When investing in a rental property, there are many risks involved, including legal agreements, taxes, financial calculations, finding renters, keeping renters, insurance, and maintenance. To reduce these risks and maximize the potential for wealth building, it is important to consider three key methods when it comes to risk-managing the finances:

Calculating the optimal amount of appropriate down payment.

Many people get this wrong by over-leveraging their rental property. If you put the absolute minimum down, your interest payments will be high, so you are completely reliant on always having renters. In some areas, people are betting that the property will appreciate and you’ll be able to increase the rent meanwhile they are losing money every month. By making a larger down payment, your monthly payment is less, and therefore you’re getting cash flow.

You have to balance this out. If you put the least amount, you’re risking not getting any cash out per month. If you put too much, yes, you’re getting good cash flow, but you potentially could have purchased two properties. There’s a balance, and online calculators like this one will help you see what you’ll be paying. https://www.ratehub.ca/mortgage-payment-calculator Related to this, you’ll need to know what you’re going to rent it for. Seems that rentals on Facebook Marketplace is the most helpful to look for similar rentals to make sure you’re charging the appropriate rent. Remember, if it’s too high and people are barely going to be able to pay, they may leave sooner than you want. If it’s slightly discounted, you get more applicants, you get to pick and choose, and they’ll (hopefully) stay longer because of the discount.

Seeking out properties in an area where there will be appreciation.

I don’t necessarily mean looking in far away cities, but even districts and municipalities have their own trends and opportunities. You’re looking for any sort of change with school districts, parks, new developments, new shops, etc. For me, I saw a trend in my city that new condominiums (apartments) were being built smaller and smaller. This is great for single people, but really difficult to be comfortable if you’re dating or in a committed relationship. So I saved enough to buy something a little bigger.

Looking for a property where you can make improvements that will increase the value of the property.

If you’re handy or really interested to learn some home improvement, this is a great opportunity to update an older property. Things like damaged counters put off other purchasers, but if you’re thinking to replace it anyway, who cares. It’s common advice to consider new paint jobs, new doorknobs, new lighting, etc. My favorite improvement is new lighting. I’m handy at basic electrical jobs: new lights/switches/plugs, so I enjoy taking this on.

Utilizing the three methods, you’ll be equipped to make an informed decision when it comes to investing in a rental property. There’s lots more to know related to rentals, but I hope you find this helpful when just getting started considering this as an option for building wealth.