Real Estate Investing in Canada: Unlocking Opportunities with Keyspire
What is Real Estate Investing in Canada?
Real estate investing involves buying property with the goal of generating income. That income can come from appreciation, rental income, or both. The properties can be anything from vacant land to residential homes to commercial properties. There are many strategies for real estate investing in Canada, including renovating and reselling properties, renting them out, investing in a real estate-based fund, and financing mortgages. As is the case with any investment, there are risks to real estate investing in Canada; however, the rewards can be considerable. You can increase your cash flow, take advantage of tax breaks, and profit through the appreciation of your properties over time. This may sound like it’s out of your reach, but with some guidance and research, you can take advantage of the many opportunities there are to grow your wealth with real estate investments.How Can I Invest in Real Estate in Canada?
There are numerous ways you can get into real estate investing in Canada. In this section, we will cover the most common ones. Keep in mind that this list is not exhaustive, so keep your eyes open for additional opportunities.Buy a House
Buying a house is the most straightforward way to get into real estate investing in Canada. Property values tend to increase over time, and with every mortgage payment you make, you are increasing your equity in your home. While you grow your wealth by making regular mortgage payments, you can also add to your income by renting out a room or a suite in your home or offering it as a vacation rental while you are away. If you use part of your home for your business, you may also be able to deduct some of your mortgage and household expenses from your taxes.Flip a House
A well-known way to take part in real estate investing in Canada is to flip a house. We have all seen the home renovation shows that take a run-down shack and make it into a beautiful family home in 6 weeks. Perhaps you’ve dreamed of making this type of real estate investment yourself but worry that you lack the skills and the time for a major project like this. Fear not, for there is more than one way to flip a house. For example, you can partner with a contractor, providing some of the funding and then sharing in the profit. You can also take on a more modest renovation, such as a home that is a bit dated and just needs a few upgrades. Successful flipping can be challenging. Scheduling is crucial because you want to turn the house over as quickly as possible to minimize financing costs and put the renovated house on the market at the optimal time. Keeping your other costs within reason can also be difficult; budgeting plays a big role in how much money you will walk away with in the end. Nevertheless, flipping can be a very lucrative way to invest in real estate. Do the research, make smart choices, and put in the time, and this could be for you!Buy a Vacation Property
Vacation properties can be houses, condominiums or cottages and can be located in the city, the country, or anywhere in between. Visit some of the popular vacation rental websites, such as Airbnb or Vrbo, to see what is being offered in the area you’re interested in. You can purchase a property and rent the entire thing out to short-term renters, or you can create a separate suite in your existing home and offer it for out-of-town visitors. If zoning requirements allow, you can even build a tiny home on your own property, open up a suite over your garage, or get creative with a structure such as a shipping container or a decommissioned Airstream trailer; unique spaces such as these can be attractive to potential renters. Vacation properties do need to be maintained regularly and cleaned between visitors. This can be burdensome, but you can hire a property manager to do these tasks for you. This is common practice in real estate investing in Canada, especially for properties located far from your principal residence.Invest in Executive Housing
Apartments, condos, or houses offered as executive housing are similar to vacation properties, but they are rented out for longer periods of time. Sought after by businesspeople who need to relocate for work temporarily, these properties command higher rents and are less time-consuming to maintain due to the lower guest turnover. Properties rented out as executive housing should be located in or near city centers for easy commuting. These properties typically have higher-end finishes and all the amenities a busy executive would need to feel comfortable and be productive as soon as they walk in the door. They need to be stocked with all the common household items and equipped with luxurious bedding and modern appliances. Cleaning services should be provided at least once a week, depending on what the renter prefers. You can hire a local cleaning service to look after this for you.Buy Commercial Property
Commercial property can be an excellent way to invest in real estate, especially in growing areas. These properties have many of the same advantages as other rentals, but the leases tend to be longer, giving you a steadier income stream over time. You may also qualify for tax breaks depending on the municipality and any incentives they are offering to commercial property owners. Choosing the right property is essential to making a profit from your real estate investment. If you wind up with space that sits empty for months, you could find yourself in a difficult financial position. Fortunately, there are many indicators you can use to choose a property that is likely to rent out quickly. For example, you can look at demographic and economic indicators such as population growth and future development plans and supply-and-demand statistics such as vacancy rates and average rents. Many urban areas have business development offices you can consult with for forecasts and other local insights.Buy Vacant Land
Vacant land is available all over Canada, including in large cities. It makes a great real estate investment if you want something you can hold while it appreciates in value without having to do much maintenance or deal with tenants. Vacant land tends to be more affordable than property with a structure on it; the property taxes are lower, and there will be less competition between prospective buyers. Overall, you can acquire and hold vacant land at a lower cost than other types of real estate investments. Land banking is a strategy involving purchasing land that you believe may be developed in the future. Selling the land to the developer can be very lucrative, but you need to be confident that a development will be coming to that site within a reasonable time.Buy Agricultural Land
Investing in farmable land offers many advantages and opportunities. Since there will always be a demand for farmland, and it is growing ever scarcer in Canada, you can expect that farmland will increase in value over time. You can use the land for many purposes, including renting it out to local farmers who do not have the capital on hand to purchase land or who need extra land in the short term. Buying agricultural land may appeal to investors who want to make a positive impact. By renting it out to farmers, you can help secure the food supply for other Canadians. You can also include sustainable farming requirements in your lease agreements and set up renewable power projects such as wind farms and solar power fields.Invest in Real Estate Investment Trusts (REITs)
Buying and maintaining property can be time-consuming, especially if you are determined to do all the work yourself. If that doesn’t fit with your current lifestyle, consider a real estate investment trust (REIT). REITs are companies that own, operate, or finance real estate properties, distributing the earnings to their investors. They are traded on the stock exchange in the same way as stocks, making them accessible to anyone with some money to invest. REITs are professionally managed: all the research is done by people who are experts at real estate investing across sectors of the market. The REIT also handles the lease/rental of the properties, takes care of the maintenance, manages tenant relations, pays the taxes and utilities, and so on. You get the benefit of their expertise and their day-to-day management without lifting a finger. REITs have several additional advantages: they are traded on major stock exchanges, making them much more liquid than property that you own directly; they are required to distribute most of their income to their shareholders, providing you with a steady income stream; they diversify their holdings across different sectors, reducing the overall risk of the investments; because they are traded on public exchanges, they are subject to regulatory oversight, and are required to disclose key metrics about their operation.What are the Advantages of Real Estate Investing in Canada?
There are many great advantages to investing in real estate
Diversifying Your Portfolio
One of the most important reasons for purchasing real estate is that it diversifies your investment portfolio. If you only own stocks, your entire investment portfolio increases and decreases in value with the market, leaving you at its mercy. Real estate often behaves differently than stocks, bonds, and other types of investment vehicles. When the stock market is down, real estate might remain stable or even appreciate, and vice versa.
If you want to add another layer of diversification, you can purchase real estate in different sectors, such as residential, commercial, industrial, or agricultural properties, or even in REITs. Since each of these real estate sectors responds to different economic drivers, this gives you an additional layer of diversification.
Control Over Your Investment
Real estate gives you more direct control over your investment than other assets. You can do with your real estate as you please: buy, sell, upgrade, adjust the terms of your rental agreements between tenants, etc.
Hedging Against Inflation
Real estate investments generally rise with inflation, allowing you to maintain your purchasing power as the cost of goods and services rises.
Generating Cash Flow
With the right real estate investment, you can have a steady, reliable amount of money coming in every month. With stocks and many other types of assets, your income is less predictable. Having that dependable cash flow gives you a financial buffer against market swings. You will also be less likely to dip into savings or sell other assets when you know you can count on this income.
Tax Advantages
In many jurisdictions, there are tax benefits associated with owning real estate, such as deductions for mortgage interest, property taxes, depreciation, and tax abatements. Note that the rules may change over time and will likely be different for different real estate sectors. You can also look for development grants and other financial incentives that can save you money when buying a property or upgrading. Some incentives to check for are low-interest loans, training and workforce development grants, rebate programs, and agricultural incentives for sustainable farming practices.
Appreciation Potential
Over the long term, many real estate investments go up in value. Although there are cycles and variations from one market to the next, owning a piece of property is an excellent way to grow your wealth and, in the case of rental properties, generate a steady cash flow.
Leverage
You can use the real estate you own to secure loans. For example, it is common for homeowners to use the equity in their homes as collateral for a line of credit to fund a major renovation. This strategy aims to increase the home’s value by a figure larger than the line of credit. A prudent investor can leverage their real estate investment in many other ways to increase their returns.
What are the Disadvantages of Real Estate Investing in Canada?
Despite the considerable advantages of owning real estate, there are some disadvantages that potential investors should take into account.
Lack of Liquidity
If you want to sell your property, you could wait months or longer before the sale is finalized and you receive the proceeds. Assets such as stocks and bonds are much quicker and easier to sell. Of course, this does not apply to REITs, making them attractive to investors who want more liquidity.
Requirement for Up-Front Capital
Down payments and large recurring costs such as property taxes, mortgage payments, and insurance can pose significant barriers to entry into real estate investing. There are also high transaction costs when buying or selling real estate, including sales commission, closing costs, and lawyer’s fees.
Initial Lack of Cash Flow
Doing necessary renovations and upgrades takes time, during which you will not be able to rent out your properties. In addition, you may not be able to rent out all the space you have available right away. During this period, you will need to have another source of cash and a great deal of patience.
Property Management Challenges
If you will be renting out space in your properties, you will be taking on the responsibilities of being a landlord. You will need to deal with tenants, do regular and emergency maintenance, handle disputes and take care of any other issues that arise. Being a landlord is very time-consuming and can be frustrating for investors who have not done it before. One solution is to hire property managers who can take these tasks off your hands, but that will cut into your profits.
Sensitivity to High Interest Rates
The real estate market can be highly sensitive to interest rate fluctuations. When interest rates rise, borrowing costs increase, making it harder for investors to get the financing they need to purchase property. If you are attempting to sell a property, finding a buyer may also be more difficult when interest rates are high.
Maintenance Costs
Regular maintenance costs and utility bills are fairly predictable, but events such as cracks forming in the foundation, HVAC system failures, floods, and the discovery of asbestos or lead paint on the property can be a big drain on your finances.
Market Volatility
Although real estate is generally less volatile than the stock market, it can take downturns. Investors must occasionally decide whether they want to cut their losses or stick with the investment for the long term. The success of real estate investments can also hinge on broader economic factors, such as employment rates, over which property owners have no control.
Is Investing in Real Estate in Canada Worth It?
Real estate in Canada has historically been a good investment that offers stable returns and capital appreciation. The Canadian market has demonstrated resilience, and Canada’s robust banking system, diverse economy, and steady population growth support demand for housing and commercial space. However, like any investment, there are risks, and the losses, when they occur, can be considerable. It is essential that property investors assess their risk tolerance and conduct extensive research before diving in.
What is the 1% Rule in Real Estate in Canada?
The 1% rule is a quick metric you can use to determine the lowest rent you can charge for a property to generate positive cash flow. It is one of the basic metrics an investor can use to decide on a particular property or whether to make upgrades to a property they already own.
To make this calculation, add any necessary repairs to the purchase price of the property and multiply this total by 1%. This will yield the lowest rent you can charge for your property. For example, if a property costs $500,000, the 1% rule dictates that you should charge no less than $5,000/month in rent in total.
The 1% is a handy, rapid measure, but it doesn’t work for every market and should not be used in isolation. For example, in downtown Toronto or Vancouver, where property values are quite high, you are unlikely to be able to charge enough in rent to meet the 1% rule. For example, a 3-bed, 2-bath home in Toronto might sell for $1 million, but finding a tenant willing to pay $10,000 a month in rent would be difficult. Using a range of metrics and market information to decide on a property and set a minimum rental figure is important.
What is the Average Return on Real Estate Investment in Canada?
The MSCI/REALPAC Canada Property Index looks at a selection of Canadian real estate portfolios across sectors, producing quarterly and annual reports. This index has averaged an annual total return of 8.5 percent since 1985 and 5.7 percent over the decade ending in 2022.
The TSX REIT Index indicates that Canadian REITs have generated an average annual return of 9.7 percent since 1997. REITs outperformed the TSX Composite Index over this period by 2.7%.
It is important to recognize that returns vary widely depending on numerous factors, including supply and demand, inflation, and interest rates. Estimates of average returns also vary depending on the number and types of properties included in the data and the method of calculation. Do your research before jumping in, and always consult with reliable sources for your data and analysis.
Is 2024 the Best Time to Invest in Real Estate?
The signs point to 2024 being a good year to purchase real estate. Although interest rates are high compared to recent years, they are nowhere near as high as they were at their peak in the early 1980s. Real estate prices have been in decline in the last few years, and this trend is expected to continue; real estate investors in Canada may be able to snap up some great properties at lower prices than five years ago.
Given the housing shortage in Canada, we can expect to see new construction ramping up soon, giving investors an opportunity to get in on the ground floor as new developments are announced. The increasing threat posed by climate change may also lead to more eco-friendly and sustainable options; this could present opportunities for real estate investors to get involved in solutions such as green buildings, retrofitting existing homes, and urban vertical farming projects.
About Keyspire
There are many opportunities to supplement your income and grow your wealth through real estate investments! Keyspire can help you achieve your dreams by setting you up with the training you need to succeed. Fifty thousand new real estate investment enthusiasts join our training sessions every year, and we have over 100,000 like-minded individuals eager to share their achievements with you!
Ready to get started? Join our Masterclass, where you’ll learn the five things successful real estate investors consistently do. The Masterclass will give you key insights you need to feel empowered to go forward. Our live, interactive 3-day or 2-day accelerated Bootcamp takes it to the next level with even more information and opportunities to apply what you’ve learned. You’ll leave this experience feeling confident and prepared!
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At Keyspire, we are not about competition; we are about coaching, training, and networking! We want all our investor trainees to succeed with their own real estate investments, and we are here to celebrate every success and coach you through any setbacks you encounter. Join us today by signing up for one of our action-packed events today!