Before purchasing an investment property, it’s important to determine your purpose for investing. Are you looking for constant, sustainable income? Or do you want immediate profit? There are many different ways to make money from a property investment, but determining your purpose will help you develop the best strategy. It’ll also help you figure out how much profit is necessary to keep you afloat.
Table of Contents - Your Purpose for Investing Determines How Much Profit You Need to Make
If you’re interested in making consistent income, it’s usually best to invest in a rental property to fill with tenants. Those that already have an income flow and are just looking for a big profit might prefer to purchase and renovate, then sell a piece of property. Developing the right strategy for buying a property and calculating profits all depends on what type of investment you’re making.
Are you looking for a big profit?
As mentioned above, those looking for a big profit as opposed to monthly profits should consider buying a property to renovate and sell later. It’s important to keep up with all the money you spent purchasing and renovating the property, as this will help determine at what cost you must sell the property.
Making the property worth your investment will mean selling it at the right price. You don’t want to overcharge. That will deter potential buyers. However, underselling could make the investment a waste of your time. Finding that sweet spot for profits is easy with the right plan.
You’ll want to do thorough research when determining the right sale price for your investment. Check out the prices of similar homes in the neighbourhood and consider working with a local real estate agent. Once you’ve decided on a good price, your real estate agent will help you negotiate with potential buyers.
When it comes to this type of investing, you may find yourself waiting a while for the right buyer to come along. The time it takes to sell a piece of property can vary based on many different factors, include the property’s location and price. If you’re not prepared to wait on profits, purchasing a fix-and-flip property usually isn’t the right move.
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Do you want to be a landlord?
If you’re looking to make a career as a landlord, having a good monthly income is essential. This income should cover any expenses for the property while still providing you with a profit. For the most part, people recommend you charge tenants one percent of the property’s total value.
In some areas, you may find that one percent of your property’s total value won’t cover expenses. In that case, you can simply charge a bit more. Do proper research on your area, which should include checking the rent amount charged at similar homes, apartments or commercial buildings. This will help you determine a rental price that will attract tenants while still pulling a profit.
At certain times, it might be difficult to turn a profit. The need for expensive repairs or other surprise expenses can deplete your extra cash. Sometimes, you might have trouble finding tenants, which means no cash flow until someone rents the property. Be prepared for these situations as they can always arise. Consider setting aside money every month in case of emergency.
If you’re going to be a landlord, be a good one
There’s a lot that goes into being a good landlord. You want to keep your tenants happy, but also make sure that they always pay rent on time. Learning certain skills will also help you save money during your career as a landlord. This might include gardening skills, basic maintenance and more. This also has a direct impact on your profits.
Not having to bring in a repair person or landscaping professional for every little thing could help save plenty of money each month. That said, if you’re unsure of how to properly fix something, it’s best to call in a professional.
Good (and profitable) landlords are usually local. Being knowledgeable about the area will make it easier to properly market your property. You’ll have local experience when it comes to contractors and repair services, and know what you can expect to pay. Factor this into your profit analysis to get the full financial picture.
There are many benefits to being a good landlord, including the fact that happy tenants will recommend your property to others. When owning a rental property, you’ll need to keep plenty of tenants in order to turn a profit, so good word of mouth is essential.
Calculating your profit
Whether you’re looking to rent out or sell a piece of property, it’s important to sit down and calculate potential profits. Determine how much money you’ll spend on purchasing the property and preparing it for tenants or buyers. If you’re buying a property to fill with tenants, think about how much you’ll be charging them per month. You’ll then want to factor in expenses like utilities, property taxes, advertising and possible repair bills. Be realistic when trying to determine your future profits—it’s easy to imagine that tenants and buyers will love your building so much they’ll pay extra, but you can’t count on it.
Those buying property to resell can easily calculate their possible profits by determining the property’s total sale price, then subtracting estimated renovation expenses. Don’t forget to factor in how much time you’ll spend, too! Having a fairly accurate estimate of how much profit you’ll make versus how much time and money you’ll sink into the property will help determine whether the investment is worth it.
Once you’ve figured out your reasons for investing, it’ll be easier to find the right property. There are many investment properties available throughout Canada, so there’s surely something that fits your profit needs. As long as you go into your investment with eyes wide open—and a corresponding cash reserve for emergencies—you’re set up for success.
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