No matter what the real estate market is doing at the current time, it’s almost always a good time for buying property for investment purposes. Even if you must finance the purchase, rental properties and commercial buildings are perennial favourites for making a profit. Although values may go up and down, real estate always appreciates over time — given enough time and sound investment advice.
Take your time when shopping for a suitable property to rent or lease. Remember the old rule that says the three most important factors in real estate investment are location, location, location. Sure, you may find a very cheap property in a depreciated neighbourhood, but the odds of it ever gaining real value are probably slim to none. Instead, search in the areas where real estate has maintained superior value and hunt for a bargain.
Another important factor is whether or not the building is already fully leased, or at least has the potential to attract immediate renters. Your investment success relies on creating a positive cash flow.
And finally, consider financing options. If you currently have equity built up in your primary residence, you may be able to use it to open a line of credit. This second mortgage will fund the down payment on the investment property, generally required to be about 20% of the total purchase price. Line up your financing before finding your ideal property for investment. Knowing the limits of your credit will help you find real estate in the proper price range.
Consider this fictitious example:
You find a commercial building for $300,000 in today’s market, but the estimated value is $375,000. Current renters are paying $475 each week. The deposit will be $60,000 while the remaining $240,000 is financed. This results in the total purchase price of $300,000 being held by two lenders. Refinance after six months using the value of $375,000 and you will be able to pay back the line of credit. The entire time you are receiving rental income of $24,700 per year, creating a positive rate of return.
Remember to find your investment real estate in a highly valued area and drive a hard bargain to get the best deal. Your property investment will start making money right away with the right elements in place.