You may have just heard another story about someone making a fortune on property investments, which makes you wonder if you should you get into the market yourself.
By: Hitesh Khan/
The truth is, property investments are very popular today and the growth in real estate has been faster than the growth of many other investments. Those who invest in real estate tend to have more control over their investments. This is because you know the quality of the building, you know the surrounding market and what the demand is.
If you plan your acquisition properly, real estate can be a key part of your overall investment portfolio and retirement planning strategy. But investing in real estate is not for everyone. You need to be willing to learn and do the necessary investigative work up front. In most cases, it’s not for people who are looking for a quick gain. You may have to be in it for the long haul. Your real estate investment is just one part of your total portfolio.
While property investments can be financially rewarding, there are also downsides.
There is always an expectation that property will go up in value, but it doesn’t always happen. If you have to sell suddenly and the market bottoms out, you can lose money. Sometimes you have to incur significant costs just to get an investment property into rental condition.
And there’s always the risk of bad tenants who can do a great deal of damage to your property. If you invest in the residential market, be prepared for midnight phone calls from tenants and for downturns in the market.
Some people think they can take out a large mortgage, buy a property, rent it out and create a loss every year to shelter other income. Before investing in real estate, be prepared to undertake extensive background research on the property, the market and potential tenants. Legal work to check for any issues relating to the property is also wise. If you are buying a house as an investment, be sure to get a home inspection.
In addition to legal, mortgage and appraisal fees, property investments may be subject to various taxes including the Goods and Services Tax (GST). Further, there are significant tax implications if you sell the property.
Borrowing money or teaming up with other investors to purchase real estate can be a good idea, as it spreads the risks and may permit you to buy a larger number of properties. It also permits you to diversify and own properties in different market segments. But keep in mind that if you invest using other people’s money and the market falls, you may end up owing more than your properties are worth.
If you are investing in a property always consult an expert or build your team. Many people are ‘do-it-yourselfers’ and cannot fathom the idea of another person giving them advice or handling tasks. Real estate can be very passive if you build a solid team and many experts are more than willing to give you advice that could significantly impact your success and experience as a beginner.
One of the most important decisions you will need to make is who will hold your mortgage. It is very easy to walk into a bank and take the first home investment loan that they give you. But a savvy investor will always seek the advise of a trusted and reliable mortgage broker to compare and get the best deal for their property investment.
In fact, a savvy investor will include such mortgage brokers to be a part of their property investments team.
A trusted mortgage consultant can supplement your research, help you with financing and advise on how to structure the ownership of the property.
Many gurus make real estate investing sound so easy, but many beginners have a miserable first time investing experience. Whether you are a beginner or an expert, it is always a great idea to get as many expert opinions as you can before you commit to investing. They will make you aware of many potential mistakes and red flags.
Property investors must play the numbers game and cherry pick from as many prospects that meet your criteria as possible. Also always do extremely thorough due diligence.
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