Buying an Investment Property

Considering buying an investment property? Under the right circumstances, it can be a good diversification strategy for your portfolio. When my husband and I started investing in real estate we looked at a number of different options. Here are some pros and cons for some popular choices.

“Flipping,” means buying something undervalued, fixing it up and selling it for a profit. Flipping is all the rage on TV with celebrity contractors making it look glamourous and easy. It’s not so easy in today’s hot market because it’s difficult to find undervalued property.

Pros:

• If you can buy materials at cost and minimize labour charges, you might still do well at flipping.

Cons:

• Hard to make a profit if paying full price for materials and trades.

• CRA is clamping down to ensure Capital Gains Tax is paid.

• Risky business given how quickly the economy can turn.

Investing in rental properties is a good way to grow equity. This strategy requires that you balance the carrying cost of the property with the rental potential. Consider buying in areas of high demand such as near a university or close to public transit. If you can afford multiple units, your losses for vacancy are someone mitigated.

Pros:

• Good option if rentals are in high demand in your area.

• Some landlords have luck securing good long-term tenants.

Cons:

• Expensive to carry if the unit is vacant.

• Whenever there is a problem the tenants will call you.

• You may have a problem tenant. The Residential Tenancies Act outlines your tenants' rights and your rights.

Buying a vacation property and renting it out is an option that gives you the added bonus of a getaway spot. If you want the property to carry itself through rentals, ensure you buy where there is demand.

Pros:

• Can be somewhat turnkey if you hire a management company

Cons:

• Beware of a management company with too much similar inventory. If yours is the same as the others, yours will only get rented in proportion to its fair share.

• Also beware of seasonality. A ski chalet or a lakeside cottage in Ontario will have a limited rental season and you will be paying for it much of the year.

If you’re considering buying an investment property, I’d be happy to share more of my own experience with real estate investing. Please feel free to give me a call at 905-822-6900.