront for the service of coaching you on investment properties or helping you find an investment property be sure to do your research and due diligence first.
Beginners can also get enticed by buying a new build property. However it may be priced above market value and unfortunately it can take years to have the value of the property catch up.
Number five is to decide on your strategy. Now that you have read and researched about all the different strategies, you can now decide on which strategy is best for you.
If you are still unclear on your strategy then it may be best to continue your research until you have discovered one that’s right for you.
If you have concluded on a strategy and feel it’s the best one to help make you money through real estate then you are one step closer to your goal.
That strategy can then be repeated with each property purchase.
Going to see an Ottawa mortgage broker even before you look at any properties is important. A mortgage broker will help shed light on how much you can borrow, the down payment needed and the amount of rental income that you should be striving for.
There have been many changes over the years to the guidelines with buying a rental property. For example, traditional banks only using 50% of the rental income in an application.
Lenders require 20% down payment as a minimum down payment on a rental property. This can be quite a bit of money for the average rental property beginner so if you find you are short on funds you could look to partner with family or friends on your first property.
Learn more: Down payment
A mortgage broker will also have access to many different types of lenders and the best mortgage rates in Ottawa.
Learn more: Monoline lenders
The mortgage broker can also review other costs associated with buying a property that you may not be aware of such is the closing costs.
Learn more: Closing costs
Fortunately, most mortgage brokers do not charge a fee for their service.
A mortgage broker is your best step in determining how much you can borrow and how much you need to save to reach your goals.
The next step in buying your first rental property is to do some research about the area that you were looking to buy in.
Some areas that you can research are:
By learning more about the particular area you will get an idea of the type of tenant that you may be working with.
Also, a property in a growing area of Ottawa may prove to have greater capital appreciation then one in a more stagnant neighbourhood.
Sometimes this research is not easy to do however I invite you to contact me at anytime and I can help you with this.
Also, a real estate agent will give great insight into the different neighbourhoods you may be interested in.
Learn more: Realtor.ca
This is where you will be looking at specific properties that you would be interested in buying. A mock property example assists with this.
By looking at a property as though you are going to buy it it will help you explore, with personal motivation, deeper into the pros and cons of that property as well as the financials.
You have a real property example now that you can research the neighbourhood and the type of tenants will get. In addition, the rental income that you will receive as well as the property prices within that neighbourhood.
All this will help you determine if this property or neighbourhood is right for you.
You now know the neighbourhood and the type of rental property that you would like when buying your first rental property. From here, it is time to get a pre approval. A pre approval on a rental property can be more accurate if you know some benchmark details such as the type of property, for example duplexes versus triplexes. Also, the amount of rental income and price bracket that you are going to buy.
The reason for this is that, for example a $400,000 property that brings in $1000 per month rent is looked out a lot different than a $400,000 property that brings in $3000 a month rent for example.
Many traditional banks and lenders do not do pre approvals on rentals due to the variance in price and rental income. However, a mortgage broker can do an in-depth pre approval review to help get you on the right track.
Time for the most exciting step towards buying your first rental property. The final step once all the pieces of the puzzle have come together. This step is to make an offer on a place that meets all your current and future needs and finances.
A real estate agent will be able to assist you with the negotiations and the paperwork.
I invite you to contact me anytime if you need assistance in finding a good real estate agent who specializes in rental properties.
Typically an offer is made conditional upon financing as well as a home inspection. You can however add or remove as many conditions from your offer as you would like.