Mistakes People Make When Buying an Investment Property

Canadian’s love to own investment properties. As a mortgage broker, I help many people purchase investment properties every year. Here are three common mistakes that I help people avoid when buying an investment property.

Not taking into account all the costs of owning an investment property. From a lender perspective, they will include all possible costs of a rental property when qualifying you for a mortgage. Obvious costs such as property taxes, insurance, and utilities. But also, an allowance for vacancies, maintenance, and property management can be included. Traditional lenders also look at all the properties that you own, not just the subject property.

Rental income does not cover the property expenses. I have seen so many people fall in love with the investment property and ignore the negative cashflow. You want to buy positive cashflow properties from day 1. I tell people to “buy cashflow, not properties”.  There are many great formulas to use to evaluate an investment property, such as, Cap Rate, Debt Coverage Ratio (DCR), and Cash-on-cash return.

Not using alternative sources of financing. If you want to build a portfolio of investment properties, you need to be open to alternative financing options. There are so many lenders that cater to investors and want to give you money to buy investment properties. Use them! Make sure that the rental income covers the increased cost of borrowing.

Contact Us

For more information on buying investment properties, contact your local Ajax Mortgage Broker, Sean Stewart at 905-427-9596 or sean@seanastewart.com