Real estate can be a great investment option. For many investors, real estate is a more tangible investment that provides greater control than alternative investments would, such as purchasing shares in a company. On the other hand, investing in real estate takes time, patience, and access to capital or credit—you’re essentially running a small business! If you’re thinking about purchasing an investment property, here are three things to consider first:

1. Your resources

Compared to other investments, the entry and exit costs with real estate can be high. Unlike residential homes, Canadians are required to make a 20% down payment on non-owner occupied investment properties. Additionally, due to the higher perceived risk by financial institutions, investment properties often have higher interest rates.

If your plan is to flip the property, you will need the funds to cover renovating expenses such as labour and materials. If you’re looking to rent the property, prepare to pay the monthly expenses that come with owning any property such as mortgage insurance and property taxes. Aside from the typical upfront costs, you’ll also need to budget for ongoing expenses associated with being a landlord, such as maintenance and repairs.

Did you know: When purchasing an investment property, your personal credit is the number that financial institutions and other lenders use to determine the risk of lending you money. The higher your score, the more likely you will receive a better interest rate.

2. Your goals

It is important to be deliberate about writing down what you’re hoping to achieve with your investment property. Some investors want to create a steady stream of income by renting a property, while others  want to take advantage of rising real estate markets by flipping and selling a property. No matter what your goal is, what’s most important is having a conversation with your Financial Advisor to ensure your plan is well-defined.

Tip: One of the most important parts of any investment property plan is finding the right product for the property and the circumstances surrounding the sale. CUA offers the Purchase Plus Improvements Mortgage which takes into consideration your renovation plans in the total amount you borrow. With so many different products, the best advice for finding the right product for you, is to do your research and ask your lender for advice. Having a flexible, personalized, and responsive lender can make all the difference. 

3. Your budget

Like any investment, an income property doesn’t always provide an immediately return. The real estate market tends to fluctuate with property value generally increasing over time.  And while real estate offers some control by setting rental prices and choosing reliable tenants, you can't instantly sell real estate if you need cash. Setting a realistic budget is a key driver of decisions when it comes to investment properties, to ensure you can withstand shifts in the market or gaps in occupancy. A big question new landlords should always plan for is how many months could you afford monthly expenses if the property was without a tenant? Property insurance, maintenance and other costs are also part of the budgeting process. A rental property can generate income and can be a good long-term investment, as long as you’ve considered your long-term financial plan.

Did you know: An estimated half of the income generated from a rental property is required to cover operating expenses. For example, if you’re charging $1,650 per month in rent, approximately $825 will be needed to for these expenses.

When it comes to an investment strategy, there is no one size fits all. If you’ve decided to purchase an investment property and you have questions about the process or best product to fit your needs, reach out to a member of the CUA Team by calling 902.492.6500 or emailing info@cua.com. With flexible residential and commercial mortgage products available, we are committed to helping you find the right mortgage for the right investment property.

Revised Jul. 23, 2021