Think it’s hard managing one property? What about several? With the right tools and plan in place owning multiple investment properties you rent out, turning into an Airbnb, or flipping to sell can be a smart strategy. Regardless, it’s always a gamble when buying a property. The real estate market can fluctuate, or the property may turn into more of a headache than you might have expected especially when tenants are involved. This is why it’s important to work with a professional real estate agent, as well as a good contractor when deciding which home might make sense to convert into an investment property. An investment advisor is also a good idea to consider speaking with in addition to your mortgage broker to make sure that it’s financially a good decision beyond its investment possibilities.
What are the pros of buying an investment property?
Money, money, money
One of the best perks of buying an investment property is…well… making a profit! Real estate prices are increasing every month, and by purchasing a home in a booming town or city, the sales price you could list it might be even more than you paid for it when you’re ready to flip it. It’s amazing what a little TLC can do on a home as well. Adding character, and doing a few smart renos is a great way to increase the value of a home you’re looking to turn a profit on. If you talk to a reputable real estate agent, they can tell you what people are interested in when buying and you can use that intel to decide which renovations will add value. Trends change, so it’s important to adapt your home renovations to the majority of people who would want to purchase the home if reselling is where you hope to find a profit.
You could also rent out the home which would help to pay down the mortgage creating a long-term investment strategy. Rent prices are also skyrocketing, so it’s nice to know you would have a steady income of monthly rent always coming in. Just remember, you must factor in any sudden home renovations or random fixings into the monthly cost as well as having a game plan in place to cover mortgage payments IF your tenant decides to stop paying.
Turning your home into an Airbnb could also be a great investment tactic, especially if it’s located near a tourist attraction.
Great business opportunity
By owning more than one investment property, you can diversify your investment properties to different locations whether it’s rural or urban, residential or commercial, or an apartment or a subdivision. Plus, real estate tends to yield a much higher return on investment in most situations.
It makes it easier to finance
The more properties you own, the easier it is to acquire additional investments with each one funding the next. However, you still need to be able to manage your debt-to-income ratio.
What are the cons of owning an investment property?
Dealing with the upfront costs
Most investment properties require a minimum 20% down payment, meaning you’ll have to have the money handy. Dipping into your savings account, or taking out a loan may be required if you don’t have the money right away.
Unexpected costs can creep up on you
The best tip to follow is that I strongly encourage you NOT to buy an investment property if you are having trouble paying the mortgage on your first home. An investment property should not be relied upon when it comes to paying your bills for your current home. Instead, use it as an extra income. Sudden renovations may pop up, so you must put money aside to pay for them. Putting money aside in a tax-free savings account is a great way to save up without having to pay tax when you need the money and it helps you avoid steep credit card interest rates. Plus, you can take money out of the account at any time you want. Check out my article HERE about different financial options to help pay for a summer renovation on an investment property.
Managing the lousy renter
Renting out your home can cause multiple headaches if you have a tenant that doesn’t treat the home like their own, and who doesn’t pay their bills or rent on time. You won’t have an A+ tenant in every home, so it’s something you must factor into your monthly finances. Make sure you have a bullet-proof contract using the standard Ontario lease to prevent hiccups in the renting system and be sure to know your rights as a landlord too.
It’s more work than you think
You think looking after one home is a lot… what about several? If you own more than one investment property, it may be time to hire another person to help you with the bookkeeping and managing the renovations or rent collection. Odds are that you have another full-time job, so it may be challenging to juggle all these properties and demands.
Lenders may be skeptical about paying off your mortgage
Another mortgage means more bills to pay. When getting approved for a mortgage, you must prove to your lender that you’ll be able to pay your bills on time. It’s important to work with a reputable mortgage broker, like myself, Darren Robinson, to ensure you’ll get pre-approved for an investment property mortgage so you can be ready to put an offer on a home you think will be profitable as soon as you find “the one”.
Note that there are legal requirements when owning multiple investment properties
Think about zoning requirements…
A single-family home, or building with four units or less, is normally zoned residential, while a property with five or more units must be zoned commercial. If your property is classified as a commercial zone, then you will most likely have higher mortgage interest rates.
If you plan to live in one of your rental properties…
And it falls under residential zoning—the down payment can be lowered to between 5% and 10% possibly. Residential investment properties are also eligible for mortgage default insurance, which reduces the risk for lenders and can qualify you for a more favourable mortgage rate.
When you submit your income taxes…
You must claim all the payments you received as rent as income. This includes special deals or discounts you’ve given if the tenant gets a break on their rent if they snow blow their own driveway or cut the lawn.
Work with a reputable mortgage broker and financial advisor before making any big decisions
When owning multiple investment properties, it takes a village to run them successfully while making a profit. Doing it properly can be a great way to have an extra income, having your own side hustle. But, before you jump in with both feet give me a call or shoot me an email, or click here to book a free consultation with me to discuss your options when it comes to buying your investment property. As a reputable mortgage broker and financial advisor, I can help you get the “bang for your buck” you’re looking for.