It’s a sad but stark reality: when buying real estate, far too many Canadians fail to take the basic precautions or perform standard due diligence prior to submitting an offer. Instead of running the numbers, comparing mortgage rates, and consulting with a professional mortgage broker, home hunters are simply throwing caution to the wind and diving into the housing market head first. This approach is crazy – real estate is typically the largest and riskiest asset someone could ever buy. The housing crisis of the past few years has certainly showed us how problematic and unpredictable investing in real estate can be.
Unfortunately, this dangerous investing trend will only continue until Canadians take the time to better educate themselves on the real estate process, mortgage rules, and the investment risks. So, how can we change the tides and improve the future of real estate investing? The answer is actually quite simple – proper preparation. The due diligence involved in making a smart home purchase isn’t complicated, however it can be quite time consuming. As a potential homeowner, it’s important that you realize the importance of putting in the time and effort to properly prepare. Failure to put in the time could leave you open to risk.
There is No Such Thing as “Risk-Free” Real Estate
Before we continue it’s important to note that there is no such thing as risk-free real estate. Even the most diligent of homebuyers can (and do) lose money on some real estate deals. There’s always an element of the unknown or the unanticipated in real estate. However, those who take the time to research, prepare, and mitigate risk can greatly increase their chances of avoiding major financial losses.
How to Prepare for a Property Purchase
1) Understand the purchase process.
It’s important that you review the purchase contract early on in the buying process – you don’t want to feel rushed to commit to a purchase before you’ve reviewed this document in its entirety. Pay close attention to contingencies, appraisals, mortgage financing, and when your earnest money (the first deposit you make when placing an offer) becomes “at risk.”
2) Review the cashflow.
Investment properties are only a smart choice if they have the potential to make money. If you’re considering purchasing a rental home, make sure you stop and review the financials first. The rental income on your property needs to be enough to cover all expenses, including your mortgage.
3) Will buying help with your taxes?
There are some tax benefits to owning real estate. Then again, there are also some major disadvantages. Talk to your mortgage broker and financial investor about taxable issues.
4) Don’t forget about fees.
From inspections to insurance, investing in real estate is an expensive gamble. If you’re purchasing a condo or a home in a gated community, don’t forget to consider homeowners association finances, operations, and litigation fees. These costs come with the territory – just make sure you’re aware of them all before you get started.
There are many more things to consider before investing in real estate. Each person’s unique situation will dictate which areas are of more importance, For help understanding your unique situation, contact a knowledgable financial advisor and experienced mortgage broker. Together you’ll be abe to create a top-notch investment plan that protects you from risk and improves your chances of success.