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Rental Properties 101
Investment, or rental properties can be an intimidating topic. However, this article will hopefully shed some light on how easy and beneficial they can be; even if your savings account isn’t extensive.
First off, to establish some credibility – Choice Realty has decades of experience in commercial and residential investment properties. A few agents at Choice have personally been involved in rental properties for over 25 years. Over the years, we’ve helped clients from all situations and backgrounds; first time rental buyers to savvy investors looking to diversify their investment portfolio.
The two major benefits to owning a rental property is the tenant pays your mortgage, and Real Estate typically appreciates over time. In an ideal situation, the rent that is being generated every month will cover the mortgage payment that you have on the property, leaving you with no additional monthly payments. Appreciation will vary based on purchase price, neighbourhood, upkeep, and the strength of the local market. Historically, the appreciation rates in Winkler/Morden have been between 2-3%. (If you buy a $150,000 rental, after 5 years of appreciation at 2.5% per year it will be worth $169,700)
What are my options?
The most common form of rental properties is residential, however commercial investment properties are also an option. Houses, townhouses, condos, and apartments all have pros and cons but one of the biggest factors to consider is the age of the property. Older properties generate lower rent but because of the affordability, are easier to find renters for.
Newer properties are sometimes harder to find a good renter for but when they’re full, will generate more income for the property owner. Newer rentals also have substantially lower maintenance costs, and most are exempt from government rent controls (for more information on rent controls, please talk to one of the Choice agents).
How much money can I make?
Your Return on Investment or ROI can be impacted by various factors including purchase price, interest rates, size of downpayment, and the current rental market. That said, on an average rental townhouse after all expenses you can expect to have upwards of $25,000 net income after 5 years of ownership. With all the variables it’s hard to calculate exactly what your ROI would be, however any of the Choice agents would be happy to go over a few scenarios in further detail with you.
How do I own a rental with minimal savings?
One word – Equity. As you pay off your own mortgage you’re building up a valuable asset called equity. Equity is the money that you’ve paid off of the principle of your mortgage that can be used as leverage in place of a down payment when you purchase an additional property – the rental. Basically, the value of your home, less the amount you owe on your mortgage, equals the total amount of equity you have at your disposal.
Here is a list of current listings that would be ideal rental investments:
Investment properties are a complex topic. In hopes of keeping this blog post as simple as possible, we’ll be doing another post in the near future going into further detail on the benefits of this investment strategy. In the mean time, feel free to email any questions you have to email@example.com.