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Phil Hogan, CPA, CA, CPA (CO)
Cross-Border Tax and Investment Specialist
I’m moving to Victoria next month from Vancouver and I saw that you have a CPA practice on the Island. I’m reaching out in case you can help answer some real estate investment questions (also for a school project):
- What advice would you give to a new investor who is buying their
first rental property?
- Are buy-and-hold exit strategies better for veteran or new investors?
- What are the most important things new investors need to look for in a rental
Big thanks for the info. Please don’t hesitate to give me a call if you want to chat about the questions outlined above.
Thanks for the email. I’ll do my best to outline some ideas for you based on my experience:
What advice would you give to a new investor who is buying their
first rental property?
Start small and don’t over leverage. It’s easy to get way over your head in terms of purchase price especially considering how low rate are currently. If your home town is too expensive for what you can afford look out to neighboring towns for places that may be less expensive.
Try to develop a focused plan on what type of investor you want to be. Don’t try to be a long-term holder, renovator, flipper and developer all at once. Pick one niche, learn it well and then potentially move on to other real estate strategies.
If possible try to find a partner that has already has lots of experience in investing in real estate. This is not always easy, however if you can find someone that has experience in the space their insights to any new property purchases will be invaluable.
Spend lots of time understanding the rental market for where you’ll be purchasing your property. Rental markets can vary significantly from city to city and even county to country. Don’t hesitate to call up landlords that are advertising their rentals online and ask them for some insight on the local rental market. You would be surprised at how helpful these individuals can be if you ask in a respectful manner.
Also ensure you really understand the laws around tenants in your city and state. It can be very difficult to evict tenants, even in cases where they are not paying rent. Learn your responsibilities and rights well before you get a renter for the property.
Have a good plan for small fixes when required. Owning a rental unit can feel too easy often, however when things go wrong you’ll be reminded quick about your responsibility as a landlord. It always a good idea to have some trades people lined up like a good plumber, electrician and carpenter.
Also, make sure to get a good financial advisor or accountant to help with any tax or financial planning you may require.
Are buy-and-hold exit strategies better for veteran or new investors?
I would say that buy and hold strategies are not necessary better for new or veteran investors. It really depends on your ultimate goals. Buy and hold strategies can be good for investors that don’t have a lot of extra time to worry about renovations and flipping, however even new investors may want to buy and sell a few properties each year if they feel confident on the process. It really depends on how much effort you want to put in and what you can contribute in terms of time and skills to the property.
That being said, trying to time the market with frequent flipping of properties can be challenging if you won’t have a good handle on the property market. It’s also easy to get stuck in multiple properties in times where properties are sitting on the market for prolonged periods of time.
What are the most important things new investors need to look for in a rental
Some of these items were mentioned above:
- Really understand the local rental market as much as possible. Each city and county within a state can have a very different rental market.
- Hire a good mortgage broker to help you find not only the best rate mortgage but also the mortgage with the best terms and flexibility for your particular property. As you start accumulating properties good mortgage brokers will help you leverage existing properties against the purchase of new properties
- Once you purchase a property, and assuming you are considering holding it long-term, make sure not to focus too much on short-term price movements in the market. It’s easy to get trapped into watching prices move up and down instead of being focused on finding the next great rental property purchase.
- Spend as much time as possible finding good tenants. New investors often take some of the first tenants they find, but that can be a huge mistake if these individuals don’t work out. As mentioned above, evicting bad tenants is never easy and can be exhausting to deal with. Spend lots of time finding the right tenant to fit the property and your investment will be much less stressful and ultimately more profitable.
Hope that helps with the project.