An outline of real estate investing guidelines to get you started on your investment journey in 2024. If you’re looking to start investing in Ottawa real estate, contact us.
Here are a few key questions this article should help you answer:
- What are the different options for real estate investment in Canada?
- Which type of property is best for investment?
- What is the safest real estate investment type?
- Is it a good time to invest in real estate?
If you’re thinking about investing in real estate this year, you’re not alone. There’s a shift happening in the market right now that is priming investors to come off the sidelines and get into the game. In 2023, we saw some unease across the market, buyers and sellers alike were hesitant to enter the market. Now, in the first quarter of 2024, we’re already seeing a shift in buyer sentiment, bringing more people back to the market, surprisingly before the lowering of interest rates predicted to come this Spring.
So, if you want to get into the mindset of an investor – here’s the rundown for beginner real estate investors that you need to get started.
What are the different types of real estate investment in Canada?
There are 3 key types of real estate investing that could work for you as a beginner investor:
- Residential Real Estate
- Commercial Real Estate
- Real Estate Investment Trusts (REITs).
Residential Real Estate
Residential real estate is probably the most common type of real estate investment for Canadians, specifically beginner investors. Investing in the residential real estate market is the simplest form of investment because the process is extremely similar to buying your primary residence. In fact, if you already own your home, congratulations, you’re a real estate investor. (If you want to learn how to properly protect that investment, join our Home Advisory Club). Residential real estate investing is simply investing in a residential property with the intention of renting out the home to offset the cost of the mortgage and maintenance expenses.
Residential real estate is an excellent option because it is cheaper to enter this market than the commercial market. However, there is a lot of responsibility that comes along with this type of investment. In this case, you will become a landlord which means you will need to follow the rules outlined in the Landlord Tenant Act (if you’re based in Ontario).
Summary of Residential Real Estate Investment:
- Lower Cost of Entry Compared to Commercial
- Relatively Low Risk
- Active Investment (Moderate to High Level of Responsibility as the Owner)
- Estimated Annual ROI: 1% – 4%
Commercial Real Estate
Commercial real estate is not typically a beginners investment. Commercial real estate includes: office space, retail space, warehouses, apartment buildings and mixed-use buildings. There are a lot of reasons why commercial real estate is a great investment, but keep in mind that, as with anything, there are cons associated with it as well.
First of all, with commercial real estate investment, you’re looking at a potentially higher ROI as it has increased income potential compared to residential real estate (however, like any investment, this is highly dependent on the market and economic state). There’s also much more flexibility when it comes to lease agreements with your business tenants. You will likely only have to work during regular business hours to tend to your tenants (compared to residential when life can happen 24/7).
Don’t be fooled though; getting into commercial real estate investment isn’t for everyone, especially for people looking for passive income. Commercial real estate investment requires more time, energy, and you guessed it, capital, to get started. This is definitely for more experienced investors and requires a keen business sense to thrive.
Summary of Commercial Real Estate Investment:
- High Cost of Entry
- Higher Risk than Residential & REITs
- Active Investment (High Level of Responsibility as the Owner, to your Tenants and the Public)
- Estimated Annual ROI: 8% – 10%
Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts or REITs for short, are a relatively new form of real estate investment that has helped to make real estate investing more accessible for beginners. Investing in a REIT is essentially the same as investing in stocks, in terms of the time, money and dedication required.
In all, REITs are considered passive investments and are therefore a great start for new investors looking for low-effort ways to diversify their portfolio. Essentially, REITs are businesses that own or finance income-producing real estate across many sectors. With a REIT you can own a portion of a property without the hassle of buying, managing or financing a property. REITs are also a great way to tap into the profitability of commercial real estate without the large upfront investment and risk associated with owning and operating commercial real estate. A REIT can own property such as offices, apartments, hotels, medical centres, and other facilities.
Overall, investing in REITs can help diversify your investment portfolio, reduce overall risk, and generate steady returns. This type of investment will give you dividends, which can be paid in cash or stock.
Summary of REITS:
- Low Cost of Entry (you could purchase a single unit of a REIT for as low as $10, however typical starting fees are between $1000-$2500)
- Relatively Low Risk
- Passive Investment
- Estimated Annual ROI: 9.5% – 12% (depending on property type held by REIT)
Which Type of Property is Best for Investment?
The best type of property to invest in for you will be different from your friends or neighbours. Real estate investment advice is so personal that we can’t really give you a straightforward answer to this question. However, you can use the information above to help narrow your options.
If you’re looking for low risk, low effort, and low upfront cost maybe a REIT is the right option for you. If you’re looking for a bit more risk and you have the time and capital to invest, maybe residential real estate is the right fit. If you’re looking for a new challenge, and have the time and capital, maybe commercial real estate is the right choice.
You can reach out to us to discuss the Ottawa real estate market right now, and we can help you decide if it’s the right time for you to invest in real estate in Ottawa. We can also connect you with our trusted financial advisors, mortgage experts and more to get you connected with the right local experts to get you started on your real estate investment journey.
What is the Safest Real Estate Investment Type?
Let’s be frank, there’s no such thing as a “safe” investment. All investments, real estate included, come with risk. We saw this firsthand over the last 2-years as the market shifted, leaving investors puzzled and wondering if a crash was coming.
You will always have risks when it comes to investment, it’s about what you can reasonably take on as an investor. We suggest speaking with a trusted financial advisor to understand where you stand and what risk level suits you best.
If you’re considering starting small to test the waters, a REIT could be a good option.
If you’re ready to take the plunge and you’re willing to hold onto a property for the foreseeable future, residential real estate could be a great option for you. Reach out to us, and we can walk you through all the costs to consider when looking at residential real estate.
Is it a Good Time to Invest in Real Estate?
This will always be the million dollar question. The truth is, you can’t time the market, so you need to be willing to take on a certain level of risk. However, the question of whether it’s a good time to invest in real estate is actually quite personal. The answer is dependent on so many factors, not just the current state of the real estate market. If you have the time and money to invest now, it’s definitely worth connecting with an expert in your area to discuss your options.
When you work with our team of experienced Realtors, you’ll get personalised advice based on your budget and the area in which you would like to purchase. We can give you information on comparable properties in the area to give you a sense of potential income and help you narrow down your search based on price and neighbourhood.
We hope this article has helped you evaluate your options regarding real estate investment. However, we suggest you contact local professionals to help you on your investment journey.
If you are looking to invest in real estate in the Ottawa area, we are ready to help you. Reach out to us, and we can get you in touch with the right professionals to get you started.
