Real estate investing refers to income generated from buildings or land or a combination of the two. When Canadians consider real estate investing, they usually think about owning a rental property. That is, after all, how most Canadians invest in real estate. But there are several ways you can participate in the Canadian real estate market, and you don’t even need to own physical property.
Ways to Invest In Real Estate:
- Buying a Principal Residence
Some believe that your principal residence, while an asset, should not be considered an investment. The main reason is that it’s not cash flow producing. No matter where you stand on the issue, the house you live in has the potential to increase in value substantially over the long term, especially if you bought in an appreciating housing market.
- House Hacking
House Hacking is a strategy that involves renting out portions of your primary residence to generate income that is used to offset the cost of your mortgage and other expenses associated with owning a home. When done correctly, it allows people to live in expensive areas completely for free, or even generate positive income through home ownership.
- Converting Your Primary Residence Into a Rental Property
If house hacking doesn’t interest you, you could buy or rent a new house and turn your existing home into a rental property. There are a few advantages to doing this. First, you won’t have the expense of buying a rental property as most lenders require a down payment of 25% or more on rental properties. And going through the mortgage approval process is a lot of work as well.
However, if you’re planning to do this, make sure that your existing home is suitable as a rental property and can produce a positive cash flow. Find out if the monthly rental income will be enough to cover the mortgage, property taxes, and any other related expenses. Also, if it is in the right neighbourhood where a demand for rental properties is high. A rental house with no tenants can quickly become a burden.
- Purchase a Rental Property
If you have enough cash for downpayment, you may decide to stay where you are and purchase a rental property. The upfront cost will be much higher, but you can pick and choose a home that is well suited as a rental. You want a home that’s been well maintained. Cosmetic upgrades are ok, but you don’t want to replace the roof, windows, or other big-ticket items any time soon.
Most importantly, when buying a rental property, you need to make sure it generates positive cash flow. In other words, the money coming in from rent exceeds your total housing costs, including mortgage payment, property taxes, utilities (if applicable), and regular maintenance.
- Flip a Residential Property
Flipping is a type of real estate investment strategy in which an investor purchases a property not to use, but with the intention of selling it for a profit. House flippers look for home with upside potential, inject large amounts of cash to improve the property’s value, and shortly after sell it for a profit. Some house flippers will choose to keep the home as a rental, at least for some time. House flipping can be risky, but if done correctly, it offers a high reward. Some of the potential downsides to house flipping:
- Large upfront capital investment
- Unanticipated expenses can derail plans
- Tax implications that eat into profit
- Personal stress
- Time delays result in holding costs
- Inability to sell at the right price
To succeed, you should give us a call to discuss the best strategy for you! We have specialized knowledge of the local real estate market and plenty of experience in renovating, as well as building homes.
- Airbnb
If you own a house or an apartment with extra space, or an entire house for that matter, you can make it available as a short-term rental property on Airbnb. This might be the most flexible real estate investment out there. You choose when your property is available, and you get to set your prices. There’s no need to advertise because Airbnb does that for you on their global platform. Some people dedicate entire properties to renting through Airbnb.
- Purchase Farmland
For investors, farmland represents a smart addition to a diversified portfolio. Farms are a tangible asset that tend to not gain or lose value with ups and downs in the stock market. They are a solid option for earning income. Many rural Canadian landowners lease their land out to neighbouring farmers who use it to grow crops or as pasture for their animals. This makes for an ideal form of passive income. You can also choose to buy and hold farmland over the long-term to sell it for a tidy profit down the road.
For decades, farmland has proven itself to be a smart investment, faring far better than any other real estate asset. Historically, it simply does not lose value. That’s a win-win for farming families and investors, hand in hand.
- Commercial Real Estate
There are many benefits to investing in commercial real estate. However, it can be challenging for someone who lacks the expertise and time to do so.
Commercial real estate can be anything from a single unit retail storefront to large office buildings and shopping malls.
The upsides to commercial real estate investing are: higher rent yield, the stability of long-term leases, and the ability to diversify. On the downside, commercial properties require a lot of maintenance (which is very expensive) and a significant time commitment. There’s also the liability aspect of owning buildings often used by the public.
- Invest In REITs
Real Estate Investment Trusts, or REITs, are pooled investments that let you buy and sell real estate on the stock market. Investors can buy REITs and own a basket of properties that are managed for you and other shareholders. You will then share in the income that the real estate generates. There will also be the possibility of capital gains if the value of the buildings and properties increases over time.
The advantage of holding REITs in your portfolio is that it enables you to benefit from the growth of the real estate market without the costly overhead and hassle of buying individual properties. With a REIT, you can participate in owning hundreds of residential and commercial addresses around Canada and the US.
- Invest In REIT ETFs
Exchange-traded funds (ETFs) that specialize in real estate investment trusts (REITs) can be an ideal play for individual investors. Without having to enter lengthy contractual relationships, take out mortgages or come up with significant capital, they can obtain broad exposure to diversified portfolios of properties quickly and inexpensively. An ETF is an exchange-traded fund that holds a basket of stocks and trades like a stock on the exchange.
ETFs are passive investments, which means that the fund manager is trying to replicate the performance of an underlying market index rather than beat it. This hands-off management style means that ETF fees are much lower than what you would pay for other types of investments, like equity mutual funds, for example. In addition to the usual advantages, these funds are highly liquid, trading on the Toronto Stock Exchange (TSX), and they offer compelling yields, with distributions paid monthly.
