New homes for sale in Calgary - Taking care of the critical steps before investing is the right thing to do
If you are thinking about investing in a property, you need to make it a smart financial decision. If you can do it right, you can always expect a healthy return, tax breaks as well as equity gains. However, you would do well to remember that there is no guarantee of a huge success every time, even if there are chances of success. According to real estate experts, this is why it is crucial to strategize before choosing and purchasing a property.
If you are a first-time real estate investor, you need to understand that there are several aspects that you need to keep tabs on at all times. You can start to feel overwhelmed due to the process – you have to consider the market trends, general guidelines, and budget. The best tip for you to purchase new homes for sale Calgaryis to think with a clear head and develop a clear understanding of everything that makes a good real estate purchase.
Here are the top aspects that you need to keep in mind before investing in real estate.
Location is the prime factor
You have to consider the property as an investment. In that context, you need to evaluate the property precisely. Keep in mind the valuation of a property is just not about the building and the amenities on offer. You need to consider the location of the property as well. It is critical to remember that if you are looking at vacation locations, then the cost will increase due to the increased competition in the market. According to our experts, it is always the location that should be the prime consideration followed by the physical structure. Understand that if the location is wrong, it can never be the "right" property.
Take a look at the down-payment facility
Most real estate investors go for the down-payment option when investing in a property. However, as far as the down-payment is concerned, keep in mind that every property has its own down-payment protocols. The requirements for a standard family home will be vastly different from the Duplex or a Condo.
You might need to put down at least 15% to 20% of the net cost as the down-payment. Additionally, it is critical to remember that there are stricter approval requirements to secure the financing option with investment properties. Always wrap up the details of the financing right at the start of property-hunting.
Keep in mind the 1% rule
Once you have chosen a property, you will need to calculate the expected return from it. This is where the 1% rule comes into play. The 1% rule is an investment gold standard used by real estate investors worldwide to determine the worth of a property. Keep in mind that the law states every property should at least bring 1% of the price you paid for it per month.
The net cost should include the expenditure for repairs and renovation. However, there are caveats with every rule. If you are buying a million-dollar property in a neighborhood where no string returns are expected, you can let go of the 1% rule. Such a valuable possession is a one-time investment, and in this case, the focus should remain on the long-term goals.
Keep tabs on the repairs and variable expenses
Investment in real estate is not quite pay-up and take possession. Keep in mind the general upkeep and the maintenance of a property means there will be fixed and variable expenditure regularly. We understand that it is not possible to gauge the expenses accurately. However, you still need to anticipate an approximate figure to budget as close to the limit as possible. This will make sure that you do not end up red-lining your investment.
Here are some of the expenses that you need to adjust for.
- Property tax
- Homeowner’s insurance
- Property management expenses, when necessary
- HOA fees, if any
- General upkeep costs including cleaning, landscaping, etc.
Additionally, keep in mind that since variable expenses are always hard to predict, maintain wiggle room in your budget for damages like plumbing, roofing, and other fixtures.
Property management is vital
There are several ways of managing a property once you have taken possession of it. Real estate investors can engage directly with clients to serve as landlords or oversee day-to-day operations. You can even opt to pay a management firm or team to work for you. Keep in mind a professional management service will cost you more. So, get involved if you want to avoid the extra costs.
However, you will do well to remember that in some cases hiring a property management service might be the right thing to do, and it can save you a boat-load of money. Keep in mind that additional fees like booking charges and leasing fees are offset by paying a commission fee to the property management firm. Always research your options regarding a particular property before signing the contract papers.
Understand the risks involved
As far as real estate is concerned, it is a low-risk investment compared to every kind of investment out there. However, there are risks, and you should be aware of them to circumnavigate troubled waters.
Here are some of the risks that you should know.
- Failure to secure a rental interest as anticipated
- Extensive and expensive repair or remodel
- A sudden increase in property taxes
- Change in the local market and the economy
- Bad tenants leading to damage, repair, or eviction costs
It is crucial to understand the risks than not focusing on them at all. However, even with risks, real estate investment is a top priority globally. No investment is ever a guarantee, so it is "fair-game" that real estate should play by the same rules as well. Just don't get blindsided by not being aware of the pitfalls in the first place. Work a bit of flexibility into your finances to accommodate the dry-spells, if and when they arise. Above all, keep true to the tactics and tips mentioned above to make sound investments and enjoy life. All the best!