Real Estate Investing in Canada - 12 Strong Options to Choose From
When it comes to real estate, most Canadians do not think beyond their own homes. However, over the last few decades, the real estate industry has become an expansive market with the potential for large returns on one’s investments.
Real estate offers a means of settling your current capital to watch it grow over time. This makes investing in real estate an excellent way to generate your own income.
For reference: If you had bought a home for $520,000 in Dec 2019, it would have been worth approximately $608.920 by the end of 2020 on average. That is a 17.1% increase in value.
Canadians looking to invest in real estate often hesitate, missing opportunities for financial growth while more confident investors take the plunge into the ever-expanding market.
Now, there are a wide variety of ways one can begin investing in Canada's real estate market, but if you are going to succeed while investing in Canada, you need a proper plan. That is why we want to offer you a free strategy call. To claim your call and kickstart your investment career, simply click the link below.
Investing in Canada's Single-Family Homes
This is one of the first forms of real estate investing in Canada people tend to consider, and that is because it is a good one. Buying a single-family home and renting it out to a family is a long-standing method of generating income in real estate. As an investor you can use the income from the rent you are collecting to cover your mortgage and insurance expenses while also turning a profit for yourself.
As well, it is important to remember to check up on your property regularly to ensure it is well maintained for the benefit of both you and your tenant.
Multi-Family Residential Investing in Canada (1-4 Units)
Investing in multi-family properties is an excellent way to generate multiple streams of income off a single property. With as many as four units on a single property, you are offered a great deal of flexibility as an investor. Additionally, Multi-family units serve as an excellent way to attract demographics who may not be able to afford a single-family unit but are still looking for a place to live. If your property is located near a school, you may want to consider renting it out to students, as each school year brings new potential tenants into the area to fill any vacancies you may have.
As well you have the option to live in one of the units, which makes it much easier to keep an eye on your property as you continue investing in Canada.
Owner Occupied Home
While this may not sound like a way to invest at first, buying your own home is a terrific way to start increasing your overall wealth and net worth while investing in Canada. As you pay off your mortgage, you are contributing to your own wealth, providing yourself with a place to live as the home increases in value.
These kinds of properties are called a principal residence, which is an important status when it comes time to sell your home.
When you sell a property, much like any asset that grows in value, you are liable to pay capital gains tax on half of the profit made on the sale of the home. However, when selling a principal property, the Canada Revenue Agency (CRA) offers a complete exemption on the capital gains tax you would have otherwise owed.
Rent to Own
Sometimes, you cannot afford the cost of buying a home. Perhaps you do not have the money for a down payment, or your credit score is not where it needs to be to secure a mortgage. That does not mean there are not ways for you to eventually own your own home and begin investing in Canada.
Alternative to traditional home ownership, rent-to-own agreements, in which you rent a home for a certain period, with the option to buy it before the lease expires, are an excellent option. These agreements consist of two parts: a lease agreement, and an option to buy.
Often these agreements are arranged so a portion of the rent you pay each month is deducted from the purchase price, allowing for you to cut down on the cost of the home when the time comes to buy. However, it is important to note that rent is often higher than usual under these agreements to make up for the credit being set aside for your purchase. As well you will likely have to pay an option fee up front when entering the agreement.
Discover Rent To Own With This Step By Step Guide
House Flipping
Flipping properties can be a very profitable method of investing in Canada. The idea behind flipping is to buy a property that needs to have work done on it and has a high potential to increase in value after renovation.
Buying a property, fixing it up and selling it for a profit sounds simple, but can be risky and does not always pay off. This strategy requires a great deal of planning, because not every property that needs work will be able to turn a profit.
When looking at potential properties to flip, you must consider what kinds of work need to be done. Properties that require cosmetic changes to increase its value are great to consider, while properties with major faults regarding wiring and plumbing, may cost more to repair than you stand to earn on a quick flip.
As well, you need to ensure that the property is likely to sell after flipping it, or else you may be stuck holding a property you had no intentions of keeping.
Retail Properties
Another way to begin investing in Canada's real estate market is to consider buying a retail property. These properties can offer additional profits beyond traditional rent and come with a variety of advantages.
Retail and commercial properties often can be rented out at higher rates than residential properties, making them much more profitable while in-use. For example, in Downtown Toronto, the average office space is priced at approximately $37.05 per square foot according to an Oct 2021 study from Statista.
However, you must be careful with these properties because they are often expensive to buy and the high rent prices may potentially deter renters, making them harder to fill. So be sure to pay close attention to the local market to be sure you can find tenants.
Mixed-Use Properties (Residential/Commercial)
Mixed-use properties hold all the benefits of residential and commercial properties while investing in Canada. These properties usually consist of a commercial space with either a single-family unit, or multiple units behind or above it. These are advantageous because the commercial space below can be used as a draw for potential tenants. Additionally, you may be able to rent the residential unit(s) to the same renter who is set up in the commercial portion, allowing for your space to be filled much easier.
Multi-Family Commercial Properties (5+ Units)
Similar to the buying smaller multi-family units, buying properties at this scale is a great way to bring in multiple streams of income from a single property while investing in Canada. However, as the number of overall tenants increases the demand to upkeep your property will increase. At this point it is highly suggested you hire a property manager, especially if you own more than one property.
Short-Term Rentals and Airbnb
While most people think about cottages and vacation properties (and these are great investment opportunities), there is a much larger market for short-term rentals while investing in Canada than people would initially expect. Airbnb has created an opportunity to rent out your property for limited periods of time to generate some extra cash. You do not even have to rent out the entire home, as the platform allows for you to rent out spare bedrooms as well.
However, it is important to ensure that your unit follows local regulations on short-term rentals to make sure you are complying with the law. Additionally, these rentals require you to keep an eye on the property, as short-term tenants often do not take good care of the property when compared to long-term rentals.
Private Lending
There are ways to begin investing in Canada's real estate market without purchasing property yourself. If you have the capital available, there is the option of becoming a private lender.
Private lending is a form of investing where the lender offers money to a borrower that is secured against real estate. Lenders stand to earn money by charging interest and/or other fees to the borrower on top of the initial loan. In the case the borrower is unable to repay the loan, the lender can foreclose on the property to recoup the funds they have provided. It is important to remember that lenders may have to pay additional legal fees if the property does go into foreclosure.
While there is not a minimum amount of money required to become a private lender, many opportunities require at least $25,000 because the associated legal fees can amount to thousands of dollars, which can be restrictive when pursuing smaller deals.
Real Estate Investing Trusts
Real estate investing is a hands-on process, but it does not have to be. Real Estate Investing Trusts or REITs are companies that deal with the purchase and operation of income-generating properties by investing in Canada's best real estate niches. REITs are a fantastic way to gain experience in the real estate investing market from the comfort of home. Buying shares in these companies let us you skip the hassle of buying and managing property and instead receive notable payouts though dividends.
There is almost 40 REITs on the Toronto Stock Exchange, so be sure to invest in one that has a history of stable prices and reliable dividends.
Private Equity Firms
Private Equity Firms are an alternative form of investment you can use while investing in Canada that is not listed on a public exchange. These are typically reserved for experienced and accredited investors. (People whose net worth alone or combined with a spouse exceeds $1 million, or whose annual income was higher than $200,000 in each of the last two years.)
Private Equity involves three parties:
- The investors who supply the capital
- The private equity firm that manages and invests the money
- The companies invested in by the firm
By investing in these firms (which typically have very high minimum investments), your money is diversified across a wide array of investments to maximize your returns. This is an excellent way to invest for people who have the capital to do so.
Next Steps for Investing in Canada
When you want to invest you have to have the right team on your side. We recommend calling us at LendCity mortgages for all your financing needs. We specialize in working with investors and understand your unique needs. To get started with us LendCity visit them online at lendcity.ca or click the link below to book a free strategy call with us to help you keep investing in Canada.