Investment properties here on the West Coast don’t come cheap however on the flip side, rental income is among the highest in all of Canada and the cap rates are often incredibly good. Whether you are a savvy experienced investor or a first-time investor, here are a few basic tips when considering an investment property purchase;
Getting a mortgage for an investment property isn’t as easy as borrowing for your primary residence – you’ll need at least 20% of the purchase price for a down payment, and only a portion of the income you get from rent will be considered in qualifying you for a mortgage (usually 80%). For commercial property investments, you’ll likely need a down payment of 50%.
2] INVESTMENT OBJECTIVES:
There are three ways to make a return on your real estate investment;
- Cash flow (cash return) – Cash flow is the difference between what you collect in rent and the expenses you pay out. Cash flow is affected by a number of factors such as the purchase price, equity/down payment, mortgage payments and rental income.
- Appreciation – When you sell your investment property for more than you paid, that’s called appreciation. In recent years here in the Greater Vancouver / Fraser Valley region, year over year appreciation for all housing types has been excellent, with the exception of 2018 when an anticipated market correction took place.
- Equity (mortgage paydown) – When a tenant pays down your mortgage, you’re building equity. Depending on your exit strategy, over time ( ie 25 years ) you will have a mortgage-free property.
3] DUE DILIGENCE:
Whether you are a first-time real estate investor or a seasoned professional, our team will guide you through the maze of questions and challenges that may present themselves and we’ll cover these in a clear and documented step by step process.
4] CRUNCH YOUR NUMBERS:
At the end of the day, the investment property you are looking to buy will be determined by the financial projections you and your agent have come up with. And we encourage all investors to meet with their accountant or financial advisor to review the financial projections we have prepared so they can affirm the figures and advise on any tax consequences.
If you are considering purchasing a property for investment purposes, we’d appreciate the opportunity to meet with you to provide greater detail and present ROI (Return on Investment) and Cap Rate scenarios and examples.