It’s been said that more millionaires have been made in real estate than any other industry. Over the long term, investing in real estate can be a great way to build equity and save up for retirement.
As of today, there are ways to buy your first investment property with only 5 per cent down. Some will move into the new property and rent either the basement or main level, and as it is your primary residence you may qualify for 5 per cent down. If you buy a property for immediate family to live in, you may qualify for 5 per cent down. Typically, however, you require a 20 per cent downpayment for an investment property.
Assess income potential
There are three ways in which real estate can increase your wealth. First, if you have a positive cash flow on your rental income. You can’t always achieve this, but many properties will give you a monthly profit over expenses. Second, with each mortgage payment a portion goes toward paying down the principal balance, and in 25 years or so the property is paid off. Third, historically, we’ve seen that home prices keep going up, so you gain with the increased value over time.
With the relatively low risk of real estate, it can be a great way to invest for the future. Unlike a stock, it is extremely unlikely that all you have at the end of the day is a very expensive piece of paper. As long as the property is insured against loss there is relatively little risk.
That leads to the obvious question of what to buy, a condo, half-duplex or house? While you can do well with any of these, my pick is a single-family house with a basement suite. I like single-family homes for several reasons. They lend themselves well to having a suite for supplemental income, giving you a greater chance at achieving a positive cash flow. Also, when one suite is vacant you may still have the other suite paying. I would also consider a half-duplex, as I suspect the city may soon change the rules regarding basement suites in them.
Choosing a property
What should you look for in a single-family home? Ideally, it’s nice if you can find a home that has a legal basement suite with a permit from the city. Most homes in Edmonton that have basement suites, however, do not have permits. I’ll look for a home that has large basement windows for a couple of reasons. First, you must meet basic fire regulations in order to provide an adequate fire escape. Second, large windows provide more light, which can make your suite more desirable and help you rent it more easily. Typically, you can find larger windows in a raised bungalow (popular in the 1940s-1950s) or a bi-level.
Another thing to look for is a separate laundry area. What I mean by that is the laundry being in a common area, where neither tenant has to enter the other’s unit to do the laundry. Separate temperature controls for each suite is important, as well as adequate sound insulation between the suites.
On the exterior of the home, I’ll look for low-maintenance surfaces. Ideally you want maintenance-free windows, trim, soffit, fascia, siding and fencing. Anything with wood is going to require maintenance (paint, stain, etc.) approximately every five years, so if you can avoid that, all the better.
In terms of location, I’ll look for something within close proximity to a bus stop or (ideally) LRT. An area with a good walk score would be great. Check out www.walkscore.com to find out where your neighbourhood ranks. Getting something within walking distance to schools, stores and coffee shops is going to make your rental suites more attractive to potential renters.
Knowledge is power
There are some good resources available for those in real estate investing. The City of Edmonton offers information on landlord and tenant issues, and contracts and supporting paperwork is available to the public. Taking a courses for new landlords can be quite helpful and get you off to a decent start. I’ve also heard some good things about REIN (Real Estate Investment Network), where you can get information on investing in Edmonton and strategies for success.
And, of course, finding and working with an experienced realtor you can trust can go a long way to making your investments in real estate a success.