There's absolutely no doubt that Real Estate builds wealth. Over the past half a century, many a millionaire has been made from the wise accumulation of investment properties, but the big question for newbies is "How do you know what's good"? How does a first time income property buyer determine what is the best route for him or her to take. If you're the type of person who doesn't like surprises, or are the least bit jittery with your finances, then I can firmly say that in all likelihood owning an investment property may drive you over the brink. However, on the other hand, if you've educated yourself in a certain real estate market and feel comfortable in running a little micro business, then the benefits of having tenants pay off a mortgage for you while the value of the property increases will be very appealing to you.

In this short blog, I'd like to address a couple of things that you need to have in order before you even think of buying an investment property.

1) An understanding of bookkeeping and/or a bookkeeper and good accountant.  When you acquire a property which is not your principal residence, there will be certain tax benefits. It's extremely important that you know how ownership of the property should be set up and be aware of the most tax advantageous way of acquiring and operating it. How will it be handled in your estate? Life insurance? Capital gains? Income tax? What will you be able to write off against income?

2) A pre-approved mortgage or financing option. You need to know "exactly" what the bank will require you to come up with as a down payment plus you will need to know what kind of properties they will be willing to finance. What will your interest rate be? Some financial institutions will require that the property is a "Legal" or "Legal non-conforming" property", some will do duplexes, but classify triplexes as commercial lending. 

3) While you're at the bank or with your Mortgage Broker, you'll need to find out how much of the rents they are willing to consider when they qualify you for your mortgage. Once again, this varies. Some financial institutions will only take 50% of the rents into consideration...others may take all of them.

4) You need to read up on the Tenancy Act or any laws affecting landlords, tenants and human rights for your area. This is an absolute must. Remember, you are starting a new business and I can't stress enough how important it is for you to thoroughly understand the laws surrounding your business. You need to know if you can charge a security deposit, restrict pets, ban smoking etc etc.

5) You need to know "Current Fire Code's" as they pertain to residential rental units . This is a biggie as well. Does your municipality or area require a steel fire escape or is a wood one OK. Do you need carbon monoxide detectors and wired in smoke detectors? What does retrofit mean? 

6) Get informed about your City's zoning. Are any areas in your City slated for rezoning which may curtail or promote rental units?  

7) Gather information from various Insurance Companies. Chances are you'll be making your offer conditional upon getting insurance for the property. Don't leave the insurance issue until you have an accepted offer. Find out what kind of properties they are willing to insure, how much it will be and what they are going to require. Just like the Banks, Insurance Companies have their own criteria. They may require a Fire Inspection Certificate, Electrical Safety Authority Certificate, a Health Department Inspection, and Environmental/Air Quality Inspection and proof that the tenants are carrying contents insurance. 

Even though you will be depending on the professional advise of a Realtor, Home Inspector, Lawyer and Mortgage Broker, being educated and well informed will prevent you from falling victim to misinformation and/or oversight by anyone of them. Arming yourself with the information you need to find and operate the perfect investment property before you have an accepted Agreement of Purchase and Sale in your hands, will make your new business venture just as rewarding and profitable as you expected it to be!