Knowing what you want and why you want it is half the battle, both in life and real estate investing.
Before you open your chequebook, search online or call a real estate agent, ask yourself the tough questions of what you want to accomplish, why you want to accomplish it and why you believe investing in real estate is the way to help you achieve it.
Do you want to build a portfolio, so you can sell the properties and use the money to fund your retirement? Do you want to buy a property every time you have a child so that 18 years down the road the monthly cash flow or income generated from the sale of the properties can contribute to the cost of their post-secondary education? Do you want to put your skills as a handyman (or woman) to work to fix and flip? Once you know your why, you’re halfway there.
After working through this exercise fifteen years ago, Ontarian, Ed, created a plan to fund his retirement. He spent weekends driving through cottage country to choose the location in which he wanted to invest and eventually live. He found a winterized cottage for sale, which he was able to comfortably afford on a fifteen-year mortgage to coincide with the target date of his retirement. He utilized the cottage himself for vacations but also rented it out to generate additional income. Fast forward to the present day and Ed owns the property mortgage-free. However, by renting it out over the years, he was also able to pay for maintenance and updates to the property and invest the extra money to provide cashflow in retirement.
Once you’ve established why you want to invest in the first place and confirmed that real estate is your vehicle of choice, next determine how much time and effort you want to personally expend. Would-be investors can have unrealistic expectations and so they choose labour-intensive projects when they were really better suited for more passive investments. “I’ve known people who have made terrible mistakes thinking they wanted to fix and flip but when they looked at how much available time they had, it was a nightmare,” says Tami Bonnell, CEO, EXIT Realty Corp. International. Reality television paints a rose-coloured picture of fix and flip real estate. “Television shows are made for entertainment and have to be interesting for people to watch so the producers ensure the finished product looks magical but that’s not how real life works,” says Bonnell. “I’ve known doctors and dentists who wanted to fix and flip but in reality, they work too many hours to take on a project like that. They ended up losing money because they paid professionals to finish their projects. Also, they weren’t educated enough to know how much they should be paying to update the properties. They ended up with granite countertops in rentals that didn’t warrant upgrading to that extent.”
With the why, what and time decisions made, next you should set about educating yourself. Establish an informal group of people whose opinions you trust and who have had some success in real estate investing. Some of these people may be in your immediate sphere and others might be experts you listen to on podcasts and follow on Twitter. A Google search for “Canadian real estate investing podcasts 2019” returned more than 16 million results so you should narrow your search by province, city, specialty, etc. to find the best fit for you. Look for people who have “been there, done that” and are creative with a finger on the pulse of investing trends.
“One such trend we’re seeing is a twist on subleasing,” says Bonnell. “People who don’t want to go through the trouble of renting out a property but want to make sure that the mortgage is covered might lease it to a family member who then turns the property into a short-term executive or vacation rental. This arrangement isn’t necessarily something the investor wants to manage or maintain, and the lessee has the opportunity to make money above and beyond what he or she is paying in rent. Of course, everyone is fully disclosed, and this happens in communities where it is permitted by law.”
Experts and investors are also buzzing about the trend toward homes built from shipping containers. “These homes handle climate challenges well and can be inexpensive to build compared with traditional construction. They are well-suited for island living and hillsides, too,” says Bonnell. “Many boomers and millennials are looking for efficient, compact, environmentally-friendly, alternative homes to rent.”
Bonnell concludes, “Approaching real estate investing by first establishing your why, how, time and then learning all you can, will help you to enter the market with your eyes open and achieve not only better financial returns but also better emotional returns because your investments will be based on what makes sense for you.”