Rental Real Estate
Like purchasing your own residence, buying rental real estate for income works best when you take a long-term approach. It requires time commitment, experience and patience.
Buying a property in a good, growing area with high demand for rental housing and making the initial improvements to make it a quality rental is the most challenging.
It takes some hard work and research to acquire the best investment. Look for a reputable, experienced agent familiar with investment real estate.
Buy a cash flow–positive property to earn decent returns. You want a nice boring property rented as long as possible to decent credit profile tenants.
To be profitable, at least in the beginning, you’ll need to manage the property yourself instead of using a management company that can take a huge bite out of your cash flow.
Being aware of your local by-laws and complying with building codes is also critical to becoming successful as a rental property investor.
Once the property is paid off, it will provide a steady income stream for as long as you’re able to care for the property and your tenants.
Related: How To Pick The Perfect Mortgage
If you would like to invest in real estate without the hassle of being a landlord there are several options.
Private Mortgage: If you would prefer to not own property directly, an investment in mortgages can be arranged through a mortgage broker who, for a fee, acts as an intermediary between the borrower and the lender of the mortgage money.
The ability to have collateral tied directly to a real asset can make this an attractive option.
If a mortgage investment is arranged privately between a borrower and lender, legal assistance may be necessary to properly prepare and register the mortgage documents.
Mortgage-Backed Securities: An MBS is a fixed income investment representing ownership interest in a pool of mortgages fully insured by the National Housing Act.
They are usually the highest yielding AAA fixed income investment available to retail investors with the same high level of safety of any government guaranteed security.
Predictable cash flow of monthly interest and principal payments make them especially of interest to retirees.
Limited Partnerships: You can find opportunities for participation in real estate syndicates or limited partnerships through private sales forces. They involve a pooling of resources with like-minded individuals and partnering up with a third party organizer or promoter who makes the purchasing, managing and selling decisions.
Investment can be in land development or existing properties such as apartment buildings and vacation properties.
A prospectus or offering memorandum will outline the details of the investment. Good research and due diligence are imperative before investing. Take a good look at how the deal is structured and be wary of unrealistic expectations of profit.
Real Estate Investment Trusts: REITs are trusts that own and develop property and earn rental income.
REITs can be purchased though a discount brokerage or directly from the company administering the trust, like stocks.
What makes them an attractive way to invest are the high yields on the dividend payments – typically paid monthly.
They are a way to invest in a large number of geographically diversified real estate investments such as residential apartment blocks, hotels, office towers, shopping malls and seniors retirement homes.
Some examples include:
- First Capital Realty (FCR) – shopping centres
- Boardwalk REIT (BEL.UN) – multi-family residential units
- Allied Properties REIT (AP.UN) – office towers
- Chartwell Retirement Residences REIT (CSH.UN) – retirement units
- Dundee Industrial REIT (DIR.UN) – industrial complexes
REIT ETFs: These ETFs hold multiple REITs and track the performance of a real estate equity index. They may hold properties is the US and globally as well as in Canada.
Some examples are:
- BMO Equal Weight REIT Index ETF
- iShares S&P/TSX Capped REIT Index
- Vanguard FTSE Canadian Capped REIT Index ETF
Why Invest In Real Estate?
Many people have a significant portion of their net worth invested in their homes. Therefore, additional real estate exposure may not be for everyone.
There are some risks involved when you invest in real estate – some are obvious, and some are not. Real estate development, private real estate funding, and fixer uppers have much higher risk profiles.
Real estate does, however, offer the ability to diversify into an area often under-served in many investors’ portfolios.