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Investing in Income property

Low interest rates have given more people an opportunity to get into the real estate market. For many people, the next step after buying their first residence is to consider buying an investment property. For most homeowners, the financial benefit is the appreciation of their property's value over time. Real estate also offers the opportunity to generate a positive income stream in excess of your operating expenses. Investing in an income property can be a profitable venture, but be sure you know your facts first.

Kelowna Real Estate - Income Property Investments

There are two primary strategies to consider when investing in an income property. You can choose to live in a part of the property yourself, while renting out another suite or apartments in the same building. Another option is to buy a separate unit, operated solely as an income generating property. Both of these can be very worthwhile ventures, but be aware that there are tax implications. Consult your accountant and taxation expert. When the time comes to re-sell your secondary property, any appreciation you gain over the original purchase price is subject to tax, although expenses for reasonable maintenance, repair and improvements can often be deducted before the gain is calculated.

Similarly, whether the income is earned from a portion of your principal residence or from a separate income property, any rental income you derive from your real estate holdings is generally subject to tax, less some of your operating expenses. As with any investment, planning is key to a successful income property.

Be sure that your first step in your planning is to thoroughly investigate and understand the income and taxation implications of each strategy, so consult your lawyer, financial advisor and accountant before entering into any commitment.

Once you understand how earnings are calculated and taxed, the next step is to prepare your cash flow plan. Since it's operating as an investment, your primary consideration should be the property's ability to generate a positive cash flow, i.e. the profit left to you after all operating expenses have been covered. Chris Cyca can help you by offering mortgage financing options, helping you find a suitable property manager and find what rents are being paid in the market, estimating operating expenses, and much more. Remember, the resale and the rental markets can be cyclical and can experience major fluctuations over time.

On the income side, your plan should include provision for times when your property may be vacant between renters as well as possible changes in the rents you may need to charge to attract tenants. On the expense side, you should have provision for increases in interest rates after your current mortgage term expires and also be prepared by starting a fund to cover repairs and other major expenses such as roof repair or furnace replacement when such large expenditures become necessary.

Once you have researched and decided that purchasing an investment property is for you, Chris Cyca will help you find a property that meets your needs, and get your investment started today.

Please contact Chris Cyca with your inquiries.

Related article: Loan Pre-approval vs. Loan Prequalification >>

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