Here's how purchasing 1 investment property could help you achieve your financial objectives
Whether you want to pay off your home sooner or prepare for your children's future, here's an example of how purchasing just 1 investment property could help you reach your objectives.
Let’s say you purchase a duplex for $600,000 with a $180,000 down payment and a $420,000 mortgage at a 5% fixed rate for a 5-year term. With estimated monthly expenses of $3,086 (including monthly mortgage payment, property tax, insurance, and snow removal) and rental income of $3,300, you can expect a debt pay-down of almost $50,000 in 5 years. With an assumed 5% appreciation of the property value, your investment could be worth $765,768.94 after 5 years, resulting in a profit of $165,768.94 and equity of almost $215,000.
That's a lot of money
This is just an example and the numbers may vary depending on the area you choose to invest in.
Also, in some areas, investing in a property for short-term rental purposes, such as through Air BnB, can also be a viable option to increase your return on investment. With a monthly rental income of $4,562.50 from an estimated 50% annual occupancy rate and a nightly rate of $150, you can see the potential for additional income.
This example also doesn’t account for rates going down over time, or rental income going up, both of which could happen.
Investing in real estate can be a smart financial decision, but it's important to do your research and carefully consider all factors before making a decision. Start taking control of your financial future. Speak to professionals like us and see what’s possible for you.
There are different property types to consider when investing; Condos, townhomes, semi’s, detached homes, duplexes, triplex, multi unit, short term rentals, student rentals and so on. Each criteria has pros and cons.
When reviewing an investment property you want to think about income versus expenses. Your Realtor and Mortgage professionals can help you. It is important to find out what you qualify for and at what interest rate, and your down payment is an important factor. With investment properties a minimum of 20% down is required. If the owner is occupying one of the units a lower down payment (5-10%) is possible.
Here are some example of expenses to consider for your rental property:
Snow removal for multiunit properties
Condo fees if applicable
These are the basic costs to consider that you can compare to the projected or actual rental income to see if the numbers make sense. Also consider your goals as an investor; some investors are looking at the long term benefits of price appreciation, and some investors may be seeking cash flow. Where you are looking to invest will also factor in. If you can’t find cash flow where you live, maybe there are places within 60km where prices are lower and rental income is still high. Maybe different provinces could be an option. Some people buy bungalows, and convert them to duplexes for more rental income and price appreciation. This is not for everyone though and you must weigh how much time and effort you are willing to commit to this process to help you determine the best approach for you.
Other potential expenses:
Property management (approx 5-10% of monthly rent)
Vacancies and bad debts
Property Maintenance is also something to budget for (Roof, furnace replacements over time, repairs etc.)
Heat, hydro, water (Tenants often pay for heat and hydro). Tenants might also be charged for parking in some instances, and coin operated laundry (but not always).