Buying rental property can be a great way to invest for the long term and generate monthly income.

Like any investment, research the pros and cons before making any decision and be clear on what your goals and risk appetite for owning rental property are. Here are some key questions and tips to keep in mind as you contemplate making a purchase.

Is it a good time for you to buy property?

Assess your current financial situation to see if buying investment property makes sense for you now. A few questions to consider:

  • Can you make a sizable purchase like real estate and still cover your existing financial obligations?
  • Is your credit in good standing?
  • Do you have the minimum 20% down payment you’ll need to secure financing?
  • Have you factored closing costs into your expenses?
  • If any repairs are needed to a property before it’s rentable, do you have the money to pay for those repairs and the costs to carry the mortgage until you’re able to rent it?
  • If you have a primary residence, could it be used as a potential financing source? (You may be able to borrow up to 80% of your current home’s value to help pay for a rental property.)

Tips to help with your search

As you identify potential properties, here are some additional considerations to guide your search:

What kind of property do you want?

  • Most, first-time investment property buyers tend to start with condos and single-family homes, however multiplex units are generally more likely to be cashflow positive
  • With property, bigger is not always better because it likely means more taxes and more space to maintain — and the incremental rental income you’ll receive may not cover your additional expenses.

What is an ideal location?

  • To attract high quality tenants, look for a property close to schools, hospitals, public transportation, businesses, retail, etc.
  • Focus on neighbourhoods where demand for rental properties is strong and expected to remain so for the immediate future.

How is the local rental/job market?

  • The number of rental properties for sale in a neighbourhood can impact the price you’ll pay.
  • A healthy and growing job market will likely spur demand for housing and may result in rising rental income.
  • A growing area with major improvement projects planned (like a mixed-use retail residential development, subway stop or health clinic) could make the location more attractive to potential renters.

Does a purchase make financial sense?

  • Investing in rental property should be considered a long-term investment that helps build capital.
  • Consider whether your real estate investment has the potential to provide a better return when compared with other investments.

Get the advice of experts

  • Assemble a team of professionals to advise you on real estate, legal, tax and financial decisions. Getting the right advice upfront could save you money in the long run.
  • Because buying rental property will be an investment, consider including an investment advisor on your team as any property you buy will impact your asset mix and overall portfolio.

Once you find the right rental property, consult an investor mortgage specialist to discuss your financing options.