How Can I Get Started With Investing In Real Estate?
As a mortgage broker and real estate agent, I get many first time prospective real estate investors that wonder how or where they should start. The truth is, you need to start planning well in advance of actually making your first property purchase. Here are 5 crucial steps you can take today to get a leg up on investing in real estate tomorrow:
1: Pay Down Your Debts
If you are investing in Canada, you should know how debt coverage ratios work. Essentially, in order to safeguard our markets from mass foreclosures (a good idea) all federally regulated lenders need to perform a stress test on your income versus your debts and your prospective real estate purchase. That means every dollar of car lease, credit card outstanding balance or other debt you might have dramatically reduces how much a bank will qualify you for your investment property.
Your mortgage rate is crucial for maximizing your return on real estate investing
2: Build Up Your Credit Rating
So often, my mortgage clients come to me saying “I have great credit, don’t even worry about checking it yet” and yet time and time again, some missed payment or dispute shows up and dramatically reduces their options for getting a good mortgage rate. Your mortgage rate is crucial for maximizing your return on real estate investing! With that in mind, never be late for a payment (a calendar app with a monthly reminder is your friend here). While this may sound contrary to tip 1 (it isn’t), you need to have some payments to build up your credit rating. Stick to the same credit cards if you can (length of time for the card also impacts rating) keep them paid off monthly, and even a cell phone bill can get you started to building credit. I can help you get started with a credit check and mortgage quote today.
3: Start Building Up A Downpayment Toward Your Investment Now
While affordability and how pricey real estate is in cities like Vancouver and Toronto gets most of the headlines, the truth is most locals can get mortgage approvals and afford the monthly mortgage payments, what keeps more people from investing are the sizeable downpayments required. When it comes to real estate investment properties (not owner-occupied but rental properties), in areas like Vancouver you will find you need at least 20% down to get a mortgage. Luckily, there are some great government programs in Canada for aspiring homeowners such as the ‘First Time Home Buyer Incentive‘ where the government will give you a second mortgage to help towards your downpayment, and another favorite: the ‘Home Buyers Plan (RRSP Downpayment)‘. If you work for a company that does RRSP contribution matching, this could be a great program for pulling up to $35,000 towards your downpayment (you do have to repay your RRSP within 15 years).
The truth is most locals can get mortgage approvals and afford the monthly mortgage payments, what keeps more people from investing are the sizeable downpayments required
4. Learn All You Can About Local Markets And Investment Opportunities
If you are reading this, you have already started this crucial step of learning more about real estate investing. Now is the time to consider what kind of real estate investor you want to be, do you want to invest in vacation rentals? Is your local area high cash flowing and you want to supplement your income right away? Are you willing to own further away for potentially higher gains? While you consider these questions, monitor your local real estate market (start with running real estate searches regularly), and see what stands out to you. Start playing around with a real estate investment analysis spreadsheet so you can see the tradeoffs and bottom lines of different investments.
5. Decide On A Team To Help You Invest In Real Estate
When it comes to real estate, you really should surround yourself with a great team. You may think “maybe I can save on commissions by buying straight from a seller!”, but what if your real estate agent could have negotiated the price even more, or shown you an off-market listing you couldn’t find that’s an even better investment? I not only put myself in my clients shoes and search as if I am searching for my own investment future, but I also offer to cover legal fees of the sale, cover appraisal fees for the mortgage, and can help you get started on your real estate investment journey the right way. By the way, those costs I cover turn into on average $1500+ in savings to you. Also, as a buyer, you should know both real estate agents get paid through the proceeds of the sale price, not in addition to the sale price (all commissions are disclosed to you at time of writing an offer).
Hopefully you found this guide a helpful starting point for your real estate investing journey! Stay tuned for future installments of this Guide To Investing In Real Estate. – James Goodwin