Real estate is one of the best investments you can make for long-term growth, and if you’re looking for investment properties for sale in Markham, you’ll find plenty of great opportunities.
While reality TV shows make it look easy to become a real estate mogul, there is a lot of time and effort involved, not to mention a variety of skills to amass. Before you buy your first property, here are some basic things to keep in mind:
- Vacancy rate: You may have calculated your average monthly income when you have tenants paying rent every month – but what about vacancies? You have to account for a 1 – 2 per cent vacancy rate to get a true picture of what your monthly income is going to be.
- Loan-to-Value Ratio (LTV): Financial institutions typically lend between 60 and 80% of the property’s purchase price, or appraised value (whichever is less). While experts agree that using other people’s money is a good way to gain wealth, too much of a good thing can be detrimental to your investment. Put as much down as you can so you have some equity in your property.
- Debt coverage ratio: This is the ratio of the Net Operating Income to the Annual Debt Service. If your NOI is just enough to cover your mortgage, then your DCR is equal to 1.00. Ideally, your DCR should be 1.20 or higher, meaning that your NOI is 20% or higher of your debt service. In other words, give yourself some breathing room when setting your budget.
- Capitalization rate: This is the ratio between the property’s NOI and its value. Simply put, it’s the prevailing rate of return on an investment. This is a market-driven number.
- Internal rate of return: This number takes into account both the size of cash flow and timing from sale proceeds. It can be complex to calculate, and there is some debate at what an IRR really represents; but most investors recommend keeping your IRR into the double digits.
- Cash Flow: “Cash is King” and that is just as true in real estate as it is in all other investments. As an investor you want to avoid negative cash flow situations at all cost (where you have to dip into your own pocket to make up any shortfalls). Adequate cash flow allows you to ride the ups and downs that ultimately occur in any market.
Real estate investing is a numbers game; when your numbers align and you find the perfect property, you can take a deep breath and know your investment is going to help you reach your financial goals. Don’t forget to gather knowledgeable and qualified team members to advise you. Realtors, mortgage brokers, home inspectors (home price evaluation in Markham) and accountants can help you make good real estate choices, Whether you are planning for investment properties for sale or want to sell your house fast Markham. Seeking investment properties for sale Markham is a great way to introduce yourself to real estate investing and will give you the experience you need to expand your portfolio.