First Rental Property

Greetings Everyone.

We are now on step five of ‘How to buy your first rental property’.  In this article series, we have examined:

Step One:  Determining WHY you are buying a rental property

Step Two: How to figure out your financing for this property

Step Three:  How to pick the location that you will buy in.

Step Four:  The ecomomic influences of your location

In step five, we examine the importance of picking your property type.

What does ‘property type mean’?

The phrase ‘property type’ refers to the ‘type’ of rental property that you will be buying.  Examples of property types can be:

• detached homes
• semi detached homes
• townhouses
• condominiums, and
• multi-family buildings (such as duplexes, triplexes, etc.)

It is important to know what your property type is before you begin looking at potential rental properties to purchase.  This is important for a number of reasons.

Reason Number One

Defining your property type provides you with direction.  Knowing what type of property you are going to buy will make your search more efficient.  It will save you time with your search. If you don’t know what property type you are buying, you will be bouncing all over the place with no focus. One day you might view a potential rental property that is a townhouse, the other day you might view a potential rental property that is a multi-unit building.

Reason Number Two

Since a townhouse and a multi-unit building are different property types, you might possibly have different tenant profiles as well with these property types.  This is an important factor to consider, as it is always wise to know your tenant profile.  It is good to know your tenant profile because it is good to know what you are getting into.  For instance, if your tenant profile consists of people that are ‘rough around the edges’ that don’t pay rent on time, this is crucial to know.  You don’t want to have a rude awakening the first time you have a bounced rent cheque.  This is a risk that you can mitigate by knowing your tenant profile.

Reason Number Three

Also your required down payment for these 2 property types might be very different. Your bank or lender might have different criteria in terms of downp ayment for the purchase of a townhouse versus the purchase of a multi-unit building.  Since the two properties will probably vary dramatically in purchase price, there is no question that a different amount of funds would be required as a down payment.

For example, if you are purchasing a $150,000 townhouse and you are putting 20% down as a down payment, you will need $30,000.

Versus, if you are looking to purchase a $1,500,000 multi unit building with a 20% down payment.  In this case you will need $300,000!

As you can see, there is obviously a big difference between a $30,000 down payment and a $300,000 down payment!

A question for you!

If you are investing in real estate already, what is your favourite property type? Why?

If you are an aspiring real estate investor, what property type do you want to invest in?  Why?

Feel free to place your comments in the comments section.

Step Four – How to buy your first rental property
Step Six – How to buy your first rental property

Hola,

Me Llamo Neil y me gusta real estate. Vivo en Toronto, Ontario, Canada.

Okay…

That is about all the Spanish I can remember from my high school Spanish teacher! (Sorry Miss D)

Unless you have a good working knowledge of the Spanish language, most of you probably read the heading of my article as well as the opening line, and had no idea what it meant.

In English it reads:

Hi,

My name is Neil and I like real estate. I live in Toronto, Ontario, Canada.

Now that I have got your attention, here is the point wholesale lemon tart e liquid flavour concentrate diy vape juice 0mg of this article:

People new to real estate investing often cannot understand the language that experienced real estate investors speak.

There are a lot of terms, and some acronyms that are very confusing to new investors. Sometimes when I am speaking to someone interested in real estate investing, I forget sometimes that they do not know all of the terms that I know, and what happens is that I will use a word or a term that will completely confuse them. This is when they will stare at me with a blank look on their face.

So let’s cut to the chase. I have put together a little glossary of some key terms that I feel that all beginning real estate investors should take the time and learn. Here they are.

Hasta Luego! (See you Later!)

LTV or Loan To Value – When someone says this phrase, they are referring to the ratio of the loan in comparison to the value of a property. For example, if I say, “My rental property has a LTV of 80%” This means that the loan (more specifically the mortgage) is 80% of the value of the home. In this case, if my rental property was valued at $100,000, since my loan (or mortgage) is 80% of the value that means that my mortgage amount is $80,000.

First Mortgage – People generally understand what a mortgage is, however, when you throw the word ‘first’ in front of the word mortgage, this can cause some confusion. Simply put, the first mortgage is usually the largest mortgage (in terms of dollar value) that is placed on a property. A large institution, such as a bank or credit union, often issues the first mortgage. The mortgage is in first position, which means that upon the sale of the rental property, this mortgage has to be paid back FIRST before any other debts are repaid.

Second Mortgage – If you understood the concept of the first mortgage, then you should understand the second mortgage as well. The second mortgage is usually smaller in dollar value than the first mortgage. A private finance company, or a private individual can offer the second mortgage usually. The interest rate of the second mortgage tends to be higher than the interest rate of the first mortgage. This is because vaporesso osmall replacement pod cartridges the lender that offers the second mortgage is taking on more risk that the lender that is offering the first mortgage. There is more risk to the lender because upon the sale of the rental property, the second mortgage lender is in second position. This means that they get paid back after the first mortgage has been paid back. They are lower on the food chain, compared to the first mortgage lender.

Lender – This phrase can refer to any institution or individual who lends funds in the form of a mortgage or loan. Examples of lenders can be major banks, credit unions, private lending companies, or private individuals.

Mortgage Broker – I have noticed that people do not understand the difference between the services offered by a mortgage broker, and the services offered by say, a major bank. A mortgage broker represents their customer (you or I), and deals with many different lenders. When they are working to obtain a mortgage for your rental property, your mortgage broker will speak with many different lenders in order to find the mortgage with the right terms and conditions for you. A mortgage broker has a network of lenders that they deal with.

Amortization or Amortized – This phrase refers to the life of a mortgage. In Canada, it is very common for mortgages to be amortized over 25 years. This means that if you consistently make your payments over the next 25 years, once 25 years is up, you will have paid off the entire balance of your mortgage. Real Estate investors often amortize the life of their mortgages over 25 years in order to maximize their monthly cash flow. Currently, mortgages can be amortized in Canada up to 35 years.

Market Rent – This phrase refers to the estimated rent that a rental property should be able to get. For instance, let’s say that you are looking to rent out a 3 bedroom 2 bathroom townhouse in your hometown. Over the past 6 months, there have been 10 townhouses similar to yours that have rented out between $1250/month and $1350/month. Therefore, the market rent for your townhouse would be between $1250/month to $1350/month. This is because it is the estimated amount that you think your rental property will end up renting for.

Actual Rent – This phrase refers to the actual rent that you collect on your rental property. If you are looking to rent out a rental property and the market rents for your property are between $1250/month and $1350/month, and you end up renting your property for $1200/month, this means that $1200/month is your actual rent.

Cash Flow – This phrase has many definitions, however, in the context of real estate investment, someone might say, “My rental property cash flows.” What they mean by this is that their total expenses on their rental property are lower than their total revenue on the property. This means that they have a surplus of funds available. Real estate investors often refer to the cash flow on their rental properties on a monthly basis. For instance, if real estate investor says, “My first rental property has a cash flow of $500 a month”, this would mean that after subtracting the total monthly expenses on the rental property from the total monthly rent on the property, there would be a surplus of $500/month.