First Time Investors
Saturday May 13th, 2017Share
Hi, my name’s Andrea Gil and I’m going to show you some ways on how should a first-time investor get started.
I love helping my clients buy property in the Canadian market every year and today I’m going to talk about how should a first-time investor actually get started.
So first we need to talk about the different types of first time investors.
- We’ve got young people that are looking to just get started in the market and before they buy their own home they’re looking to buy an investment property.
- We’ve got people that are extremely well established that may have owned their own home for a period of time and have good equity in their own home.
- There’s people that have bought and sold their own homes over their lifetime and are looking to step out and make that investment decision now.
So regardless of where you find yourself personally at, I think you’ll get a huge amount of value out of this.
We’re going to talk about a few different things, and we need a clear understanding of what your financial situation is, before you decide whether to buy your first investment property or not.
Answer these questions honestly.
- Can you actually afford to buy a property?
- Do you have the equity in your own home or in another property that you own?
- Do you have the cash savings to actually be able to enter the market?
With lending institutions constantly changing in the Canadian marketplace and depending on the government intervention and the ever changing lending criteria, generally you need anywhere between a five and a twenty percent deposit as a minimum depending on which bank you actually move into the market with.
* If you don’t have a 5-20% deposit or equity in a property then that is the first thing that you need to do.
*The second thing is, will the banks actually lend you money?
If you bought a property, your own home, two, four, five, ten, fifteen years ago and you haven’t purchased or sold anything else since then; you have to be aware that the lending environment is constantly changing based different factors.
The banks will lend different amounts of money to different people at different times for example, sometimes the banks like to only lend to owner-occupiers, sometimes they like big deposits, sometimes they like smaller deposits and sometimes they won’t lend you money at all.
You need to talk to a mortgage broker or your bank manager and find out how much money is your bank willing to lend.
*Third and the one that most people overlook is: Can you actually afford to hold a property?
You’ve really got to take a step back and say “do I have a budget?”.
Based on today’s interest rates or your current situation you might be able to afford a property but can you afford the property if you lose a tenant for 10 weeks or if interest rates go back up to 5%.
Based on your current budget:
-Do you have a surplus amount of income coming in on a month-to-month basis?
-Do you have a little bit of a buffer or a savings buffer sitting there for a rainy day?
-Can you physically afford to hold on to that property and keep up with other financial commitments?
- Can you continue to have the current lifestyle, and still buy a property without any “side” effects?
* Fourth: Why are you investing in property?
Property is ultimately a vehicle for financial independence and it’s an easy vehicle that most Canadians have access to. Whether that something is time, financial independence, more meaningful relationships, better health, taking that time to travel and explore the world and do the things that actually give you a buzz, volunteer or to a start businesses.
* Fifth and most important: Design your strategy, know where you are going, if passive income and a future where you’re financially independent is what you’re working towards, then there’s two ways you’re going to get there: Through capital growth and Through cash flow.
*Sixth: Identifying the right market, the right suburb and the right product type that will help you achieve your goals.
So it’s really important to get that research right up front so that you give yourself the best possible option to succeed. You can’t control the global financial crisis, you can’t control the Canadian market, you can’t control a bust or a market bubble that may or may not happen.
What you can control is the quality of your research, the market that you target and making sure that the product that you buy is well below market value.