Many of us envision the gutsy move to flip a house for quick financial gains – and some people are quite successful at doing so, say advisors in this field. For those with the time, energy and technical skills, buying a property to fix up and sell later at a higher price or to rent out for a period of time, can be a worthwhile investment. But do your research.
“Challenges can quickly mount for the novice who chooses to invest in real estate,” says Lincoln Thompson, broker-owner with Royal LePage Gardiner Realty in Fredericton, New Brunswick. “But if you take the time to choose the right home and rely on the right people for expertise, your investment can pay dividends.”
Thompson offers three recommendations for success:
1. Take note of the taxes. As the saying goes, the only things certain in life are death and taxes. Depending upon the municipal, provincial and federal taxation requirements for your area, sales tax and land transfer tax will apply at differing levels across the country. You could even be taxed based on the level of renovations if a lot of work has been done. Also, consider the personal or business taxation implications from the sale of the property or on rental income that is generated. An accountant and lawyer are two people you’ll want to bring in early before you venture into this realm. If you find the right home in the right location, taxes may not be a deal breaker, but be aware that paying them will cut into your profits.
2. Consider a joint venture, but choose your partners wisely. Each party should bring to the relationship what others within the deal cannot. For example, if you have trade or technical expertise but are lacking funds or financial expertise, you’ll want to concentrate on finding investment partners who bring these skills to the relationship. Don’t partner with people who have the same strengths and weaknesses as you. If you are lacking expertise in any area, including real estate, hire a real estate agent with experience in real estate investment within the location you are considering. An experienced agent will also aid in bringing together the right deal makers.
3. Don’t buy a property without answering these basic questions: Can I buy it below retail market value? Can I do small renovations to increase the value? Is there an increase in demand for the area? Are there sales over list price in the area? What is the nature of the surrounding properties? What amenities and services are within walking distance? Do I need to purchase appliances? Can this property be rented? If so, what are the going rental rates for similar properties in the area?
Real estate investment is a great way to supplement your income if you do your homework and set yourself up for success with the right expertise.