Thinking about buying your first investment property but feeling overwhelmed? You’re not alone! Investing in real estate is a big step, but it’s also one of the best long-term wealth building tactics out there. Whether you’re looking for passive income, financial freedom, or a way to secure your future, this guide will walk you through the step-by-step process to get you started on your investment journey before you can say first rental property! Without further adieu, let’s get this show on the road! For a more in-depth guide, check out my free eBook, How to Buy Your First Investment Property here.
Setting Yourself Up for Success
Before jumping into the market, it’s necessary to have a solid foundation. Here’s what you need to do:
- Set Clear Goals: Do you want steady rental income, long-term appreciation, mortgage paydown or all three? that will determine where you can buy based on returns on investment available in each area.
- Check Your Finances: Know your credit score, debt-to-income ratio, and how much you can afford. Speak with a lender or mortgage broker and get pre-approved so you’ll know what price range to look in.
- Assess Your Comfort Level: Real estate involves risk—decide whether you’re comfortable being hands-on or prefer a more passive approach. If you’d prefer to be more passive you can look into doing a joint venture with a partner who will do the work if you supply the capital – just be sure to vet the potential partner beforehand and ask for references of other money partners they’ve worked with in the past.
💡 Tip: Women looking to invest should explore financial literacy programs and mentorship groups tailored to real estate for women for extra guidance and support. More on this in my article on Why its a good idea for Canadians to own real estate here.
Choosing the Right Investment Strategy
For better or worse, there’s no one-size-fits-all approach to beginner real estate investing so you’ll have to find out what will work best for you. Here are some common strategies to get your creative juices flowing:
- Buy & Hold: Rent out a property for long-term cash flow and value appreciation. This is typically where most first-time investors start and can be combined the House Hacking method (below).
- Fix & Flip: Buy properties at a discount, renovate, and sell for profit. This is usually more complicated so isn’t recommended for your first property unless you are in the construction industry or can partner with someone who is to help keep costs low.
- Short-Term Rentals (Airbnb): Earn higher rental income from vacation or short-term tenants. Check your local laws to ensure this is possible in the area where you’re planning to invest. New government regulations can thwart your plans overnight like they did to many investors in BC recently.
- House Hacking: Live in one unit while renting out the others to help cover mortgage costs. This is how I got started. I bought a 2-bed, 2-bath condo and rented out the second bedroom as a mortgage helper. In less expensive areas buying a large home and renting out rooms or buying anything up to a 4-plex can be helpful to lower your costs by renting out the units. To start I’d suggest maxing out at a 4-plex if you have the means as a 5-plex and up is considered commercial property and requires more steps and due diligence to get a mortgage.
Think about what fits your lifestyle and financial goals best and decide from there.
💡 Tip: If you’re considering short-term rentals, research local regulations to make sure they’re allowed.
Finding the Perfect Property Without the Mistakes
Not every property makes a great investment. Beware of the wolfs in sheep’s clothing. Here’s what to look for:
- Best Types for Beginners: Condos, Single-family homes, duplexes, or small multi-family buildings depending on your budget.
- Location, Location, Location: Focus on areas with job growth, strong rental demand, and low vacancies. If there are large government or infrastructure projects going on in the area as well, even better!
- Avoid These Red Flags: Properties needing major repairs, in bad neighborhoods, or with hidden maintenance costs. Always get an inspection and put a clause to the effect of “Subject to the buying obtaining and approving an inspection” in your offer.
How to Finance Your First Property
Don’t let financing scare you! Here are some options to consider:
- Traditional Mortgages: Best for those with solid credit and steady income. You can chat with a mortgage broker who can shop around for the best mortgage for you and you can also chat with your current bank as they already have some of the info they’ll need from you.
- CMHC Mortgage Default Insurance: Great for first-time buyers with lower down payment requirements. With a CMHC or other default insurance (there are 3 lenders who offer it in Canada) you can put as little as 5% down and they cover up to the other 15% of your down payment. The more you put down, the lower the rate you’ll be charged on the default insurance on a sliding scale, but its great for getting your foot in the door – figuratively and literally! 😂
- Creative Financing: Explore seller financing, also known as a vender take-back loan, lease options also know as rent-to-own, or partnering with other investors which is considered a real estate joint venture.
💡 Tip: Women investors should check out grants, lender incentives, and networking groups focused on real estate for women, example: WREN Club and more.
Buying Your First Investment Property: Step-by-Step
Ok, so now that you’ve got all the background info, lets get down to the nitty gritty details. Once you’ve found the right investment property for you, here are the steps to locking up the deal:
- Get Pre-Approved by a lender: Know your budget before you start shopping. Ask around, lenders offer different mortgage types so be sure the buy the one that’s most geared towards your 5 and 10 year plans.
- Work with an Experienced Realtor: Find one who understands beginner real estate investing. don’t be afraid to shop around. You’ll be working with them for several months so make sure you like their style and fell confident they can help you. Interview several asking them about their communication style, how best to work with them, let them know how often you’d like to be contacted with updates, let them know the parameters of what you’re looking for, ask them for feedback as to whether your asks are too broad or narrow, as in realistic or unrealistic and definitely ask them for references of clients they’ve worked with in the past as this will allow you to gage if they’re the right fit.
- Do Your Research and Due Diligence: Inspections and appraisals are absolutely necessary to avoiding costly mistakes. The lender will hire the appraiser and most likely charge you for it (approx. $400) and inspectors (approx. $500 or more) are a non-negotiable in my opinion because they can help you steer clear of problem-laden properties including mold, broken-foundation, covered up leaks/fires, etc.
- Negotiate and Close the Deal: Congrats! Finalize the purchase with the terms that you negotiate with the seller and get ready to start managing your property. If you’re moving in and renting out the second bedroom, get ready to start the process of finding a roommate. Woo hoo!
For more information, download my free eBook: How to Buy Your First Investment Property here.
Managing Your New Rental Property
Phew! 😁 Now that you’re a property owner, here’s how to keep things running smoothly:
- Self-Manage or Hire a Property Manager? Decide if you want to handle tenants and maintenance or outsource it. I’ve done both and it’s good to manage your own first to get a sense of what’s involved as well as to save money, but it is far nicer to have someone else manage and take phone calls about problems that need solving even though it will run you about 10-12% of the monthly rent.
- Screen Tenants Carefully: Check rental history, credit, and employment to ensure reliable renters. You can check out the Government’s Residential Tenancy Branch site for laws, tips and tools and also check out local landlord-helping companies like tenantverification.ca and Landlord BC.
- Set the Right Rent: Research market rates on Craigslist, Facebook Marketplace, Padmapper.com, zumper.com and similar rental sites to find out the maximum rent you can charge while staying competitive.
Putting it All Together
As you can see, buying your first investment property can be life-changing but also requires a bit of upfront and ongoing work. The key is to start small, continue to learn as you go, speak with investors who are currently winning in the market you want to invest in and build your empire thoughtfully. By following this guide, you’ll be well on your way to purchasing your first rental property and securing your financial future. Whether your goal is to generate passive income, achieve financial independence, or to create long-term security for your family, property ownership is a powerful wealth-building tool.
So, what’s holding you back? Take that first step today! 🚀 Please reach out if you have questions, I’m always happy to help!
