How to Start Investing in Real Estate: 4 Beginner-Friendly Investments

Real estate investing holds numerous possibilities for those looking to build their financial portfolios. Real estate investors can diversify their assets, create long-term wealth opportunities, and gain passive income by purchasing and managing investments in residential, commercial and land properties. To get started on a successful path toward real estate success, it’s essential to understand the different types of investors that are out there. This post will explore the most popular categories of real estate investor profiles and outline how each type works within the industry.

For informational purposes only. Always consult with a certified tax expert, financial advisor or real estate professional before proceeding with any real estate transaction.

Investing in Rental Properties

Canadians have options when it comes to renting their property. Some rent homes, duplexes, or apartment units to families, individuals, and couples. Others choose to rent office space to aspiring business owners in the area. Rental laws vary based on the province the property is located in and the type of real estate an investor buys. For example, a small apartment complex is typically considered a residential multi-family rental, while a larger one will fall under the commercial category. The definition (and corresponding laws) will vary per province based on the number of units in the complex.

What's the Difference Between Residential & Commercial Rentals?

When seeking out a rental property in Canada, it’s important to understand the distinction between residential and commercial rentals. Residential rentals are usually found in multi-unit buildings such as apartments, townhomes, or single-family homes, which tend to be located in suburban areas. Buying a vacation home and renting it out is another form of residential investing. 

Conversely, commercial rental properties typically encompass larger businesses such as office or retail spaces for operating a business. Regulations and requirements vary greatly depending on the type of rental a tenant is seeking, so it is important to do research into what regulations are applicable to your situation before deciding on renting either type of property in Canada.

There are many pros and cons to each type of rental investment. Residential rentals typically have a lower barrier of entry. Properties are more affordable, and there are fewer complexities regarding regulations and taxes. However, commercial rentals can be much more lucrative, thanks to their multi-year leases, high rental rates, and hands-off requirements. 

The Fix & Flip Investment Strategy

Flips take run-down properties and modernize them. Some of these include DIY-friendly renovations, while others require the help of professional contractors. The advantages of flipping can be desirable to investors because buyers are willing to pay a premium for a move-in ready property. But flippers need to do their research before they purchase properties. Some areas have intense building regulations or permit laws. These factors can delay construction and reduce an investor's profit margin.

Investing in a Trust

Flipping and renting properties take a lot of effort on an investor's part. They either have to manage a crew of helpers or take on the work themselves. They're great options for those with the time to devote to a project but an unrealistic choice for busy professionals with outside jobs and families.

A real estate investment trust (REIT) is like a mutual fund but for real estate. An investor buys small portions of different properties while outside groups manage the property behind the scenes. The rewards aren't as dramatic as renting or flipping properties, but the risks aren't as pronounced either.

Investors who choose a REIT will want to carefully consider their options before choosing a company. The REIT should be transparent about how the company is performing and give the investors some say over what happens to it (e.g., significant repairs, policy changes, etc.).

Buying Vacant Land

Most investors will buy vacant land and keep it 'as-is' until a developer offers to purchase it for more than the original price. Like a REIT, buying and selling land doesn't require much effort on the investor's part. However, vacant land also comes with its fair share of risks:

• Taxes: Investors still have to pay property taxes on their land while waiting for a developer to make an offer.
• Maintenance: Vacant land can become a dumping ground for the neighbouring area. Investors may still have to pay to remove junk or keep people off the property.
• Zoning laws: Not all land is zoned for building. Investors need to triple-check that their land will be viable (and desirable) to a developer.

Are You Ready to Start Investing in Real Estate?

Learning the different types of real estate available is a strong jumping-off point for a new investor. Each option has proved to be profitable for Canadians all over the country. Investors' choices depend on their priorities, and the time they're willing to devote.

For informational purposes only. Always consult with a certified tax expert, financial advisor or real estate professional before proceeding with any real estate transaction.