REAL ESTATE – WHERE DO I EVEN BEGIN ?
Now that you start to really think about it, you realize that you have no idea how much money you want to put in… Or maybe you do, it’s the $50,000 that you’ve managed to save within the last 15 years. So, should you invest in a $50k property? Or perhaps it will be better to use that as down payment for a $500,000 property? With so many options out there, the process can be overwhelming. But don’t panic, we have a few tips to help guide you through this decision… And if you’re still hyperventilating after reading this article, give us a call and we’ll help calm those nerves.
Understand your Capital
CapitalFirst thing you need to look at is how much of your capital you want to invest. It’s never a good idea to invest all of it, as emergencies in life do happen. BUT, you also don’t want to leave all that money sitting in your bank account with no return. Find a balanced amount that you feel comfortable with investing, and will not feel like you’re all of a sudden “bankrupt”.
Identify your Financial Needs
Financial NeedsWhat are your true monetary needs in the short term or mid term ? For some people, it may be about quick cash flow: “I need to buy an apartment and rent it immediately, in order to start receiving monthly income”. For others, it may be about long term investments: “I plan to slowly buy as many properties as I can, so 30 years from now I can live off of my rental income”. Comprehend your true goal as well as its financial implications.
Study the Property (and its surroundings)
PropertyOnce you’re clear about how much money you want to invest and in which timeframe, you can start looking for that perfect property. Once you’ve found it – analyze it, re-analyze it and then scrutinize it again. It’s extremely important to know what you’re getting yourself into: what are the financials of the condo, how is the area perceived, how do properties in its surroundings compare in price, are there any outstanding lawsuits or bank disputes, noisy neighbours? Try to find as much information as possible before committing your life savings to this place. And if it’s not the right one, no worries – you’ll find another one.
Discover your perfect financial Model
ModelNow’s time for the big decision, how much should you put for down payment ? The ideal situation is such that you’re getting the highest possible return for your money. There’s no right answer on how much down payment you should have, but certainly try to avoid putting less than 20% of the property value (so you can avoid the PMI). If you can afford it, put down enough so that rent will fully pay for the mortgage (if renting) or interests won’t kill your net gain by the time you sell it (if selling). Then work out with the bank, the financing terms that work with your capital.
Lastly, always rely on a second set of eyes to validate what you’re seeing. Is that property as good as you think? Or are you just in love with the beautiful backyard? Having an agent’s approval or your expert cousin support it will be a big plus. At this point, you should be all set (and it wasn’t as hard as you thought?).