of Lloydminster

Your Community Minded Realtors

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Office: 780-808-2700
Toll Free: 866-666-2700
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RE/MAX Of Lloydminster
5726 - 44 Street
Lloydminster, AB
T9V 0B6

"each office independently owned and operated"

 

Investing in a rental property is a great step toward earning passive income and building wealth. Unfortunately, becoming a landlord for the first time can also be challenging and lead to a financial loss if you don't know what you're doing or what potential traps to avoid. Here are five tips for buying your first rental property that will help ensure your success and make the entire process less stressful.


Carefully Research Neighborhoods

The neighborhood where you choose to purchase your first investment home will have a huge impact on the success of your endeavor. Here are a few neighborhood features to keep in mind:

-   Look closely at crime rates. Buying in a high-crime area may help you snag a bargain but you need to ask yourself if it's worth it. Areas with a lot of crime may not attract the best quality tenants, and you may find yourself dealing with the hassle and expense of frequent vandalism and break-ins. You will also be limited in how much rent you can reasonably expect to charge.

-   Buy in the best neighborhood you can afford. If you are starting off with a small budget, purchasing a rental home in an 'up and coming' neighborhood that shows signs of gentrifying and appreciating in value can be a great opportunity. Just bear in mind that you will need to be patient as it may take years for rent prices in the neighborhood to go up significantly.

-   Pay attention to schools in the area. If there are great schools close by, you will attract families who want to rent long-term. On the other hand, if you buy a home near a university you will always have potential renters but will have to deal with frequent tenant turnover and possible damage to your property.


Be Wary of High Vacancy Rates

The key to a successful investment property is to have it rented out continuously. Even if you only charge enough rent to cover your mortgage, property taxes, and related expenses, this is better than owning an investment property that sits empty for long stretches of time. If a high percentage of homes in the area seem to remain vacant for months at a time, chances are yours will as well.


Be Conservative When Estimating Expenses and Profits

It's important to think long-term when buying an investment property. Unless you are buying a home with cash, don't expect it to be profitable until you've paid down your loan quite a bit and built equity. At first, just aim to cover your expenses and always estimate these on the high end just to be safe.


Consider Hiring a Property Manager

Property managers will handle many of the time-consuming tasks involved with being a landlord, all for a small percentage of the monthly rent. They will find and screen tenants for you, run background checks, collect rent, call repair workers and house cleaners, and even perform basic maintenance. Hiring a skilled property manager often saves money in the long run, because it helps avoid costly vacancies and evictions.


Look for a Move-in Ready Home

Unless you have a construction background, make your first foray into real estate investment as easy on yourself as possible by buying a move-in ready home. Look for a home that can easily pass an inspection and is not in need of major repairs or renovations. On the other hand, cosmetic details like paint colors, old carpeting with nice wood floors underneath, and dated fixtures can easily be tackled by a novice without spending a lot of money.

 

By following these tips, you can move into investment property ownership without regret or worry.

 

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Let's clear up one misconception, right off the bat: having no credit is not the same as having bad credit. 'No credit' simply means that your credit history - which tracks your loans and repayments over the years - is empty, and your credit score is '0' as a result. But having 'bad credit' implies a credit history tarnished by late or missing payments on your existing loans.

 

 

Why Bad Credit Is Risky  

Rich or poor, urban or rural ... we all rely on credit to get the most out of life. And having poor credit affects your finances in many ways, all of them negative.

 

Poor credit can keep you from qualifying for a large mortgage on your dream home. It may prevent insurance agencies from offering you their lowest premiums. Even potential employers might pull your credit score (with your permission) when making a hiring decision. This is most often the case for positions with a high level of personal responsibility, especially around cash or finances.

 

Worried about your current credit history? Repaying your existing debts (if at all possible) is the best first action you can take, and your bank or credit repair specialist can help you with the more complicated steps.

 

Is It OK To Have No Credit At All?

Even financially savvy people are sometimes wary of opening lines of credit. After all, with thousands of dollars suddenly becoming 'available' to you, the temptation to overspend can be all too real. Why not just stick to cash, or to your debit card?

 

If you don't have any credit, you haven't necessarily made any financial mistakes. But here's the thing: Banks and other lenders aren't in the habit of simply giving away money. They need some assurance that they will be repaid in full (likely with a bit of interest to make the loan worth their while). Since nobody can see the future directly, these lenders have to make calculated decisions based on your credit history in order to decide whether you're trustworthy and responsible.

 

Show these lenders that you've consistently paid off your debts on time, and they'll be much more likely to grant you large loans (with more favorable interest rates) when you actually need them. Ultimately, playing by their 'rules' will open up new opportunities down the road - a much nicer home/mortgage, for example, or even just lower insurance premiums. These are things that you can't easily achieve without a good credit history.

 

Avoiding credit (and the temptation to overspend), might sound like a responsible choice on the surface, but it's not ideal in the long run. In fact, having a strong credit score is one of the smartest financial decisions you can make for yourself. And it's never too late to get started!

 

 

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