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The Beginner’s Guide to Investing in Rental Properties

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Opinions expressed by Entrepreneur contributors are their own.

If you’re thinking about investing in the rental housing market, you may be wondering how to get started. Like many new investors, you probably have an optimistic vision for your new property: reliable tenants, passive income and eventual financial freedom. But how do you get there from where you are now? Like everything else, you start with the basics. Understanding even the rudimentary principles of rental can help you kickstart a successful investing career.

This includes knowledge of property types, return on investment, mortgages and the legal steps to acquire a property. The research you do up front may help you avoid a misstep that could sink your investment. Here’s how to get started with rental real estate investing:

Deciding between a residential and commercial property

Before you buy a property, you need to decide whether you’re looking to purchase residential or commercial property. Both types can help you reach your end goal of passive income. However, they have some important distinctions.

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  • Residential real estate: Residential real estate is property you rent to someone looking for living space or a principal home. Your tenant(s) could be a family, a student, a young professional or someone else. Residential properties typically have lower starting costs. Residential mortgages are also easier to obtain, as banks tend to accept lower credit scores than they would for commercial loans. There’s also higher demand for residential properties, so you’ll have an easier time filling your units.
  • Commercial real estate: Commercial real estate is property you rent to a business. The business could use the property for retail, office or industrial purposes. Commercial properties require commercial mortgages, which are slightly more complex than their residential counterparts. In some states, buildings with more than five units are automatically classified as commercial properties for tax purposes. Ask a mortgage officer in your state to learn whether this rule or a similar one applies.

Assessing property value

Now that you’ve selected a property type, you need some options. Maybe you’ve chosen a neighborhood or a few properties you’re considering. How do you know which one is your best move financially? Here are two crucial factors to consider when assessing property value:

  • Location: Location means everything to prospective renters. Is the property near commerce areas, walkable from a downtown area or otherwise in a beneficial location? These factors make the property more desirable and justify higher rent prices.
  • School districts: Position within a top school district influences value more than you may think. In fact, school districts are one of the biggest determining factors in renter and buyer demand, and in turn, return on investment. Good school districts attract young families who are willing to look past downsides and pay more for high-quality education for their children.

Following the 1% rule

Qualitative factors are one way to measure return on investment, but you should also have the numbers to back up your assessment. Will the property generate consistent rental income? Or will the property ultimately require more time and money than it can return to you? Fortunately, there’s a rule of thumb for assessing the strength of an investment that you can apply before you make it.

The 1% rule holds that if you can reasonably rent a property out at a rate equal to one percent of the starting mortgage, it’s likely to be profitable. You should know whether the rate you’ve calculated is reasonable based on demand and the rates of similar properties in the area.

Let’s say you buy a duplex for $310,000. You make a 25% down payment, equal to $77,500. That leaves you with a $232,500 mortgage. One percent of this remaining mortgage is $2,325, which halved is $1,162.5. If you can rent both units of the duplex for around $1160, the property is likely a good investment.

The 1% rule is a quick trick for evaluating the potential of an investment. However, it should not be taken as a definitive verdict. The soundness of any investment depends on many factors, including your current cash flow, the property’s condition, rates, locational trends and other factors. The 1% rule will get you in the ballpark, but do your due diligence.

Financing your property

Finally, you’ve chosen a property. If you’re like most investors, you’ll need to borrow money to purchase it. This means finding a mortgage lender, negotiating terms and making a down payment. Let’s break down mortgage types, down payments and interest rates:

  • Mortgage types: There are many different types of mortgages. The two most common are fixed-rate and adjustable-rate mortgages. Fixed-rate mortgages have a fixed interest rate throughout the loan’s duration, while adjustable-rate mortgages have an initial fixed rate that changes as the loan ages.
  • Down payments and interest rates: In addition to choosing a mortgage type and duration (15 years, 30 years, etc.), you’ll also need to make a sizable down payment. Larger down payments will help you secure lower interest rates because your lender assumes less risk. Conversely, smaller down payments are accompanied by higher interest rates. Down payments of around 20% are usually considered sufficient.

Legal checklist

As the buyer, it’s your job to get ahead of a purchase before any problems arise. Here’s what you should do to ensure your investment is properly protected before you make it official:

  • Verify property title documents: A property title, conveyed in a physical deed, confirms of a property. Before signing a purchase agreement, view the latest deed on file and check that the seller is the current owner. This can be done through a title company or attorney. Next, check for any liens on the property. Liens are claims on a property placed by a lender when the owner still owes money. The property cannot be transferred if there are any active liens on it. Finally, the title documents need to be signed by the seller and buyer (you) to formally transfer ownership.
  • Buy title insurance: Title insurance protects you should something unsavory, like an undetected lien, be discovered after you transfer the title. Some lenders require it to obtain a mortgage. Title insurance is typically around $1,000.
  • Confirm property tax receipts: Next, confirm that the previous owner paid all necessary property taxes. Ask the seller for receipts directly, or request them from your local government’s tax office.
  • Perform an inspection: Hire a professional home or building inspector to see if there are any issues you should know about before buying the property.
  • Sign the property purchase agreement: A property purchase agreement is a contract between you and the seller. Like any other contract, it covers the price and any negotiated conditions of the purchase. Your agent will provide the agreement. Communicate with them about any issues or conditions you would like to be included.

Every successful investor started exactly where you are now. The research and dedication you devote up front can help you achieve financial freedom, too. You’re now prepared to buy your first property and get started in real estate investing.

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Abu Dhabi Hosts Annual Investment Meeting May 2023

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ABU DHABI, United Arab Emirates — Abu Dhabi will host the 12th edition of the Annual Investment Meeting from 8 to 10 May 2023, which will take place under the theme of “The Investment Paradigm Shift: Future Investment Opportunities to Foster Sustainable Economic Growth, Diversity, and Prosperity”.

At a press conference held today in Abu Dhabi, the announcement of the launch of AIM Global 2023 which is supported by the Ministry of Industry & Advanced Technologies, with the Abu Dhabi Department of Economic Development (ADDED) as a lead partner was made in the presence of H.E. Dr. Thani bin Ahmed Al Zeyoudi, Minister of State for Foreign Trade, Vice Chairman of the UAE Industry Development Council and H.E. Mohamed Ali Al Shorafa, Chairman of ADDED.

AIM Global 2023 pillars will discuss the global capital market transformation, ways to improve the flexibility of global supply chains to benefit from growth opportunities, and the Fourth Industrial Revolution & AI technologies in the years to come.

AIM will also address new trends in the current global digital transformation that’s being experienced by developing & developed economies. AIM Global 2023 will feature many sessions & workshops that discuss vital topics, including Future Cities, how to use innovative technologies to address the increasing demands, the business sector’s ability to keep abreast of the fast changes, and the future role of Startups & SMEs.

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H.E. Dr. Thani bin Ahmed Al Zeyoudi, lauded AIM’s ability to change its activities to keep abreast of the new changes in the global economy and praised AIM Global 2023’s gathering of all investment stakeholders in an effort to overcome the current obstacles to achieve sustainable economic development & prosperity for the world via several paths, including Digitization, Sustainability, Industrialization, and Free Trade.

H.E. Mohamed Ali Al Shorafa said: “We’re pleased to host AIM 2023 in Abu Dhabi, which has established its position as a preferred destination for business & investments due to its proactive, open approach in dealing with changes. AIM is a suitable platform to discuss new trends and ways to deal with changes and developments in the global economic landscape.”

AIM will comprise several features, including the Exhibition, Investment Roundtables, Investment Destinations Presentations, Investment Awards, Startups Awards, Investors Hub and G2G, G2B & B2B Meetings.

*Source: AETOSWire

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AI will continue to attract investment in near future in the healthcare industry

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Artificial intelligence (AI) was seen as one of the top current investment priorities and was thought to continue to attract investment in the healthcare sector in the upcoming two years, according to GlobalData’s latest report ‘Digital Transformation and Emerging Technology in the Healthcare Industry – 2022 Edition’.

In this survey-based report tracker, digital media was prioritised as a top current investment target, with 53% of surveyed respondents confirming that their companies are currently investing in this technology. It was followed by AI, social media and big data (Figure 1). Compared with last year’s data, digital media saw the biggest increase in current investment, up by 22% from last year. AI (+9% from 2021), social media (+8%) and big data (+5%) have also gained since last year, besides trending as very popular technologies for investment priorities for several years. Their combined usage can release synergetic power and potential that could be disruptive to the healthcare sector.

While digital media was selected as the number one current investment target, the percentage of companies investing in this technology is expected to drop by 16% over the next two years. This would likely be due to the current inflation and rising costs, which contribute to a gloomy investment environment. In the next two years, the surveyed healthcare industry professionals believed that their companies will prioritise AI as the main investment target (figure 2).

Having topped the chart as the most attractive investment target since 2018, AI is a rather versatile technology that can be applied in a wide spectrum of processes in the pharmaceutical value chain, making processes faster and more efficient; eventually saving time and labour costs.

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The technology has a multititle of applications; for example, companies like Exscientia are using AI to help their pharmaceutical clients analyse vast data sets to identify potential drug targets in a shorter time. K Health, in its AI-based telehealth app, is using AI and big data to help users access accurate information on their symptoms and connect with physicians; BioSymetrics is using AI and machine learning to provide a platform and models to help pharmaceutical companies to identify targets for drug discovery; while Bayer’s AI-enabled Calantic™ Digital Solutions platform, which combines AI with Cloud computing, is used to provide more structured tasks and more improved workflow, to ease workload and pressure for radiologists.

The new digital era has been driving the uptake of digital technologies. Technologies like AI are expected to bring disruptive power to and revolutionise processes within the healthcare sector. There has been an increasing number of successful AI-use cases in the healthcare industry that support a growing trust in AI. AI’s potential is substantial – not only limited to shortening the time and reducing cost in the drug discovery process, or providing healthcare professionals with faster and more accurate diagnoses.



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Responsible Investment Industry in the Midst of Remarkable Evolution

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TORONTO — The responsible investment industry is in the midst of a remarkable evolution, according to new data from the 2022 Canadian Responsible Investment (RI) Trends Report. Released today by Canada’s Responsible Investment Association (RIA), the report tracks the national trends and outlook for RI, which refers to investments that incorporate environmental, social, and corporate governance (ESG) issues into the selection and management process.

This year’s report confirms that RI’s recent momentum is giving way to demand for sophistication and more vigilant reporting, signaling a maturing industry. Over the past two years, the rush into RI claims has been met by forces both external and internal to the financial industry, including the reputational and legal risks associated with greenwashing and lack of clarity around ESG industry terminology and disclosure requirements.

With its updated methodology, the report affirms that RI is entrenched in Canada, with reported assets under management at $3 trillion, and 94% of respondents using ESG integration as an RI strategy. This marks the emergence of a reliable baseline for RI market share and demonstrates that ESG Integration is a fundamental tool in Canadian investors’ decision-making.

“Greater vigilance is redefining the ‘floor’ of RI assets under management. Increased clarity and alignment are necessary to shape the slope and raise the ceiling,” said Patricia Fletcher, CEO of the RIA. “RI is here to stay, but we have work to do with everyone in the investment ecosystem to get the next steps right in order to propel further growth.”

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Growth expectations overall remain strong with 90% of respondents anticipating moderate to high levels of growth over the next two years. The demand for sophistication and vigilance is further reflected in investors’ future outlook, with respondents citing the top three potential deterrents to RI growth as: (1) mistrust or concerns about greenwashing, (2) a lack of standardized ESG disclosure frameworks/standards, and (3) lack of reliable data.

The report found an increase in the prevalence of all other RI strategies in addition to ESG integration, including corporate engagement, positive and negative screening, and thematic and impact investing, further pointing to the growing RI sophistication of Canadian investors. Respondents cited risk management as their top motivation for considering ESG factors.

Additional Highlights

  • Survey respondents reported the top three reasons for considering ESG factors are: (1) to minimize risk over time, (2) to improve returns over time, and (3) to fulfill fiduciary duty.
  • The three most prominent RI strategies by AUM are: (1) ESG Integration, (2) Corporate engagement & shareholder action, and (3) Negative/exclusionary screening.
  • Climate change is an overwhelming concern for responsible investors–-who also believe it is the greatest driver for growth over the next two years.

View the report here.

Quotes from 2022 Canadian RI Trends Report Partners:

“The evolution of responsible investing is a natural and expected process that is beneficial both to investors and the industry,” said Roger Beauchemin, President and CEO of Addenda Capital. “Several trends are helping to strengthen practices: investors’ growing appetite for data on environmental, social and governance (ESG) issues, pressure on companies to improve transparency, and industry efforts to define and meet standards in sustainable investing.”

“As the definition of responsible investing matures and the collective knowledge of our industry continues to increase, we are encouraged to see significantly more respondents turning to thematic approaches and to hear that a desire to address key issues like climate change will continue to drive growth over the next few years,” said Karrie Van Belle, Chief Marketing & Innovation Officer, AGF Investments Inc.

“We are incredibly proud of the progress that Canadian investors are making to deliver more transparency, a diversity of responsible investment solutions, and better client outcomes,” said Fate Saghir, SVP, Head of Sustainability, Mackenzie Investments. “This report reinforces Canada’s ambition to lead in the future low-carbon, equitable, and prosperous economy, and we at Mackenzie, are humbled to participate in this journey on behalf of our clients.”

“We are inspired by the level of attention investors are paying to climate factors. What’s more, the relatively low use of impact investing revealed by the report suggests there is untapped opportunity to leverage investment portfolios to reduce global carbon emissions,” said Adelaide Chiu, VP, Head of Responsible Investing & ESG Services. “We look forward to helping Canadians seize the opportunity to make an impact as they pursue their financial goals.”

“RBC Global Asset Management is proud to collaborate with the RIA Canada and support its efforts to build greater awareness of ESG trends and issues facing the investment community,” said Melanie Adams, Vice President and Head, Corporate Governance and Responsible Investment, RBC Global Asset Management. “Primary research, such as the 2022 Canadian Responsible Investment Trends Report, plays an important role in helping educate Canadian investors and advisors about responsible investment trends and sentiment.”

About the Canadian RI Trends Report
The RIA publishes the Canadian Responsible Investment Trends Report to understand and assess the characteristics of responsible investment in Canada. This study was completed by Environics Research on behalf of the RIA. The results are based on input from organizations invited to participate in an online survey between August 2nd and September 29th, 2022 as well as desk research completed by the RIA. All figures are stated in Canadian dollars as at December 31st, 2021. The 2022 report was generously sponsored by Addenda Capital, AGF Management Limited, Mackenzie Investments, NEI investments, and RBC Global Asset Management.

About the Responsible Investment Association (RIA)
The RIA is Canada’s industry association for responsible investment. The RIA’s membership includes asset managers, asset owners, advisors, and service providers who support its mandate of promoting responsible investment in Canada’s retail and institutional markets. RIA institutional members collectively manage more than $42 trillion in assets. Learn more at www.riacanada.ca.

View source version on businesswire.com: https://www.businesswire.com/news/home/20221123005078/en/

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Contacts

Nick Buccheri
Director, Operations
Responsible Investment Association
nick@riacanada.ca
+1(416) 461-6042 x5

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