Buying Investment Property For Profit
It's not easy buying investment property for profit. If it was, everyone would be doing it. Here are some things to keep in mind that will keep you out of trouble:
1. Buy in a hot market - or a hot area
Whether you are buying land, residential property for investment or commercial real estate, if you are in a hot market, you will make money. It's amazing how many people become "experts" in investment property when every kind of property is going up in value. It's hard to go wrong in a hot market. That being said, you have to work with what you know. Area's of downtown have been hard hit but a good duplex/tri-plex in the University area will undoubtedly make you money.
2. Buy good property.
It seems too obvious, but it's not as easy as it looks. You may have heard the saying "the devil is in the details". This applies to properties more than anything else. There are so many things that can go bad in a building or make land unsuitable for investment. In buying investment property just one key fault can flush your money down the toilet. Be sure to get a site evaluation or property inspection by a professional company with a good track record. ALWAYS go and look at the property yourself before you finalize the deal.
3. Buy at a good price.
What is a good price? Is is simply a price that is cheaper than others on the market or is it based on the potential for profit? When buying investment property I would pick potential for profit any day. However, it's easy to get carried away with the word "potential". Keep in mind your time-frame for investment. When do you want to cash out? When do you want to see positive cash flow? How long do you want to keep your money tied up? Is the potential real?
Determining a good price for a property is never as simple as looking at the neighbourhood properties. You need to consider changes to the neighbourhood in the near and distant future. You need to consider how land / properties are being used in the neighbourhood. Of course, the overall trend of the economy is important. If the investment is big enough, consider hiring a professional company to evaluate the price and determine potential profitable uses.
4. Get good advice.
Good advice can come from a lawyer, experienced investor in that type of investment, an appraisal company, a chartered accountant firm can provide a feasibility study or other KNOWLEDGEABLE advisor. Avoid advice from your next door neighbour whose only investment has been the house he lives in. On the other hand, even if you have a lot of experience in that type of investment, it never hurts to run it by someone to see if it makes sense. When you verbalize your plans you are forced into making it sound sensible. You'll be amazed how many times you'll catch an obvious oversight when you start explaining your plans to someone.
5. Get your timing right.
If you move too quickly or too slowly you can lose money. The best way to have good timing is to be prepared to invest. Know your market. Know lots about the type of property you are investing in (or have a partner who does). Have your team of advisors in place. Have your money in place. You have a lot of negotiating power if you have money available at the right time. Do your homework beforehand if you want to be buying investment property for profit. Scrambling to put things together at the last minute is a good way to lose money fast.
These are some key guidelines when buying investment property for profit. It's never as easy as it looks. However, like anything else, buying investment property for profit becomes easier with practice.
A few other key things to remember:
-Windsor tax rates are different depending on the property. The cash flow of a 5 unit rental building might look great at first glance but tax rates rise dramatically in buildings with over 4 units here. You may net more with less monthly income with a 4-plex or under.
-Damage? Previous issues? Find everything out BEFORE you buy. You do not want to buy someone's problems - if the deal seems to good to be true they would not be selling it. If an investment property has gone power of sale the previous owner had better been the worst money manager ever or walk away. You are here to make money, not buy problems.
-Certificates. Ensure the fire/electrical codes and all municipal certificates are in order. This should be included in a clause in the offer. Without the proper certifications for rental properties you will not obtain insurance for the building(s) and the lender will not forward the money to close. This step cannot be missed, it is crucial.
For more information you may contact me at firstname.lastname@example.org or call 519.944.5955. I will provide you with a current list of viable investment properties in the area and give you an up to date view of current market conditions.