Buying an investment property in Windsor Ontario, is the best strategy for generating income and establishing your net worth. Nonetheless, it comes with risks as well. Before jumping into owning a rental property, understand the different factors to help you weigh the pros and cons of investing in the real estate and local Windsor housing market.
Check out our tips for buying an investment property in Windsor, Ontario and other Canadian cities to decide whether buying one is your ideal financial move.
Choose the Neighbourhood Wisely
You probably pick the nicest neighbourhood in major cities you could afford when looking for your primary residence. The issue with applying that logic to your search for a rental or commercial property is that costlier single-family homes will cost more to insure and maintain.
As an alternative, property management experts suggest searching for cheaper properties for sale in modest neighbourhoods. Furthermore, when selecting a neighbourhood, always look for one that:
- is located near amenities like highly-rated schools and necessities
- has very few vacant properties
- has a relatively low crime rate
- isn’t governed by a homeowner’s association (restrictions and fees will decimate your profit margins)
- has a high percentage of employment (anything below fifty percent is low)
Consider Financing Early
Remember that Canadian banks are conservative when issuing mortgages for rentals or investment property in Windsor. You will like to consider financing early on to account for the chance that getting your mortgage approved will not be as simple as it was for your main residence. Prime lenders want to see that you can make mortgage payments on your investment property and primary residence.
More importantly, they will want you to have that capability to make the payments, even without the rental income of your investment property. After all, your property might not be 100% rented at all times. Lenders also wish to ensure the vacancy will not leave you unable to make the payments, so lenders will be looking at your collateral and current cash flow equity.
Moreover, you will need a strong credit history to qualify for a mortgage on an investment property. Honestly, those first-time buyers in real estate investment do not meet those strict criteria. That makes obtaining a loan from one of Canada’s big five banks nearly impossible.
Consider applying for a home equality loan, especially if you have a significant portion of your main residence paid off.
Understand your Legal Obligations as the Landlord
Many Canadian provinces have strict tenant protection laws, which can influence your profitability. For instance, evicting a tenant in Ontario involves a long process, even if the renter is not paying.
Familiarize yourself with property maintenance. If an appliance malfunctions, you must pay for a replacement or repairs. In most Canadian provinces, such as Ontario, that applies even when you state otherwise in the lease agreement.
Work with a Property Management Company or Real Estate Professional
If your job or other duties are demanding, partnering with a property management company or mortgage broker that can support purchasing the perfect investment property and giving you legal advice would be smart. These companies deal with a broad spectrum of things for you, such as:
- maintaining records
- addressing maintenance issues
- collecting rent
But, of course, that comes at an additional cost to you. You can expect to pay at least 5-10% of your rental income to these companies.
Watch out for Fixer-Uppers
Be aware of those fixer-upper properties, particularly if you are a beginner at investing. These fixer-upper properties could be a great deal on price, but some could have repairs snowball and cost you more.
As an alternative, it will help if you look for properties with only minor cosmetic defects. Most homes for rent in Windsor region are passed over because they aren’t aesthetically pleasing. That is your chance to find a good deal on a home that could be an excellent housing investment.
Consider your Investment Property Expenses & Returns
Before buying an investment property in Windsor Ontario, you’ll want to compute your operating expenses and rate of return. Remember that your operating expenses involve property taxes, mortgage insurance, and maintenance.
Your annual return is how much you received over the year minus the operating expenses. To compute your ROI, you can divide the annual return by the overall amount you paid for the investment, repairs, etc. A great investment property will bring in approximately a six percent return. At Maximum Property Solutions we help you stay on top of expenses and report both monthly and annually on your profitability.
Manage your debt before buying a property
Would you like to boost your chances of getting a decent mortgage with an affordable interest rate? Make sure you take care of your debt first. Particularly, you must address whether your debt-to-income ratio exceeds the 36% mark (or close).
Fortunately, you can approach this in numerous ways, such as getting a debt consolidation loan.
Select an appropriate mortgage solution
The purchase price for your investment property is just the start. Remember that you are not buying your main residence, even though these two have some similarities.
Lenders often expect a down payment of about twenty percent of the property value. Even though you’re buying a rental property, you must keep the mortgage payments and interest in line with what you could expect regarding monthly rent payments while keeping your other expenses in mind.
Consider getting mortgage insurance
You will need numerous insurance types in place for all your rental properties. Any rental property should have a homeowners insurance policy to safeguard the property, although you have tenants residing in it.
On top of that, you’ll need landlord insurance for the investment property. That kind of insurance paid for property damage and lost rental income. It also offers liability protection that will be required if the tenant or their guest experiences any injury because of issues with maintaining the property.
Finally, real estate valuations increase over the long haul. However, do not discount the probability of short-term turmoil. You can easily mitigate the effect of that turmoil by perceiving your real estate investment as a long-term play.
Simply put, the longer you own the property, the more likely you will benefit from positive trends in the real estate market. As a rule of thumb, properties in Ontario won’t get any cheaper as the nation’s population continues to increase. Buying an investment property in Windsor, Ontario, is a big move for new property owners. Before you do anything, do all the math to ensure you can earn enough cash flow and receive a monthly profit. Maximum Property Solutions is here to help you on your investment journey.
There are many things that property hunters need to keep in mind when entering the real estate market, from real estate prices, demand for housing, mortgage rate, closing costs, and many more. Take the time to dig into the buying process and look at the perfect investment property. Ultimately, you’ll find that entering the world of the real estate market and housing investments is one of the wisest things you can do for your investment portfolio long-term.