Real estate investing in Canada: What you should know

Highlights

• Any kind of investment made in the real estate sector with the agenda of gaining profits is known as real estate investing.
• By ideally managing cash flow, tax breaks and capital appreciation, real estate investors can notably diversify and strengthen their investment portfolio.
• Real estate investors can generate additional cash flow from properties, which can grow over time.

Real estate is more than a term for places to live. Today, people think of real estate as an investment option, where they can park their money and watch their earnings grow over time. It can also be a passive income source, which makes it a more desirable space.

Amid the pandemic, the Canadian real estate market has ranked among the hottest ones around the world due to its soaring prices and high demand. This has made the real estate space more desirable among investors.

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If you are thinking about venturing into the real estate market in Canada, here are a few things to know before taking the plunge.

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1.    What is real estate investing?

Any kind of investment made in the real estate sector with the agenda of gaining profits is known as real estate investing.

This includes buying a house to rent it out, or sell it after a period of time, leasing and selling real estate properties, or making investment in real estate stocks and REITs.

2.    Benefits of real estate investing

By ideally managing cash flow, tax breaks and capital appreciation, real estate investors can notably diversify and strengthen their investment portfolio.

Also, real estate properties can significantly help in managing one’s financial health during inflation.

3.    How can you invest in real estate investor in Canada?

• Buying a house

When people buy a house, they become real estate investors automatically as they park their moolah in a long-term asset.

As monthly mortgage payments are made, the investment on the asset, also known as equity, moves up. Your investment or equity also increases as your house appreciates in value with time.

Similarly, if things go the opposite way, investment or equity will decrease as your house depreciates in value.

One other thing to consider is taxation. If the housing property is where you spent most of time in the year, then that is your principal residence. You can get tax exemptions on capital gains when selling the property later in the future.

• Renting residential and commercial property

Holding additional real estate properties can appreciate in the long term. In the present time, it can also provide rental income as an extra cash inflow in your pockets.

One point to remember here, however, is the maintenance and upkeep of property will be your responsibility.

Mortgage rate on residential properties is generally high, hence, it becomes important to evaluate mortgage rates across different lender to get advantage.

Renting out commercial properties is another way to be a real estate investor. However, you will need stronger financial backing to buy commercial properties.

If the investor inside you wants to earn notable profit, then flipping a house can  also be a good alternative if done responsibly.

• Vacation property

You can also buy a vacation property near key destinations in Canada and rent it to tourists. However, buying such a property is a costly affair, especially when the world is still facing COVID-related challenges.

• Invest in Real Estate Investment Trusts (REITs)

REIT is a real estate firm that owns and manages portfolio of real estate properties. While investing in a REIT, investors allow the firm to utilize their moolah on real estate endeavors.

Investment in REITs is a simple way to become a real estate investor if you don’t want to go through the complex tunnels of mortgages, rents, maintenance etc.

However, investors should research well and strategically select the REITs they want to invest in to avoid losses.

One can also invest in real estate stocks such as FirstService Corporation (TSX:FSV).

Bottom line

Investing in real estates can be a profitable venture for Canadians, considering their investment strategy is rightly placed.

Real estate investors can generate additional cash flow from properties, which can grow over time and offer hedge against inflation.

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Investment in real estate properties also does not necessarily get affected by stock market fluctuations, and thus, it can be an ideal way to diversify your investment portfolio and minimize losses during a stock market crash.

Most importantly, real estate investments can provide one with tax breaks as expenses like depreciation, maintenance and repairs can be written off.