Stepping into the commercial real estate world can be a great way to earn passive income, but it doesn’t come without risk. Do everything you can to mitigate losses by purchasing the perfect property in an affordable way and having a plan in place to manage it efficiently. Oracle Property Group presents some tips that can help you find your way when you start looking at your first investment property.
Understand the Job
First, ask yourself if you can handle the financial and legal responsibilities of being a landlord. You’d have to screen new tenants, address any issues that arise, collect rent every month and conduct regular maintenance and emergency repairs. Starting small might be a good way to gain a feel for the job while also earning income. For example, you could convert your home into a rental property and go through the process of prepping your home, complying with regulations and dealing with tenants to gain valuable experience both for your career and securing financing.
If the ins and outs of property management aren’t for you, or you’re not particularly handy, you could hire a property manager to oversee some of the core functions. However, this can be quite expensive and takes some control out of your hands. If you choose to self-manage, use online record management platforms and contracting companies to help you.
Finance First
Hold off on searching for properties before you get pre-approved. It takes time to get funding, so it’s better to get a mortgage pre-approval to figure out what properties are accessible to you. Additionally, when it comes to investment properties, substantial cash up-front is required. Typically, a down payment of 15% to 20% is required for those with credit scores of at least 620. Depending on the property, this can be a large sum, making it likely that you will have to secure a loan for the down payment alone.
Once you know how much you’re approved for and how much liquid cash you’ll need for a down payment, start thinking about future financials. Experts say you should follow two rules: the total monthly rent should be at least 2% of the total purchase and at least 1% of the property value should be budgeted for maintenance.
If you’re willing to put more resources into a property after purchase, you may want to consider searching for properties that can be purchased “as-is”. Properties sold this way usually have some issue which will require investment to remedy, but the tradeoff means that they can typically be purchased below market rates. Making this kind of purchase can extend your finances.
Find What Renters Want
The key to purchasing property is giving renters what they want. Family-friendly, crime-free neighborhoods with quality schools and access to local parks tend to do best. On the financial side, you’ll want a community with low property tax and a steady stream of renters. The value of your property is also boosted by proximity to public transportation, markets and jobs and can seem lucrative if it still maintains some privacy and quiet.
You can even modify your property to appeal to more prospective tenants by renovating the basement for a home gym or entertainment center. A reliable contractor will ensure you have a quality space, and the cost will depend on your location, the materials and the improvements. Be sure to include subfloor installation to prevent mold if you’re adding carpeting.
It’s good practice to check in with the local town hall to inquire about any future developments in the neighborhood. Plans for the construction of a chemical plant, for example, could decrease the value of your property. Additionally, conduct a detailed property inspection to avoid any latestage or hidden expenses.
Play patiently when purchasing your first investment property. As long as you figure out if the job is right for you, conduct a cost-benefit analysis on potential properties and plan before making a purchase, you’ll be able to reap the benefits of commercial real estate.
For help finding your perfect home in southern BC, contact Oracle Property Group today!
Article courtesy of Virgina Cooper of learnaliving.co
