The Don'ts of Investment Property

Investment Properties in Canmore and Banff can be very lucrative but don't make these mistakes when buying an investment house. 

Investing in real estate is attractive to many individuals who like the idea of having a tangible asset with passive income potential. However, it is important to objectively assess the opportunity and be realistic about your potential net income after taxes. As an individual investor, it can be challenging to find properties with sufficient cash flow potential to justify the risk and opportunity cost, especially as there are many professionals with a whole infrastructure behind them that are trying to do the same thing.

Don't Get Emotional

Many investors make emotional decisions based on what they’ve learned from family, friends and taxi drivers who are all ‘experts’ even though they don’t invest for a living and may not have made much money from their investments. You may drive past a property and see yourself living there, however, this doesn’t mean it’s a good investment. This is also the case with fancy renovations – just because you’ve turned a property from old to new doesn’t mean it will sell for a profit if you’ve overpaid to do it up.

Don't Go for the Latest Fad

Every time I speak at a home buyer show around the country, there’s always the latest fad that everyone is attracted to. It might be US property, granny flats, subdividing, or reno-and-flip. These fads come and go and often by the time you get into it, that cycle or opportunity is about to come to an end. While the early adopters who get in and out of the market quickly do profit from these, many average investors get stuck with a loss or a lemon.

Don't Think Bigger is Always Better

They say that as land appreciates and buildings depreciate, you should always buy houses as they have more land content per dollar spent. However, houses are very expensive with often little demand from renters, meaning not only is the price of the property more volatile, the yield is much lower. I would always recommend a smaller property or unit in a great suburb over a massive house in the middle of nowhere.

Don't Try and Pick the Hot Spots

If you can pick an area that’s just about to boom and invest, your property price is likely to spike upwards in a very short period of time. However, these rapid growth spurts that come from new infrastructure or new industry often don’t last forever and can come with great risk if you don’t time it perfectly. Most typical investors are unable to pick the right hotspot, or do so after it’s already boomed and end up with an investment that goes nowhere or suddenly drops in value. A classic example of this is when investors follow the mining boom until suddenly the project stops and there’s no more demand at any price.

Don't Try and Time the Market

Buy low and sell high is a great investment strategy for both the share and property markets, however very few can do it and even the experts don’t profess to be able to do so perfectly. I believe it’s time in the market that counts, not timing the market. As the cost of getting in and out of the property is high, you’re much better to ride out any flat or quiet periods rather than trying to get out and then in again.

Keep in mind that real estate can only help diversify your assets. Consider location as part of your diversification strategy as physical location is a main driver of a property's relative value. It is important to be familiar with the local market, but don't overlook the added risk if your own home is in the same community. Of course, being a long-distance landlord carries a different set of risks, so try to find a balance.

Related: 5 Things Business Owners Need to Know Before Buying Commercial Property