The Best Ways to Invest in Real Estate

Young adult welcoming older man into home

When it comes to investing in real estate, most people look at owning their primary residence with the hope and confidence the value of the property will rise in time as they build equity in their investment.

It’s a sound and fairly safe way to grow your investment if you keep your eye on the long-term. But for many novices they’re likely not aware growing an investment in real estate can take many other forms-everything from renting out a property or a vacation home to buying a home, fixing it up and selling it for a higher price to investing in a Real Estate Investment Trust (REIT).

A professional women and man walking down the sidewalk of a soon to be residential area.

As with any investment, each approach carries with it different risks–so you’ll want to thoroughly research your options to ensure you’re investing your money responsibly and strategically. 

“Realizing the dream of homeownership has proven over the years, decades and decades, to be one of the best investments available to Canadians. If you look historically and you had X number of dollars to put in a downpayment . . . what you put down and what you paid, your investment has outperformed most other vehicles that are available to Canadians,” said Costa Poulopoulos, Chair of the Canadian Real Estate Association, adding people are paying down their mortgage while the property value rises so they’re winning on both ways.

A middle aged couple looking at financial statements in a modern dinning room

“Another key point is you hear people talk about the stock market and mutual funds and RRSPs as go-to things. And sure there’s returns there and yields. But you can’t live in a mutual fund. So not only are you getting appreciation and a tremendous return on your initial investment but it’s actually serving two purposes-it’s a secure investment and it’s housing.

“There are many vehicles available for investing from the novice first time trying to figure out a secondary home and starting small to sophisticated investors, conglomerates, REITs, whatever the case may be.”

For example, Poulopoulos said many people buy properties to rent out. In this regard, the property value can appreciate over time but also you’re generating revenue.  

One of the key things to consider when buying rental properties is the financial costs including mortgage payment and paying for utilities to taxes. And of course, unless you’re hiring someone to take care of the property you do have responsibilities as a landlord you might personally have to handle.

A row of multi material town homes.

Romana King, a personal finance columnist and real estate expert, said it’s relatively simple to make money using real estate as the investment asset whether it’s speculation buying and flipping a home or investing sweat equity and flipping.

“Simple in that you don’t require a lot of specialized knowledge so you don’t have to go to school for anything. You don’t need a qualification. But with that said it’s not easy in that you do still have to treat it like a business so you really need to be aware of the numbers involved,” she said.

Young adult welcoming older man into home

That’s really important when it comes to real estate flipping. The homework required here is to make sure you understand what exactly is selling in that neighbourhood, what the current trends are in that neighbourhood and whether or not what you propose fits in with those two current snapshots.

Timing is also important. It can make the difference in achieving a great return or losing on your investment.

King said she is a big fan of investing in a rental property. 

“You can make money on rental purchases as long as you have a cash flow positive budget sheet. If you don’t and if there isn’t enough wiggle room in that budget then you’re buying a property that’s priced too high for you and you need to actually rethink your strategy. It’s still a good strategy but consider a lower price point. Even if you get lower rent all of those numbers have to make sense,” she added.

King advises people to save up a larger down payment and look for a multi-unit property to buy whether it’s a house that can be divided into two units or a triplex. That spreads your risk with more rental revenue.

She said REITs are incredible vehicles and they can be a great gateway into real estate investment. 

“It does give you a better idea of how extraordinary real estate investments can be. They can be fantastic holdings. It also helps you diversify a little bit,” added King. “I really love REITs. I love REITs for anyone who really wants to get into real estate investing but doesn’t want to do the work. That’s not a negative. Not everyone has time to do all the investigation and crunch the math and make sure you have cash flow positive. If you don’t want to do that, and you want to get the upside of real estate investment, REITs are awesome. They’re excellent.”

Young couple talking to an investor

Whether you’re a novice or a sophisticated and experienced investor, the real estate industry presents a golden opportunity to invest your money and grow that investment if one takes the time to research the many vehicles available. 

Source: The article above is for information purposes and is not legal or financial advice or a substitute for legal counsel.  Mario ToneguzziMario Toneguzzi, based in Calgary has 37 years of experience as a daily newspaper writer, columnist and editor. He worked for 35 years at the Calgary Herald

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