In recent years, more and more people have been turning to investment properties as a way of making some extra income or paying off their mortgages faster. Some are taking it even further and making their investment properties their primary source of income. It’s certainly an attractive prospect – with the right property manager you can earn entirely passive income, or only be as involved as you want to be. What’s more, if you buy a new construction home you won’t have to worry about things breaking down, and you’ll be able to get the highest prices for the rental units.

Despite the ease with which you can earn income, real estate investing also requires you to have a good amount of capital upfront, and you’ll also need to know what you’re doing (or hire people who do). Before you invest in new construction homes, you should ask yourself the following questions.

1. What’s Your Definition Of Success?
2. What’s Your Level Of Investment Experience?
3. How Long Have You Been Investing In Real Estate?
4. Do You Own Your Own Home?
5. Do You Own Real Estate Investment Property Already?
6. What Do You Know About Real Estate Investing?
7. How Much Time Are You Prepared To Put Into Your Investment?
8. Do You Have A Support Team For Investing?
9. Have You Been Approved For Financing?
10. How Much Capital Do You Have To Invest, And Where Is It Coming From?
11. What Kind Of Property Would You Like To Invest In?
12. Should I Invest Locally or Long-Distance?
13. Do You Have A Goal Of How Many Properties You’d Like To Own, And If So, How Many?
14. How Well Do You Know The Market You Want To Invest In?
15. Are There Areas You Feel Like You Need Support In?

What’s Your Definition Of Success?

One thing that’s very important to consider when you begin investing in real estate is: what are you hoping to achieve? Is your end goal simply to pay your mortgage off faster? Do you want to bring in extra cash to supplement your existing income? Do you want to be able to live off the passive income from your properties?

These things are important to consider because they can greatly affect what kinds of properties you might want to look at, how many homes you’ll need to buy, and how much initial money you’ll need to have available. 

If you’re just looking to supplement your income, for example, you might be happy with just a single property with one tenant that you can manage yourself. However, if you’re looking to live off passive income that might require several thousand dollars per month of cash coming in, you should look at owning multiple properties, which might also call for a property manager to help you cope.

What’s Your Level Of Investment Experience?

Experienced investors probably already have a process in place when it comes to selecting properties. We’ll follow your lead and help you find the properties that are right for you.

New construction homes are great options for those who don’t have a lot of experience. There are a lot of different styles to choose from, and many of those styles are likely to attract families, who tend to stay in their rental units long-term. This eases any worries you might have about finding tenants. You also won’t have to worry about fixing the place up before you can rent it. Everything’s ready to go.

How Long Have You Been Investing In Real Estate?

If you’ve been investing in real estate for a long time, you probably already know what type of rental unit you prefer, how to find a “hot” neighbourhood, and what type of client you want to focus on. All you need to do is check out the styles of homes we offer and tour the communities to get started.

Those who are just starting out may feel a little overwhelmed by the process. If that’s the case, you’d probably appreciate a bit more guidance. We can explain all of your options and help you select properties that will meet your investment goals. We make it easy for you to get started in investing.

Do You Own Your Own Home?

Owning your own home offers some advantages. You may be able to use the equity in your current home as a down payment on your rental properties. This makes it a lot easier to get over that first hurdle of a down payment.

Additionally, a lot of people start their investment journey by renting out an in-law or above-garage suite that’s part of their personal home. You could renovate your current place to include this feature. Or, if you’ve been thinking about buying a family home for yourself, we can show you how you can include an income suite without adding a lot to the overall cost of the new home. Once you have a tenant, you’ll be able to significantly reduce your monthly mortgage payment, and you’ll get a taste of what it’s like to be a real estate investor.

Do You Own Real Estate Investment Property Already?

If so, you already know that it can be a profitable venture. Think carefully about whether you’re looking to diversify your home styles or to stick with what’s already working. Many investors prefer to keep the same style of rental unit because property management companies tend to specialize in a certain style, and sticking to what you know is a safer choice. However, it’s also exciting to branch out into different styles to see if there’s something even more profitable. No matter what you choose, we can offer you the support you need.

What Do You Know About Real Estate Investing?

Knowledge is power. If you’re new to investing, it’s smart to take some type of course that will teach you everything you need to know about investing in real estate. It’s a complicated process, and you need to know about your rights and responsibilities, along with all of the financial details, such as how much you’ll need for the down payment and how much you’ll have to set aside for taxes. Once you have this background knowledge, we can help you delve deeper into the specifics.

How Much Time Are You Prepared To Put Into Your Investment?

One of the more appealing things about real estate investing is that you can be flexible with the amount of time you spend working at it, although of course that comes with a trade-off. If your investments are going to be your main source of income and you have the time and knowledge to perform maintenance and upkeep on your property, you can maximize your income by managing the property yourself.

If you’re already working full-time and are too busy to work on your property, if you’re retired or if you just prefer to be hands-off and enjoy the passive income your investment will bring, you can hire a property manager to take care of things for you. This will lower your cash-flow, however, as you’ll need to pay them, usually as a percentage of the property’s income. Be aware that you’ll also need to pay for any repairs, replacement appliances and so on even if you’re not doing the maintenance yourself, so make sure you always have enough cash in reserve to cover unexpected costs.

Do You Have A Support Team For Investing?

Most people prefer to have a competent team working with them. This is especially true for those who are just getting started. You need a go-to person for each facet of your real estate business. The people you should have on your real estate investing team include a mortgage professional, a lawyer, and a property management company. Of course, different people have different needs. For instance, some people want to be hands-on, and they don’t need to hire a property management company for things like marketing the property and collecting rent, but they need a trusted plumber or handyman to take care of the little repairs that pop up. Think about what you want and build a team that’s right for you. 

Have You Been Approved For Financing?

In most cases, you need at least 20 percent of the cost of the property for a down payment on an investment property. Lenders can also be wary of approving you if you already have several mortgages on different properties. Before you get too far into the sales process, you want to get pre-approved for financing. You don’t want to spend a lot of time getting ready to buy a property, only to have the bank turn down your application.

How Much Capital Do You Have To Invest, And Where Is It Coming From?

The more capital you have, the more options you have available. For instance, if you have a lot of available capital, you might be able to invest in an entire row of townhomes. Having several properties close together like this makes them easier to manage. Those with less to invest can still do well by purchasing something like a single-family home with a basement unit. As you earn income from this first property, you could save up those profits to invest in your next property.

What Kind Of Property Would You Like To Invest In?

At Sterling, we build laned homes, front-attached homes, duplexes, and townhomes. Each has unique advantages when it comes to investing. Think about what type of tenant you’re hoping to attract, and go from there. For instance, townhomes tend to appeal to young professionals and retirees, while detached homes are preferred by families. As you think about the type of property you might want, remember to look at potential cash flow from those properties as well as the amount of down payment required for the purchase.

Should You Invest Locally or Long-Distance?

Real estate markets are constantly shifting, and if you know what to look for you can potentially make a lot of money by identifying a new hot area before it’s popular. This can come with its own set of issues as well, though. When you invest locally, you have the advantage of being able to drive past your property to see how it’s doing, and you can be on-site almost immediately to resolve any issues.

While long-distance investing can pay off hugely if done well, you’ll also have to be prepared to hire people to manage it for you, and might have to deal with issues arising and unusual times, especially if your property is in a different time zone. If you’re prepared to deal with these issues though, the rewards can be worth it in the end.  

Do You Have A Goal Of How Many Properties You’d Like To Own, And If So, How Many?

Naturally, the more properties you own, the more money you can make. Many investors find it best to think about how much they want to earn each month, then work backwards to decide how many properties to invest in. For instance, if you want $10,000 a month in income, and each property could bring in $1,000, you’ll want 10 properties. Don’t forget to factor in your expenses. Few people start out with buying 10 properties at once. You start small and then work your way up by investing your earnings into additional properties until you’ve reached your goal.

How Well Do You Know The Market You Want To Invest In?

Local people tend to have an easier time investing in a particular market because they understand the area. They know what types of homes people are looking for and which areas they want to live in. However, you can still invest long distance if you have a team in the area. We can help long-distance investors get set up.

Are There Areas You Feel Like You Need Support In?

Help is available to those who need it. Whether you need some help with choosing a property, figuring out the financing, or understanding what your responsibilities will be, there’s an experienced professional who can offer advice. All you need to do is ask.

Investing in real estate is easier than you think. If you’ve got the capital for a down payment, you could be well on your way to earning investment income.

Originally published Oct 11, 2019, updated Oct 6, 2020

Photo credits: depositphotos.com