Most people who invest in real estate will have different goals and objectives. The goal which every investor shares is to make a healthy return on their investment, whether that is through tax savings, positive cash flow, capital gains or wealth protection.
Real estate is a long term investment (even if you're buying and flipping homes), which is why planning out this shared goal is important in the early stages to ensure long term success. As life goes on these goals/objectives will shift, with a strong foundation you maintain the flexibility to update your goals without financial loss.
Define your goals - ask yourself these questions:
- Positive or Negative geared? Negative gearing has always been popular as a tax break when property prices climbed higher and higher year on year. These days this is not always the case which makes investors look at ensuring their property is positively geared. While this may remove the tax incentive, it also reduces your risk of financial loss in the event that market conditions change.
- How much can i afford? You should never put yourself under financial stress just to own an investment property. Ensure that you can afford the purchase you are going to make and plan ahead if you're thinking of buying multiple properties over time.
- How leveraged will my portfolio be? If your goal is maximum ROI, then you might be looking at an extremely high leveraged strategy. The higher the leverage, the higher the risk, but the greater the profits can be. By default, banks will not let you leverage an investment loan which has a debt ratio of more than 80%.
- Am i buying a property to protect my wealth? Buying property isn't always optimized for leverage, rather protection of wealth. You might have $300,000 sitting in your bank account which you would prefer sitting in a secure asset such as a property.
- How long do you plan to hold property for? Property prices across a historic average increase roughly 2% per year in Montreal. Buying to sell only a couple of years later for a profit only happens when there is a major boom in the market. While there is money to be made in capital gains when the value of your property increases, it comes with a higher risk if you haven't planned for years which produce a below average increase in the price of your property.
While there are many more points we can go through to define your real estate investing goals, you should have enough information to start forming a plan of how your investment portfolio should look if you start looking at buying real estate as an investment.
You can Contact Us anytime if you have any questions or need some guidance in setting your real estate goals. If you've already set out your goals and are ready to start looking for a property, consider setting up a Property Alert to be notified when an investment property meeting your exact criteria hits the market.