Real estate investment is usually a major commitment for most people, and not everyone feels confident to step into uncharted territory. They may know it's one of the more fool-proof ways to turn a profit, but it can also be an intimidating market to enter for the average person. The good news is that real estate investment doesn't have to be complicated. It all starts with knowing the benefits and disadvantages of each kind of investment.
The Terms to Know
The terms of real estate may seem relatively easy for an investor to understand until they get into the connotations of each word:
- Commercial and residential: People typically think of office and real estate space when they hear commercial, but it can also refer to apartment buildings as well. Each province sets their own rules on multi-unit buildings. If the property exceeds the maximum number, then the building is classified as commercial. Residential properties are townhouses, condos, and smaller apartment complexes.
- Co-op: Investing in a co-op means buying a share in a corporation rather than buying the property outright. In a co-op, the shares are equal to the rate of the corresponding unit. Investors typically have some degree of control over the common areas of the property (e.g., parking lots, grounds, etc.)
- Strata: Some investors will be able to invest in strata properties, depending on which province they purchase the property. In this scenario, the investor will own both the unit they buy and a certain percentage of the common areas. They'll have a say in how money is spent and which improvements are made.
Renting Out a Residential or Commercial Space
Investors can rent commercial or residential property on either short- or long-term leases. Rentals are often a great way to make money in a short period of time, especially if the property is located in a rapidly growing neighborhood. However, investors are will have to do some research before deciding how to manage their rental. Each area will impose their own restrictions on renters, and those restrictions are becoming more and more strict.
This is especially true for renters who want to impose short-term leases. Websites like Airbnb have made regulators cautious of who can rent and how. Some co-ops will prohibit renting outright, or impose strict regulations on those who do.
Flipping a House
A real estate investor who sees a gem of a property buried underneath decades of wear and tear can flip the property for a profit. Whether doing the work on one's own or hiring out a crew, there's definitely money to be made. This option is usually recommended for an investor who understands the general principles behind neighborhood regulations. If the building code for an area is too detailed or the restrictions are too stringent, it can push the deadline for a project back and drastically cut into profits.
Investing in a Real Estate Trust
A real estate investment trust (REIT) refers to a property that is managed by a designated group. This is a great option for investors who don't have a lot of time or energy to devote to the property. With this arrangement, the investor can share in the profits without having to find tenants, call repairmen, or collect rent every month. (This option is far more affordable than hiring a property manager because the REIT already bakes those costs into the original contract.)
The downside to this method is that investors won't have as much say with what is done to the land and building. If the property is being mismanaged for any reason, they may not have a way to verify this either. Most REITs give investors a chance to invest in multiple properties (like a mutual fund). Their profits won't be as dramatic, but their risk will be spread out and their responsibility will be much more manageable.
Purchasing Vacant Property
Vacant land is usually purchased by an investor and then held until it's sold again. During this time, the investor will do little more than pay property taxes. (The idea is to sell to a developer at the height of the market.)
Investors will need to know the viability of the land prior to investing. Some land is either difficult to build upon or downright forbidden. In addition, vacant land may turn into a public dumping ground without investors realizing it, so they'll need to perform some degree of maintenance to keep it attractive for a buyer.
Magrath Heights real estate investing can feel daunting for those first getting started, but the key is to understand the basics before ever starting to look at the available property. There are plenty of ways to turn a profit once you know your options.
By Justin Havre