4 things to think about before you invest in real estate (or anything else for that matter)
We’re talking about real estate investing this month but these things can apply to any investment decision.
Do you understand the market/landscape?
This applies to any type of investing. One of the most important things to remember is - it will be easier to manage your investment if you buy something in an industry or area that you understand. For example, I’ve lived in Vancouver for 15 years. I know the real estate landscape in my neighbourhood inside and out. I feel comfortable knowing who to trust and what’s a deal because I have lots of lived experience. I would not feel as comfortable investing in real estate outside British Columbia.
If you are going to venture outside of your comfort zone, don’t rush! Do your research. Talk to others who are knowledgeable in the area & business. Make sure you truly understand where you’re spending your money before you invest.
Does the investment have a reasonable chance of increasing in value?
Not to state the obvious but if the thing you’re buying is not going to increase in value, it’s not a great investment! Investing guru Phil Town always talks about understanding the industry that you’re investing in - so that you can understand when to invest.
In terms of real estate, values rise when there’s limited land or property combined with a high demand. This means the most desirable areas will be very expensive. Now, consider thinking outside the box. Which areas are up and coming? Which part of town is close to the expensive area but still affordable? What can you afford that will likely increase in value? Brainstorm, look around, consider a few possibilities!
Do the numbers work - aka can you truly afford it?
This is one of my favourite questions because I love knowing the facts.
Before making a commitment, it’s very important to make sure you know what you’re getting yourself into. Do the numbers work? When you consider your current cash flow, your emergency fund, your debt levels, your net worth - can you really afford to service the loan you’re looking at?
Rate Hub is my favourite resource for understanding the true cost of your real estate investment. There’s information on the costs of buying/ selling property, mortgage rates and different calculators. Here are some links to help you run the numbers:
Rate Hub’s mortgage calculator
Rate Hub’s affordability calculator
Rate Hub’s land transfer tax calculator
When you check out the site, you’ll find all of the information you need about buying a property in Canada. If you’re reading from elsewhere in the world, most of the the calculators will still be helpful for you!
What else would you like to do with your money? What is most important to you?
Life is all about timing, isn’t it? When you think about making a big investment, consider your goals and priorities for the next 3-5 years. Are you dying to travel like Julie? If so, taking on a huge real estate investment would mean committing to your job and cramping your 6-12 month world travel goal.
On the other hand, perhaps you’re at the stage where you’re interested in building wealth as opposed to taking a year off work. Or you’re growing your family. Or maybe you have enough in your savings to take advantage of an awesome pre-sale opportunity in your neighbourhood.
The middle ground could be buying a place, renting it out and travelling while someone else is paying your mortgage.
The possibilities are endless, and it’s your life! You get to choose. Before you jump in, consider
Do you understand the market?
Is this something that will generate cash flow or position you for longer term wealth?
Can you afford it?
What else would you like to do with your money… and can you be creative about how to accomplish many goals at once?
What are your thoughts? Do you own a place already? What did you learn in the process? Comment below -