Great question! How much time have you got? 😉 If you plan to build a large property portfolio (more than 3 or 4 properties) you will want to talk with an experienced broker to make sure you’re positioning yourself properly from the start.
If you’re considering purchasing a second home, or having one or two rental properties, here are some things you should consider.
- cash flow: make sure you have enough money to be able to cover the mortgage payment, property taxes, utilities, maintenance, insurance, emergency repair, condo fees and alarm system for an additional property. If you are using rental income in your calculations, remember to take possible vacancy into consideration. Put yourself in a position to be able to handle all of the expenses of owning another property for at least 3 consecutive months without any rental income.
- capital: if you’re buying another property and you’re not selling your current home to get the down payment, you’ll need some cash to get the new house. In addition to the down payment, you’ll want to make sure you have enough for closing costs and immediate improvements to the property.
- location: think about how often you will be able to get to your other properties. Will you have to hire someone else to care for them or check in while you are away? Will it cost extra money to have tradespeople travel to fix issues, or will you have to wait for someone to be available to travel? (think vacation property out at the lake) If you’re looking at buying rental property, it can be tempting to purchase something very inexpensive so that the payments and the initial costs are relatively low. If a property is inexpensive, there’s usually a reason (or two) for the low price point. Consult a realtor who knows the area and has some experience with rental properties.
- tax implications: talk with your accountant to make sure you understand how income and deductions should be claimed on your tax return. Ask questions about ongoing rental income and expenses as well as what to expect when you sell the property in the future.
- your commitment level: consider how long you plan to stay in the same area, keep the same job or even how often you want to take a vacation. Are you committed to spending your weekends heading out to the cabin to make sure everything is looked after? Do you want to take care of another yard? Or are you willing to be available for renters who need a leaky tap fixed or a new key cut? Owning one house can take up a fair bit of time…make sure you are committed to the time and money it takes to care for more than one.