Introduction
The decision to invest in real estate is an exciting one. You have the potential to make huge returns on your investment and build wealth, but it’s important to know what you’re doing and weigh all the risks involved before making any decisions. Below are four financial decisions that will help you reduce risk and achieve better returns when investing in real estate:
Lower your debt.
When you’re buying a home, it’s important to get rid of all your bad debts before you take on the burden of owning a home. A mortgage is considered good debt because it benefits your financial situation in the long run—it will lead to equity building and appreciation over time. But if you have credit card bills or student loans that are eating away at your monthly income, those are what we would call bad debts. They can be tough to pay off, but it’s important that they do so before making any major purchases or investments.
Save up for a down payment.
You should save up for a down payment on your first home. A 20% down payment is the minimum amount recommended by most financial advisors when purchasing real estate, but if you have the extra money, you may consider saving 25%. If you can’t afford a 20% or 25% down payment, then it’s best to wait until you do before buying a home.
Increase your income.
There are two ways you can increase your income before investing in real estate:
- Work more. If you’re not working as much as you would like, try getting a second job or taking on a side hustle. Side hustles are great because they allow you to make extra money while still working on something that is fun or interesting to you.
- Start a side business. If it’s possible for you to start a new business, this can be an excellent way of increasing your income and preparing yourself financially for the financial commitment of purchasing property (and eventually selling).
Build an emergency fund.
Your emergency fund should contain a significant amount of money, because unexpected expenses do happen. When you’re investing in real estate, it’s especially important to have an emergency fund that can cover at least six months’ worth of living expenses.
The best way to build this up is by saving small amounts each month and then stashing them away in a high-yield savings or money market account so they grow slowly over time.
Each of these financial decisions will help you reduce risk and achieve better returns when you’re investing in real estate.
If you’re a first-time home buyer, or if you are planning on buying your first investment property, here are the four financial decisions that will help you reduce risk and achieve better returns:
- Lower your debt: Pay off high-interest credit cards, student loans and other debts to improve your credit score.
- Save up for a down payment: Consider investing in an RRSP or TFSA so that you can have access to additional funds from tax savings once retirement approaches.
Conclusion
When it comes to investing in real estate, every decision counts. This is especially true when you’re still building up your credit and savings. The more financially stable you are, the less risky and more profitable your investment can be. If you follow these four financial steps before investing in real estate—and continue them throughout the process—you should be well on your way to making smart financial decisions that lead toward a successful future!
