Owning a home is a fantastic way to build wealth in a diversified portfolio. However, many Canadians find themselves buying real estate, but never keeping any of it unless it is where they are living.
This blog post will discuss how average homeowners can add rental property to their portfolio by buying wisely, and then the benefits of the investment will be discussed.
How to Buy a Future Rental Property
Forget the idea of buying a home that will then be rented out. Start off by purchasing a home for yourself to live in.
The key when making the purchase is to search for properties that don't "have it all." This will permit you to save money upfront because of the modest purchase.
Additionally, don't forget that this is not the home you will love to live in; it's the home you will love to rent out. That means that in the time you live there you should enjoy it, but hold off on getting the finest appliances. Instead, paint the walls in neutral colors to save money later. And make sure that you can afford the payment even in a lean month.
Why Buy as a Home First?
Investment property purchases have harder guidelines to meet when purchasing. Also, the interest rates tend to be a little higher since there is more risk associated with the loan.
On top of that if you find yourself wanting to sell the home instead of rent it in a few years there are opportunities to save on taxes since the home was a primary residence.
Between borrowing on the frontend and the potential savings on the backend there is more money in it for you if this future investment property is one you live in first. However, let's not discount the long-term potential on income and asset growth.
Rental Income & a Growing Asset
Canada has a rising population. That means a thriving economic future as well as rising demand for homes. Owning this property will not only mean that you will have an income producing asset, but that the income will go up while the value of the property does, too.
The home you purchase today with a payment of $900 may bring in monthly rent of $950, which is great. But in 30 years the mortgage payment will be $0.00 while the rent could very easily be $1,900.
In addition to having the substantial monthly income, the asset that had once cost $115,000 may bring over $200,000 if sold.
This is not just theory. Many Canadians have done this over the past few decades, and we have a real case study.
Marc & Emma Tremblay
The Tremblays are an average couple. Marc works as a banker. Emma was a stay-at-home mom who now works at the local public school.
When the Tremblays were first married they purchased a very modest 2-bedroom home in a nice neighborhood. It was very easy for them to afford, but they found when they were ready to move up in house that they could rent the home more easily than sell it. Loving the idea of having a renter pay their mortgage they took a chance.
32 years later they are glad they did. The home they purchased for $165,000 is now worth $388,000. On top of that they have only had five tenants in the past 32 years, which they attribute to buying a home in a very desirable school district.
Owning rental property is something anyone can do, especially if you start out living in the property.
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The information provided is for the clients' personal, non-commercial use and may not be used for any purpose other than to identify prospective properties clients may be interested in purchasing. All properties are subject to prior sale or withdrawal. All information provided is deemed reliable but is not guaranteed accurate, and should be independently verified. Greater Baton Rouge Assoc. of REALTORS® Last Updated: 5/22/2018 12:29:00 PM