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5 Important Things to Know About Buying A Home as An Investment

Buying A Home as An Investment

Homes for sale in Nanaimo BC fall into two general categories: homes that people buy to live in, and homes that will be used by investors. In this article we’ll cover the most important things you need to know about buying a home as an investment.

What to expect when buying an investment home

You’d be hard pressed to find someone who hasn’t heard that the way to build real wealth is with real estate. And while that’s true, it’s also not quite as easy as the ‘experts’ claim.

Here are a few things to expect when buying an investment home:

  • Down payments on investment homes are bigger, usually 20% or more, and interest rates are higher because lenders perceive more risk from real estate that isn’t owner occupied
  • Rental income can be unpredictable becausetenants come and go and the time it takes to turn the property and get it ready for the next renter
  • Property taxes for investment homes are sometimes higher than owner occupied homes, depending on the government jurisdiction
  • Be prepared to act as a handyman and have the extra money and time to fix things that unexpectedly break
  • Fixer-uppers and fix-and-flip property are best left to the professionals if you’re just beginning to invest in real estate

5 tips on buying a home as an investment

Buying one of the homes for sale in Nanaimo BC as an investment is a great way to generate passive income from rents and appreciation as home values increase over time. However, buying an investment home can be expensive with more upfront costs and ongoing maintenance expenses.

Here are 5 tips you should know about buying a home as an investment: #1 Pay for the investment home with as much cash as possible

Using more cash up front helps to avoid over-leveraging and negative cash flow. Ideally, you’ll have enough income from other sources to pay for the mortgage and other expenses of the investment home. That’s because there will be times where there’s no rental income after one tenant leaves and you’re looking for another.

#2 Plan out all of your expenses with a P&L

A P&L, or profit and loss statement, is an itemized monthly list of your income and expenses. A frequent mistake that new investors make is to be overly optimistic about income and underestimate expenses. Your real estate agent who works with people buying homes as an investment in Nanaimo can help you make sure your numbers are realistic.

#3 Keep emotion out of the process

It’s okay to get emotional about buying a home to live in. But keep emotion at bay when you’re looking at a home for investment. Investment property is a business and choosing the right property for the best price increases the odds of getting a higher ROI.

#4 Research the investment home market

Research the market by analyzing the average market rents compared to the average cost of an investment home. Be sure to look at factors like average vacancy rate, the amount of new multifamily property being constructed, and whether home prices are going up or down. Data like this can help reduce the risk of buying a home as an investment.

#5 Start small then scale up

Start with a condo, small single-family home, or duplex to gain experience, then scale up as your skill level and expertise grow. It’s better to get your feet wet and learn the ropes with a small investment property than to find yourself under water with a big one.

Key points to remember when buying a home as an investment

  • Down payments and interest rates are higher with investment property
  • The biggest mistake new investors make is to be overly optimistic about income and underestimate operating expenses
  • Paying with more cash up front keeps a mortgage low and reduces the risk of negative cash flow
  • Market factors that influence the demand for investment property include market rents, average vacancy rates, and new construction
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