Everybody has to start somewhere – your first real estate investment property can be both an exciting and intimidating prospect. With the right combination of advice from experienced investors and research into the market you’re about to invest in, your first real estate investment will prove to be a financial success for you.
Investing is a business
Whether you plan on stopping with one investment or expanding into a series of properties, it’s important to treat your property investments like a business in order to be financially successful. Go into your investments with a business plan – detail where you currently are, and where you’d eventually like your investing to bring you. The real estate industry is as nuanced as any other investment opportunity, so it’ll take long-term commitment and planning to succeed.
Know your margins
It’s important for you to understand what properties are sure to generate a positive cash flow – take things like monthly utilities, property taxes, and insurance costs into consideration before setting monthly rent payments for your tenants. If your property is not generating a positive cash flow, you will fail to make enough to pay off the mortgage – thus making the entire investment unworthy. Being able to generate enough extra income to put aside for things like repairs is also important, as costly damages and utility failures can (and do) happen without notice.
Keep proper records
Knowing how much income your property is generating and what your monthly expenses are will help you balance the books at the end of each fiscal year. You should keep these records outside of your personal bank accounts and records wherever possible, otherwise it becomes easy to lose track of your investment and will potentially complicate your tax returns.
Be aware of flipping
Flipping is the practice of buying and selling real estate in quick succession, and while it isn’t illegal to do so, it can be costly for investors. The Canada Revenue Agency (CRA) views real estate flipping as being income generated from business, meaning you will be taxed on every dollar earned from the practice. It’s better for investors of all experience levels to think long-term in order to generate a consistent positive cash flow and not be punished for it come tax time. Selling at a later date will earn more profit and part of the sale will be tax free.
Consult with an accountant and lawyer
Having an experienced account and lawyer by your side throughout the investing process is extremely important for tax and legal considerations. Your accountant and lawyer will be able to help you determine if you should invest under your own name, or under the title of an organization – this can guard you against liabilities in the event that something goes wrong, and reap a whole host of tax benefits. There are fees and other tax considerations associated with incorporating, and an accountant and lawyer with real estate experience will help navigate you through them.
Do your homework
As with any major investment, speaking to people with experience in the field is important to get a sense of the market and how other people have succeeded within it. Joining investment clubs and befriending experienced real estate investors will help give you advice about what to avoid when investing, what mistakes are easy to make (and how to avoid them), and will teach you about the business. Researching the areas you’re looking to invest in, the history of the market and its future outlook, and demographic trends is also important when looking to invest for the first time.
Since real estate investing is a fully-involved process, having a realtor that doubles as a property manager is extremely important. Experienced property management companies like Highgate Property Investments know what pitfalls to avoid when purchasing investment properties, and will save first-time and experienced investors time, money, and major stress down the road. A good property manager and realtor will identify good investment opportunities for you, help you to avoid costly investments disguised as “fixer-uppers”, find suitable tenants for your properties, and be a point of contact for maintenance and emergencies.