Here are some dos and don’ts to keep in mind if you’re planning to buy an investment property.
By Katrina Caruso
Would you take on a second mortgage if it meant generating income for your retirement? Given current interest rates, many people are choosing to invest in rental properties. The options are many: a second home, a condo, a duplex (you can rent out the floor you’re not occupying), or a vacation home or cottage that can be rented out when you’re not using it.
If you’re ready to take the plunge, here are some things to do—and things to avoid doing.
- Research, research, research. Doing your homework for a second property is just as important as it was for your first. Know the area, laws, and trends for rentals and sales. It’s important to consider the property’s accessibility and nearby amenities, which will be important depending on the kinds of tenants you hope to attract.
- Look for properties that are classics, or in up-and-coming areas. Properties that are close to the city’s downtown core, universities, and on the water, are timeless. Another consideration might be whether the neighbourhood is currently undergoing a renaissance.
- Learn about tenants’ rights and a landlord’s responsibilities in your area. Tenants have rights, and you’ll be legally bound to respect those rights.
- Consider the tax implications. Know what is and isn’t deductible (interest, tax, insurance, depreciation, and other expenses) and what’s taxable income; before you commit, be sure you understand how the move will affect your taxes.
- Don’t forget that you’ll be taking on work. There’s a level of involvement that comes with owning another property, and this can cost you in time and energy. It can benefit you if you can make minor repairs yourself. If you decide that it’s too much work, you can look hire a property manager, but that will cost you.
- Don’t ignore your monthly costs. Online mortgage calculators can help you to calculate what you’ll be spending each month on your property.
While not for everyone, investing in a second property can really pay off in the long run.