Everyone has different goals and dreams in life, but most of us have one thing in common. Nearly everyone craves greater financial success and security. Investing in real estate is one of the best vehicles to help you achieve those goals. Guelph, in particular, offers plenty of viable opportunities because of its proximity to the university and the volume of people searching for homes to rent.

However, buying a rental property can be an intimidating venture, no matter how savvy you are as an investor. Consciously, you can be aware that it’s one of the safest and most profitable ways to grow your portfolio and build your net worth. 

However, there’s still a lot to remember, and your attention to the small details can determine how successful you become. That’s why we’ve put together this comprehensive guide to walk you step by step through the investment process. We’ll cover everything from how to know if you’re ready to get started and financing your venture to minimizing your risk and different investment techniques. Whether this is your first time investing or you’ve been through it many times before, having a roadmap can help you stay on track for an enjoyable, prosperous adventure.

Preparation is Key

The first big question many people ask is, “Am I ready?” Feeling insecure or unprepared is one of the toughest obstacles all potential investors need to overcome. How do you get past this seemingly insurmountable hurdle? 

The truth is no one ever truly feels ready. Investing in real estate is a massive undertaking, and it’s normal and acceptable to feel nervous about your decision. The trick isn’t to wait until the timing “feels” right but to take concrete steps now to be prepared. You can begin by taking stock of your resources and educating yourself to the best of your ability. And remember to obtain expert guidance every step of the way!

The Many Benefits of Investing in Real Estate

Many people are starting to open their eyes to the benefits and possibilities of real estate investing. Property values have exploded in value over the last few years. Though prices lulled in early 2022, all signs point to the market rebounding. The growing population and pent-up demand mean real estate prices have nowhere to go but up. As a long-term investment vehicle, you will benefit by getting in sooner rather than later. These are a few of the advantages you can expect to enjoy:

• Growing your equity. Your equity is the difference between what you owe and the value of your assets. As you pay down your mortgage, your debt becomes smaller, and your net worth grows. However, your biggest gain happens as the value of your property appreciates over time.
• Generating passive income. The idea behind owning an income property is that you no longer work for money. Instead, you put your money to work for you in the form of rental income that flows automatically month after month.
• A safe and profitable investment tool. No investment is entirely without risk. However, since property values always tend to rise over time, real estate is one of the safest ways to protect and grow your wealth. That’s especially comforting after the cryptocurrency fiasco we saw in late 2022!

Preparing to Invest Successfully

Buying an investment property can be more complex than purchasing your primary residence. The best way to set yourself up for success is to do in-depth research to know what to expect and what resources you have. 

Obtaining Your Financing

Not many people are lucky enough to have enough liquid cash to buy an investment property outright. This means you will end up financing the bulk of your investments. 

When buying a home to live in, you can get away with a lower down payment if the home costs less than $1 million. However, Canadian law requires that you have at least 20% upfront for all income and investment properties unless you plan to live in one of the units. 

For example, if you want to buy a $500,000 condo to rent out, you need a $100,000 down payment. These funds can come from your non-registered savings accounts but not your RRSPs. First-time buyer programs like the Home Buyer’s Plan only apply to a primary residence, not a rental property. Alternatively, you can apply for a second mortgage or home equity loan if you own an existing property.

One of the best steps you can take to prepare yourself as an investor is to visit your bank or mortgage broker to discuss your options. Your lending officer will likely recommend getting a pre-approval in advance. There are three significant advantages to doing so:

1. It helps you determine your budget for your income property by showing you how much financing you are likely to qualify for.
2. Once you know how much you can borrow, you can do a cash/expense analysis on potential properties to obtain the most financially lucrative option.
3. Being pre-approved is a powerful negotiation tool that can help you move quickly should you find the right opportunity.

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Knowing the market is critical when investing in real estate. But what about the timing? The following articles will help you succeed no matter what the market is doing:

• Growing Your Wealth Through Real Estate Even in a Recession
• Can You Time the Market and Win Big?
• Could Buying During A Recession Be A Genius Investment?

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Creating Your Success Team

In most aspects of life, success is a team effort, and this is especially true in real estate investing. The more qualified experts working on your behalf, the easier it will be to avoid costly mistakes and obtain a financially viable rental unit. Here are a few professionals you will want to have in your network:

• Real estate agent–Your first action step should be to find a local real estate team with extensive experience working with investors. They can help you discover undervalued hidden gems that represent fantastic opportunities for investors at your level. In addition, they can help you connect with any other professional you will need access to, even if you have no network of your own.
• Mortgage broker–Real estate financing and mortgages can seem overly complex and may even scare away many would-be investors. But having a mortgage broker in your network means a financial expert is available to answer your questions. And unlike a bank, a mortgage broker helps you get the best rate possible.
• Contractors–Finding a “perfect” property can be difficult and sometimes impossible. However, a team of qualified contractors can make the renovations and updates required to make your property as appealing as possible to tenants.
• Real estate lawyer–All real estate contracts are legally binding. The terms, clauses, conditions, and contracts can be indecipherable to a layperson. A good real estate lawyer will ensure you understand what you are signing up for.
• Property manager–Being a landlord is challenging, but a property manager can take nearly all of the weight off your shoulders and make your investment virtually stress-free.

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Your team of professionals can make or break your success. Check out the articles below to ensure you choose the right experts to help achieve the results you want:

• How An Experienced Guelph Real Estate Team Can Help With Your Investments
• Questions To Ask Potential Property Management Firms
• How to Choose the Right Mortgage Broker

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The Property Ladder Explained

If you’ve done your homework so far, you’ve assessed your resources, and you know that you are prepared to invest in real estate. You’ve also assembled your team of experts who will work tirelessly by your side to help you prosper. But before you take the next step, there’s one more concept you should understand. It’s time to talk about the “Property Ladder.”

This term is common among real estate investors. Think of the number of properties you own as rungs on a ladder. If you’re currently renting, you aren’t on the ladder at all. If you buy a home as your primary residence, you’ve achieved a spot on the first rung. Even now, you’re growing your equity and increasing your purchasing power.

Adding a second property as a rental unit moves you further up the ladder. The more properties you own, the more passive income you generate, and you become even more financially sound. Owning multiple investment properties puts you firmly at (or near) the top of the property ladder.

As with many aspects of life, the first step is often the hardest. Once you secure your first income unit, the next becomes much more accessible. You’ve gained an understanding of the process and have learned from all previous experiences. Once you have a foothold on the property ladder, you may be motivated to climb even further!

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Once you’ve decided to invest, the next step is to choose a location. Here are some ideas to consider:

• Five Best Cities in Ontario to Buy Recession-Proof Investment Properties
• Seven Reasons Why This Could Be Your Best Opportunity to Buy a Home in Guelph & the Tri-Cities
• Is Now A Good Time To Buy An Investment Property In Guelph?

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Understanding Your Risk Tolerance

Guelph real estate can be a solid investment tool in any market. However, there is always some risk involved. You can minimize this risk by understanding your strengths, weaknesses, and the overall market. A good way to start is to ask yourself, “what’s the worst that could happen?” Here are a few absolute worst-case scenarios to be mindful of:

• Housing values could plummet after you buy your property. We’ve already seen prices fall from the beginning of 2022. However, a severe downturn is unlikely, given the population growth and Canada’s increased immigration target. Over time, property values have consistently increased, making real estate one of the best long-term investments.
• It can take a long time to find the right tenant. A good tenant is critical to your success. The longer it takes to find someone, the longer you’ll have to carry the property without income. You can mitigate this risk by ensuring you have an emergency fund to cover you during times of vacancy. However, the current market greatly favours landlords as rental units are in critically short supply.
• You end up with a bad tenant. Getting stuck with a problem tenant is every investor’s worst fear. Nothing is ever guaranteed, but there are several ways you can vet potential tenants before they move in. And, of course, make sure you have a clearly written lease outlining your expectations. However, nothing is better than finding the right property management team to handle your tenants for you!

Your ability to find and vet tenants is critical. Read more on how to negotiate with potential tenants here.

As you can see, nearly all of the risks of investing in real estate can be minimized or eliminated with guidance, an emergency fund, and sticking it out for the long term. 

Investment Techniques

Now we come to the exciting part of this investing guide! Let’s talk about the rubber-meets-the-road techniques that can help you succeed in the exciting world of real estate investing. 

Breaking Into the Investment Market as a First Time Buyer

What if you’re a complete beginner who has never owned a property before? Buying a house can be intimidating enough. Jumping straight into the market as an investor can be downright terrifying. However, there is no reason for first-time buyers to shy away from investing. In fact, it may be easier to afford a property as an investor than as a sole occupant.

For example, the 20% rule for an income property can seem impossible for anyone in the rental market with no equity. What if there was a way around it? If you’re a first-time home buyer, there actually may be. You are allowed to buy a property with one to four units with a smaller down payment as long as certain conditions are met:

• The property costs less than $1 million and is zoned residential.
• There are a maximum of four residential units.
• You, as the owner, intend to live in one of those units for at least 12 months.

Finding a property that meets these criteria can be challenging. Still, it’s possible, especially with an experienced real estate agent scouring the market on your behalf. Government programs designed to help first-time buyers usually don’t apply to investment properties. However, if you plan to live in the home, you may still qualify for some of these incentives. Plus, most lenders will factor in your projected rental income, which can improve your chances of getting approved for a higher amount.

And just think. Unlike most first-time homeowners who struggle to keep up with their payments, you’ll have rental income to cover all or most of your carrying costs. You may even have some profit left over at the end of each month. Most importantly, you now have a valuable asset that will only appreciate over time. Your equity will grow quickly, which will help you if you decide to take the next step up the property ladder.

If you’re buying your first home that will also be an investment property, you may find Our Guide for First Time Buyers in Guelph helpful.

The BRRRR Method for Real Estate Investing

Many seasoned investors like to employ the BRRRR method to snowball their initial successes into even greater achievements. BRRRR stands for Buy, Renovate, Rent, Refinance, and Repeat. It can be an incredibly lucrative strategy but is not without its risks. As such, you should have some experience as an investor or a significant safety cushion before employing this method. Here’s how it works:

• Buy–Work with a local real estate team to find and buy an undervalued property with a high chance of generating positive cash flow.
• Renovate–Make a few strategic updates to the property to make it appealing to prospective tenants. Renovations can be expensive, so be mindful of what will have the most impact. A tenant rarely cares for the property as much as you would, so you don’t have to upgrade the home to the same degree as your primary residence. Your only goal with your renovations is to find a tenant quickly. The less time your unit sits empty, the better!
• Rent–If all goes according to plan, your rental income will cover your monthly carrying costs, with a little leftover. Most of these funds should be set aside to cover maintenance and to fund your next venture.
• Refinance–Refinancing against the equity of your property allows you to obtain the cash to buy another property while retaining ownership of the first. Now you own two properties that will increase in value and generate positive cash flow.
• Repeat–As your equity grows, you can keep adding more properties to your portfolio. 

Using the BRRR method, you can build your investments quickly, or take as much time as you need to feel comfortable and secure with your next step. 

This is the exact technique that many wealthy, self-made people used to create their fortunes from scratch!

At Go Wylde Real Estate, we’ve been helping investors at all levels since 2006. Find out more about our processes designed to help you achieve your goals right here.