Let’s face it. Buying your first investment property is often an exciting experience.
In between property inspections and speaking with real estate agents, it’s easy to get caught up in the moment and overlook the financial aspects of their purchase. Luckily, some financial consideration is a good way to temper the impulse when buying an investment property. After all, a financial misstep could set you back for years.
Consider the following tips before you sign the contract to buy an investment property:
1. While the real estate agent may recommend that you to put down the ‘standard’ deposit of 10% of the value of the property upon signing the contract, this is not absolutely necessary and you should try and negotiate a lower amount to free up your cash flow.
2. Even if you do not need it, always include a ‘subject to finance’ condition in your offer, which will allow you to secure finance that is most suitable to your needs and circumstances.
3. Do not sign the contract until you have made the decision on the ownership structure of the property, eg, you may want your discretionary trust to buy the property instead of owning the property in your own name.
4. Upon signing the contract, speak with your insurer and take out insurance on the property.
5. If you are selling a property and need the proceeds to buy another property, never commit yourself to a purchase contract until your sale contract has gone unconditional and the cooling off period, if applicable, has expired. Otherwise, you might find yourself painted into a corner if something goes wrong with the sale contract!
6. For commercial properties, make sure that you check the GST clauses and determine if the contract price is GST-inclusive or GST-exclusive. Ask your accountant to review the contract because the purchase may be GST-free under a specific exemption in some circumstances.
Source: Canadian Real Estate Wealth 05 Aug 2014