NEARHOOD: Investing in real estate—risk factors & risk assessment

edwina

Are you financially secure and ready to explore real estate investment? Finances are as unique as each individual. Let’s look at some questions you should be asking along with risk factors and risk assessments that you should review when considering real estate as your investment of choice. I would also strongly suggest that you discuss your own unique financial situation and investment strategies with a team of professionals that can offer qualified insight. Questions, questions and more questions. Let’s explore over the next several articles what questions to ask yourself and your team.

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SHORT TERM GOALS

What are my short term goals? Am I building an investment portfolio? How many investment properties do I want? How many do I need? How many will I be willing to manage? How many can I legally manage? How many investment properties can I finance using residential mortgages? Should I be using commercial lending? How long should I amortize? Should I buy a rental property for my child/children to live in while attending university? Should I keep it? What are the tax implications? Is my child able to manage the roommates? When do I liquidate? What are my investment goals with the rental property? Is there vacation home rental opportunity? Is an Airbnb legal in the apartment I am purchasing? What are the strata fees? Is there a healthy reserve fund? Have I reviewed the strata council by-laws and minutes?

LONG TERM GOALS

How will I be managing capital gains during the ownership of the investment? Do I wish to use the rental properties as retirement income? What are my mortgage strategies? Have I invested all of my finances in a single market exposing me to a higher risk? What is my risk tolerance? If I want a long-term investment property, what does my reserve fund model look like? Will I invest the reserve funds somewhere else? Are they easily accessible? Can I replace a $10,000 boiler when needed? The roof? Repair foundation problems? Is the rental property a sound investment? Is it a fixer upper? What is my budget? 

I would suggest setting up a business plan with timelines. It is a very good process that allows you to look at many possible scenarios that you may have to consider. Talk to people of a similar mindset that have rental properties and ask them the good, the bad and the ugly.

What happens if I am ready to liquidate and the market is in a down turn? What happens if my rental has been vacant for three months and vacancy rates are in double digits? How do I motivate renters to stay or sign leases? What is a discount coupon? Does this reduce my risk? Does it allow me to maintain the best possible lease rates? What is my risk tolerance? Do I have the capability to weather a bad year? Can I do renovations and upgrades between tenants? As you can see there are so many questions. 

Edwina Nearhood is a life-long resident of Fort St. John. Her 30-year experience in the appraisal industry offers a unique lens on the challenges associated with the economic forces impacting real estate and the community. This column will offer insight for local residents on the impact of the boom-bust cycle in remote northern BC and the challenges local businesses and residents face in the land of the north.

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Real Estate Reality Check

Have a real estate problem or question you want answered? Email editor@ahnfsj.ca to have it featured in a future article and analysis by Edwina Nearhood.

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