When you’re ready to take the next big step in life, what makes sense for your goals? Buying an Alberta investment property can be a great financial decision for both your present and future. If done right, you could get a great return on your investment via passive income, tax breaks, or due to increased property value if/when you decide to sell.

With so much to consider when buying your first investment property, it can feel a little overwhelming. But Mortgage Design Group Inc. is here for you! In this blog post, we share 5 things to consider before buying your first Alberta investment property.

An Alberta Investment Property Has Different Down Payment Requirements

Unlike buying a personal home, buying an investment property has a different down payment requirement. With a personal home, the minimum down payment is 5% of the purchase price. With an investment property, you’ll usually need to put down at least 20%. Because you can’t get mortgage insurance with an investment property, the approval requirements are stricter. This results in the need for a larger down payment.

Just like when you buy your own home, it’s important to carefully consider your finances before making a decision. Talk to your mortgage broker and see if you can get pre-approved for a mortgage so you’ll know exactly how much you can afford before you search!

Consider the Location of Your Alberta Investment Property

Whether you’re thinking of investing in a vacation home, a rental unit, or a commercial property, try to think about where exactly it’s located. For example, if you’re buying a vacation home to rent out, you want it to be in a destination that is popular. A rental unit could benefit from having parking or easy access to public transit. A commercial property may attract more interest if it’s in a thriving business area. Before deciding on the building itself, pinpoint a location that would be attractive to others first!

Think About Future Fixes and Variable Expenses

Just like your home, buying an investment property is not the end. There will be plenty of costs associated with it over the year. It’s important to take these extra costs into consideration when budgeting.

  • Expenses you may want to consider include:
  • Homeowners insurance
  • Maintenance and general upkeep costs
  • Property taxes
  • Housing or Neighbourhood Association fees
  • Condo or building fees (if applicable)

Make Sure You’re Getting Returns on Your Alberta Investment Property

When buying an investment property, it’s important to make sure that you are getting sufficient returns on your investment. When calculating or budgeting for what exactly this number is, the rule of thumb is that what you charge for rent should cover the mortgage, plus a little extra for additional costs or unforeseen circumstances.

For example, let’s say your mortgage is $1,500 monthly. You could rent the top two floors of the house and the basement as separate properties. In this case, you could charge a monthly rent of $1,250 for the top floor and $1,000 for the basement suite. That brings your total return to $2,250 each month. That way, you cover the total cost of your mortgage while still having $750 to put away for repairs, damages, upgrades, or just a rainy day!

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Understand What You’re Signing Up For

While the returns typically outweigh the risks, it’s important to know exactly what you’re signing up for. Some problems people may face include:

  • Not having the interest anticipated in the rental property
  • Having to pay for expensive repairs
  • Property taxes could increase
  • The housing market or economy could change
  • Bad tenants could result in repairs or lost rent

It can be easy to get caught up in the risks, but there’s plenty to be excited about when you’re planning on buying your first investment property! You work hard for your money and that’s why you deserve an investment that will take you further. Generate passive income while simultaneously building for the future or to improve your quality of life. Think strategically, make educated decisions, and you could find you’ve made a great financial decision!

Mortgage Design Group Inc. is Here for You!

With a team of knowledgeable and experienced brokers, Mortgage Design Group Inc. is here to lend a guiding hand. We take pride in being able to curate all the best products on the market and simplifying the mortgage process for you. We’re ready to get to work for you! Talk to us today and let us help you take a step towards your financial goals for the future!

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