Land is a finite resource, but Canada’s population is increasing. The basic laws of supply and demand mean that land, in general, will become more valuable in the future.
Real estate investment has also kicked into high gear recently as low mortgage rates inspire many to buy additional investment properties.
Although attractive, real estate investment
is complicated. Here are several different approaches to entering the
world of real estate investment:
1. House Flipping
- Many people first become involved in the real estate market through
house-flipping. This is when you buy a house when the market is low,
renovating it, and selling it when the market is high again.
An advantage of this approach is the ability to live in a house while waiting for its value to mature. This option carries one major risk: the cost of renovations might exceed the profit on the house. Make sure you understand what kinds of repairs will be needed before buying a house to flip.
2. Rental Properties
Buying property to rent has a lesser level of risk. As long as the rent can cover your mortgage interest, taxes, and maintenance, you will not lose money by holding a rental property. All you have to do is continue to pay down the principal and wait for a good time to sell.
Although these benefits are tempting, rental properties are hampered by tighter mortgage restrictions. To purchase a rental property on mortgage, you will need to provide at least 20% of the value as a down payment. Another disadvantage is a continuing time commitment of finding tenants, collecting rent, and arranging for maintenance.
3. Commercial Mortgages
For a less demanding rental property, consider using a commercial mortgage to buy storefront or office space.
This has all the high benefits and low risks of rental property, with (usually) much less work. Commercial mortgages, unfortunately, require more stringent appraisals, including environmental assessments. All these appraisals can cost a lot of fees and take a lot of work.
The typical value of a commercial mortgage, often over a million dollars, can also dissuade potential buyers.
4. Real Estate Investment Trusts
Real Estate Investment Trusts (REITS) are a solution for those who want to invest in real estate, but lack the capital to use as a down payment on large properties.
A REIT is run as a corporation that
collectively acquires and sells property. REITs typically pay out over
90% of their rental profits directly to investors, making them far more
profitable than most investment groups.
source: northwoodmortgage.com
