How To Invest In Real Estate in Canada

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With the volatility of the stock market, many Canadian investors are looking to shit their investments to gold and real estate. However, only 5% of homeowners in canada are considered as real-estate investors even with all the opportunities.

In this article, we will guide you in starting a journey as a real estate investor, as well as debunking some of the common myths that might hold you back at the moment.

The Different Ways To Invest On Canadian Real Estate

1. Invest on a House To Live In

This is the traditional approach for real estate investment: purchasing a primary (principal) residence where you can live in. This way, you get a place to live—eliminating house rent costs—, while you are also buying a long-term investment. By paying your own mortgage instead of spending money on rent, you are growing your net worth.

There are two main considerations in this type of real estate investment: the house’s projected appreciation, and making sure your mortgage’s interest rate is low enough so this investment can beat the inflation in the long run. 

You would want a home located in a good neighborhood with access to highways and public transportation. Close proximity to the school district, restaurants, shopping malls, and parks is also preferred. However, finding a house like this in big cities like Toronto and Vancouver can be difficult since the price is already higher than Canada’s average. Calculate carefully and make sure you’ll get a good profit in the long run (10-15 years time frame or more).

2. Flipping a House

In this type of real estate investment, we are generally looking for fixer-upper deals: under-priced houses in need of repair or renovation, which you can sell for profit after the repair. House flipping, however, is often not as easy as it’s advertised. You might run into complications like wiring issues hidden inside the wall (which can significantly increase the repair cost), or you might end up without any buyer in a long time. 

Working with an experienced realtor might help in reselling the property according to your desired price. Also, carefully assess the property to make sure that it doesn’t have any significant fault.

3. Buying Rental Properties

Buying a rental property is probably the best way you can make a relatively short-term profit while mitigating your risks. The main idea is to finance a house via a mortgage plan, and then get a tenant to rent your house, where the rental income will cover your mortgage payment and a profit on top. 

In general, you would want to look for houses with the same criteria as a principal residence: good neighborhood and access to public transport and facilities (hospitals, schools, restaurants, etc.). You might also want to hire a property manager to help take care of the property while managing the tenants. Just make sure you are going to be able to make a profit after factoring in the cost for property manager.

4. Investing in REITs

If you don’t have a significant amount of cash available at the moment, or you don’t want to commit to a mortgage plan for one reason or another, investing in a Canadian REIT (Real Estate Investment Trust) is a good option. 

A REIT in a nutshell is a company that owns rental property (or any income-generating real estate). This way, you can invest on the REIT via the stock exchange. Another similar option is to invest in real estate ETF (Exchange Traded Funds) or other real estate mutual funds.

As with any stock exchange investments, however, there are risks involved, so make sure to check for stable stock price history and dividend payments consistency.

5. Buying a Vacation Property

Buying a vacation house in a tourism spot, for example in Ontario near Niagara Falls, can also be a good real estate investment opportunity. The idea is to buy a property in an in-demand location, and you can use property-sharing platforms like AirBNB to generate income. 

You can even buy the property with the old school timeshare approach, where you share the property costs and usage period with other owners. 

Common Myths and Misconceptions About Real Estate Investments

Even with all the good opportunities and all the different options, many Canadians are still intimidated by the idea of real estate investment. Debunking these myths and understanding the truth about real estate investment opportunities can help you overcome that fear: 

1. You need a six figure income

One of the most common misconceptions is the idea that you need to make hundreds of thousands of dollars each year before you can afford the properties. The fact is, you don’t.

In general, you can purchase properties that are able to generate income (rental and commercial properties), as long as your total debt obligation is lower than 40% of your income. 

Working with a mortgage lender that are willing to assist you in building a portfolio can help.

2. Handling tenants can be a headache

The answer to this is to hire a good property manager, which should cost you below 10% of the rental income. 

Also, yes, there’s always the issue of missing tenants and missing rental incomes. Generally, you can tackle this by investing in towns with strong employment. Save an emergency fund worth three months of rental income for each property, so when these things happen, you don’t have to use your own money. 

Working with experienced realtor, and even an experienced property manager, can help you get the next tenant faster to cover the missing income. 

3. What if the market crashes?

The answer is to focus on long-term investment instead of momentum-based speculation. 

Invest in a good property with good location that is fairly priced (or even better, under-priced). As long as you can get a tenant to cover your mortgage and other expenses, even when the market crash, the property’s price will be irrelevant in the long run.

Bottom line, don’t focus on getting quick profits, but focus on consistent, long-term profitability. 

End Words

While there are various options for real estate investments in Canada, generally investing in rental properties for a long-term basis is the safest and most profitable option.Hiring a property manager will cost only a fraction of your rental profit, but will save a lot of time and effort.

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