3 Ways to Make Money with an Investment Property

Dated: November 3 2022

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3 Ways to Make Money with an Investment Property

An investment property can provide a stable source of income. Here’s how it can be lucrative for you.

1. Property Appreciation

Appreciation means an increase in the property’s value when you sell compared to its purchase price. It’s one of the most common ways that real estate offers a profit. Things such as the location, improvements to the property, market conditions and inflation play a big role in the asset’s value over time.

As we all know, the current economic status has changed since the Spring. The average home price has drastically decreased. Although the interest rates are high today, they are expected to decline in the next year or two.

Even if you may make little profit, break even, or have a negative cash flow outcome today with your investment, the lower acquisition cost of today’s market value will have a better long-term return on investment. The profit will come from a higher appreciation throughout the years.

2. Cash Flow

Another way that real estate generates profit is by providing regular income from rent payments. Rents will typically continue to grow faster than expenses due mainly to the fact that your mortgage will be related to the initial acquisition cost.

3. Mortgage Repayment

Finally, the beautiful thing about an investment property is that the rent you collect from your tenants allows you to pay down the mortgage. While this is happening, you are creating equity that can be used to finance another income property or other projects you may have.

What Else to Keep in Mind

Like any investment, a rental property comes with benefits and challenges. Here are a few other things to explore when thinking about purchasing real estate for investment purposes.

Maintenance and Upkeep Costs

IThese are a mix of fix, recurring and unplanned costs. The type of property you purchase will have a major influence on them. For example, older and less maintained homes will result in higher upkeep costs and produce more headaches.

Property Management

Rental property owners can manage the property themselves or hire a property manager. These types of managers can provide services such as arranging maintenance and repair work, screening new tenants, handling rent payments, serving tenant notices, etc. .

Landlord and Tenant Laws

Tenants and landlords have rights and obligations. Rental property owners need to know the landlord-tenant laws in their province and municipality regarding security deposits, lease agreements, rental insurance, eviction rules, etc.

Location

It’s important to understand the local economy of the area where you plan to buy your investment property. Think about the population, the labour market situation, the schools, and the vacancy rates. Even though buying a rental property in a specific area could be more expensive, it could also be less risky if it offers a low vacancy rate. On the other hand, some locations may provide a high cash flow, but they also may appreciate at a lower percentage than other locations.

Tenant Profile

Tenants are a major part of your investment property. Finding the right people is critical. Make sure you understand the tenant profile in the area where you wish to purchase as it differs from one location to another. What is their age? Their income? Their household size? Where do they work? Better tenant profiles will pay their rent on time and treat the property with more care, for example.

Want to talk more about investment properties? Schedule a free consultation with one of our agents.

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613-707-5146

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