December 9, 2020
Real estate investing can be path to long term wealth. But make sure you set clear goals, follow the proper steps and surround yourself with experienced professionals.
Buying investment real estate in Edmonton, Alberta can be an excellent way to build long term wealth. While we’d all like to be at the point where we’re earning passive income quickly, it’s so important to get off on the right foot in the real estate investment business. Doing so can literally save you thousands of dollars and time in the long run. Read further to learn more about how to get started when buying investment real estate in Edmonton.
Lenders will certainly be reviewing your credit history and score. If they aren’t pleased with what that reveals, you could either be denied outright or be pre-approved for a loan, but with a painfully high interest rate as a penalty for your low credit score.
The reality is, improving your credit score will take time. So if you plan to invest in Edmonton real estate, be sure and get started today on mending your credit. Going forward, you’ll want to ensure your payments are timely because this has the greatest impact on your credit score. If you haven’t been diligent in this area, you’ll need to correct this. While there are no quick fixes, the more time that passes without a late payment, the better. Also, make sure to pay off your debt as quickly as possible, as you’ll want to maintain a reasonable debt to income ratio.
It’s imperative to take the necessary steps to build savings towards the down payment on your future investment. The larger the down payment you have, the more money you’ll save in interest costs over the long term. In addition to saving you interest, a higher down payment will also result in lower monthly mortgage payments. Just be aware that while an owner-occupied property has a lower threshold of entry at 5 percent down, typical financing of an investment property requires at least a 20 percent down payment.
Setting a budget for your future investment and taking all contingencies into consideration is another way to get started when investing in Edmonton real estate. You’ll need to ensure you aren’t buying more property than you can afford. So it’s important that you have realistic data for your monthly costs and income, and the profit you will realize on your investment dollar.
Remember to include amounts for taxes, routine maintenance, repairs, and management services if you aren’t going to be a full-time landlord of the property yourself. It’s wise to set aside 10 or even 20 percent of your rental income for emergency repairs and the like. That 20 percent high water mark will likely be too steep for most real estate investors, but the closer you get to that number, the less any surprises in terms of vacancy or repairs will take the wind out of your sails.
Want to avoid the heartbreak of discovering that the property you’ve fallen in-love with is more than you can afford on a monthly basis? Well once you’ve worked out your budget particulars, have your savings in hand, and are ready to buy, the next step is to arrange financing, before ever searching for your investment property.
Being pre-approved can also give you the upper hand when making an offer to buy. The home seller may select your offer over another would be purchaser who failed to get a pre-approval. But remember, there is a BIG DIFFERENCE between the pre-approval letter you get in the mail from your bank (their marketing department actually) and the approval you get when meeting with your personal banker and providing supporting documentation. The latter is an actual pre-approval and THAT is the one you need.
Understanding the possible types of investment real estate and the role you want to play in your investment business is helpful in getting started when investing in Edmonton. As Steven Covey wrote in The 7 Habits of Highly Effective People, “Begin with the end in mind.”
In the beginning, your entry into the property market will be focused on the acquisition of property. But you will need to consider your exit strategy as well. Sometimes the best time to sell is simply when its advantageous to do so. While some people believe changes occur unexpectedly in the economy, others feel there is a predictable cycle of seven or even eighteen years in the real estate market. Shorter term gyrations aside, it’s important to stick with the plan you crafted when you started your investment real estate journey.
If you plan on investing in real estate in the Edmonton area its important that you educate yourself and surround yourself with people who do this for a living; avoiding any mistakes early on in your journey is crucial. That is why forming a team of real estate professionals to support you is essential. Following this path will get you off to a great start.
Nathan Korownyk is an owner/operator of Sunrise Home Buyers. They are local real estate investors in the Edmonton area who specialize in acquiring off-market investment properties. They can be reached by clicking on the link above.