How to Invest in Real Estate: Tips for Beginners

Investing in real estate can be a great way to expand into additional income sources and develop new revenue streams. 

Many people have had experience dealing with landlords. However, taking on the landlord role may not be everyone’s dream, you've probably heard of some nightmare scenarios where landlords have to deal with unruly tenants, bug infestations, having to find a plumber if there’s a water leak in the middle of the night or the multitude of other issues that they are responsible for handling.

However, there are upsides to owning a rental property as well. The money tenants pay in rent can be a great investment with extra money coming in every month. There are also real estate investments that can be made that do not require dealing directly with tenants. 

Knowing how to start investing in real estate can be daunting for beginners, but often times it is easier than you think.

Is 2022 a good year to invest in real estate?

2021 is a great year to start real estate investing because we've seen so much change that has happened recently, with an expected increase in immigration and many people who are looking to make career moves, including the desire to work from home, and move homes. Keeping an eye on growing neighbourhoods, regions, and business sectors can help guide you into purchasing a successful investment.

Investing in property is a relatively safe financial move because as you know, people will always need a place to stay or a home to live in. As cities continue to grow and populations increase, the demand for land and property continues to grow along with it, in areas like Toronto and Vancouver we're seeing explosive growth in their real estate markets, where even short term real estate investors are seeing life changing returns on their investments.

Is Canada a good place to invest in real estate?

From an outside perspective looking in, living standards in Canada are impressive since it is one of the safest countries to live in, has a low unemployment rate with several booming industries, and has great public services. All of this helps to make investing in Canada one of the wisest financial moves that you can make and will continue to attract people to live here because of all the benefits this great country provides. 

With the increase in demand for single family homes across the country, in both city and rural settings, the Canadian real estate market has never been hotter, making it an ideal time and place to buy a home. The housing market is on a safe and positive course, with more construction and developments being created every day, especially in the major city markets across Canada, including Edmonton, Ottawa, Montreal, Toronto, Vancouver, Halifax, Winnipeg, etc. 

5 Tips for Beginner Real Estate Investors

1. Consider buying REITs

REITs (real estate investment trusts) are an easy way to invest in real estate without the hassle of being a landlord. With REITs, you will be investing in the company that owns real estate. These companies tend to own commercial properties such as malls, hotels, and office buildings. The good thing about REITs is that they are a smart investment for retired people because of the increased dividend payments. Investors can use the extra funds into more investments to further their financial gain.

While REITs can be a good real estate investment, they can also be complicated and risky. Since REITs can be traded publicly and privately, and depending on how you choose to invest, some can be riskier than others. REITs that first time investors should be wary of are the non-traded variety, as they are more difficult to re-sell and determining their worth is not easy.

For those wondering how to get into real estate investing, a good resource will be your financial brokerage firm, since they make it easy to buy safer REITs. If you do not have an account with a an investment banking firm, reach out to your bank and ask them about their REIT options. 

Our opinion: Stock investments can be risky, but they can also provide stellar returns - Duke REALTY Corp a publicly traded real estate holder and Prologis Inc have double and tripled in stock price in the last five years, but its important to consider what is doubling. 

2. Rental property investments

We all know that owning property is a great investment, but there are ways to get more bang for your buck when looking to buy a home. Knowing how to invest in real estate in a smart way that brings in extra money is key, which is why owning a rental property can be a great way to start.

Potential investors tend to wonder if you can make money in rental properties, and the answer is yes – but it will take putting money, work, and time into the property before you do. There are many things to consider before purchasing a rental property, such as how much you want to charge per month, what the upkeep will be, and what the costs of renting is in the area. These factors are important to consider because they can all affect how much money initially will be invested and how long it will take to recover and grow from that investment.

Rental properties can come in different shapes and sizes, whether you are looking to buy a building that is already set up to rent, or will need renovations before renting, you can make good money with rental properties. While it can take further funds to create or renovate the rental space to reflects the needs of the local community, taking that extra time and money can set you up for more passive income over time.

Our take in comparison to your initial investments in a stock: If you are considering a purchase of a home and are able to get it for 5% down, on a $400,000 home that investment would only initially be $20,000 down and your closing costs which should be under $10,000 

With 5% down, and a real estate market and rental growth rate of only 1.5% yearly your return on investment after five years is just under $70,000 with a total return of 315+% At the five year mark, your home would have an equity position of $91,467 and $192,000+ at ten years. With a y/y 4% market growth your ROI at the five year mark becomes $125,000+ or 569% and you'd have over $320,000 in equity in the home with only $240,000 owing.

Still a lot more to consider, there's the risk of picking the wrong stock, and the risk of your property needing major work, or repairs (Roof, furnace, etc). 

3. Flip a property

If you love home renovation shows, then the idea of flipping a property might be something to consider. The idea of purchasing an inexpensive “fixer upper” residence, handling major renovations to it, and then reselling it for more than the original cost, plus cost of renos, to gain a profit. The profit made can then be reinvested in another building in need of repairs to keep the cycle going and growing.

Potential real estate investors looking for a home to flip need to be aware of the risks that come with this type of investment. While the whole process of flipping a property may seem straightforward, not everyone that buys and flips makes a profit. It is important to consider factors like:

•         What is the neighbourhood like?
•         How much will the renovations cost?
•         Will you be handling most of the renos or will you need to outsource?
•         What renovations will be required?
•         How long will it take to renovate and sell?
•         Are your reselling expectations too high?

Our advice: Book a coffee and ask to chat with one of our agents who owns and has flipped rentals and investment properties, they can give you a more thorough understanding of the undertaking involved in this venture, timelines, expectations, and sacrifices that may be required to get the job done. 

This tip shouldn't be taken lightly, while rental investment properties that you have aren't typically difficult or complicated to manage, an investment flip can truly be a much more complex undertaking and going in without a game plan, a thorough understanding of the home (including resale), and the knowledge or aide to get the job done can result in significant costs and extensions to timelines.  

4. Try short term rentals

If you are trying to figure out how to invest in real estate with little money, renting out part of your home to short term tenants can be the perfect answer. If you can rent out a bedroom or basement on sites like AirBNB, there's minimal risk as users are rated after each stay and provide insurance through the company, keeping risk of damage low (but not non existant). If you have the extra space, short term lodgers can be an easy way to try real estate investing for beginners, as there are few costs and little maintenance, especially with the offerings of VRBO, AIRBNB and others. 

Renting out what you already have is the most cost-effective and easy real estate investments that can be made. Consider what will make the space more eye-catching and inviting, and what you and your neighbourhood has to offer for potential guests, because the more you can keep it occupied, the larger the profit will be.

Consider this: Although the price tag is high, places like Canmore (for the right investor) can provide the opportunity to rent and own a place of your own near the mountains.  With high demand, and high rental rates per night, the opportunity for short term rentals in a market like this will only continue to be in high demand as travel becomes more and more accessible across the globe and Banff continues to draw in major amounts of tourists from around the globe.

5. Invest in your real estate journey online first

There are many platforms out there where you can begin your journey to invest in real estate online, like Youtube. With podcasts / Youtube channels like Bigger Pockets who do an incredible job of covering the ins and outs of investing in real estate (including the math and fundamentals!)  These types of online investing resources can easily help equip you with the right knowledge and information to get your real estate investment journey going. 

For example. this video covers some basic steps and information on how to become a millionaire with real estate (For newbies!) bear in mind a lot of this information is US based so not all of it is applicable. 

A podcast we recommend is the rental rookie - A great resource for those looking for a community and are at the early stages of their online investment journey. 

There are plenty of great resources out there, and tons of free expert advice, including advice from some of our specific investment experienced Calgary REALTORS® and the partners we work with. We're always here to help investors looking to break into the Calgary real estate market.