Investing in Real Estate

Is real estate investing still a smart and viable strategy?

Absolutely! There are a few key factors to look at when starting your investing voyage but one key component needs to always be on your mind. Time in the market is the most surefire way to successful investing.

If you're looking to make a quick profit off of rising prices, that's a risky bet. No one can predict the market and due to the complexity of economic systems it can turn relatively quickly. No one foresaw the implications the covid lockdowns would have, where we had unprecedented skyrocketing prices and demand, and no one saw the end and subsequent large market correction that followed.

Simplest way to ensure a strong return on your investment is to plan on holding a property for a minimum of 5 years, but 10 would be even better. Over that long a period historically prices have continued on an upward trajectory for decades and decades.

I've heard from some people that it's impossible to cash flow in Ontario anymore. True?

Absolutely not. I've assisted all kinds of clients with varying budgets get into excellent long term cash flowing properties for years. The notion that the days of positive cash flowing properties are over is patently incorrect. Understanding your budget, the area you're looking to invest in, the structure of mortgages and potential future values are key. Working with an experienced agent who can navigate the market you're looking at and can properly analyze investments will set you up for success.

Dealing with potential bad tenants causes me anxiety. I've heard horror stories

This is a legitimate concern. The laws protecting tenants are quite skewed towards tenants at the moment. Understanding the ways to protect yourself and the best ways to find excellent tenants are important. Again, working with an agent who has experience in spotting any potential pitfalls and understands options is important.

Also knowing how the laws and the Landlord Tenant Board works gives you more tools to work around any potential issues.

Ultimately doing your due diligence around any potential renters will serve you well. For all of the bad stories there are hundreds and hundreds of great tenants that we don't hear about, who just want a clean, safe place to live.

Types of investing

Single family homes

This is the simplest way to enter into your investing journey. Just because it's simple definitely doesn't mean it's not powerful. The basic strategy is to find a nice property - whether detached, semi detached, a townhouse or a condo - and find great tenants who rent it from you. The upside of the single family strategy is that you can put almost all utilities in your tenant's name, meaning no surprises with bills. Also self managing a single family home is easier than multiple units, so you can often save money on management fees.

The one thing to keep in mind when considering a condo as a rental property are condo fees. Generally tenants would not pay those, so make sure when doing your calculations that you factor in fees, plus a bit more for any potential fee raises over the years.

Multi-family homes

The next step up would be a multi-family arrangement. Whether it's a duplex, triplex, four-plex or any of those plus an Accessory Dwelling Unit (often called a Garden Suite), these homes provide the potential for more cash flow. The purchase price is generally higher so you'd need more inital capital to buy. Often management is required as more units can mean more calls from tenants for maintenance. As long as that's factored in to your calculations they can be excellent money makers. As tenants turn over and rents potentially increase so will your monthly cash flow.

BRRR strategy

The next step up would be what's know as the Buy, Renovate, Rent, Refinance strategy, or BRRR for short. In this case you would be looking at purchasing a home and adding units to it, refinancing with the bank and recapturing the appreciation you've forced into the property through renovating. Done properly it's a very powerful investment strategy that can accelerate your investing. Imagine putting $100K into renovating a home, pulling out $130K or even much more after refinancing, and still having a cash flowing property.

This can work with single family homes, or existing multi-family places that have an opportunity to add another unit. That can be through renovating an attic, a basement or even turning an existing garage into another separate unit. These are more complex and require more calculation but can be incredibly rewarding as a long term investment.

A few things are incredibly important when considering a potential BRRR:

1) Purchase price - In all real estate investing, purchase price is the number one criteria when evaluating a property. This is even more important for a BRRR project, as often you'll be putting additional capital into renovating the property with an eye to your refinance and recapture of money.

2) Understanding your municipal bylaws - Another key consideration is what your municipal bylaws look. To legalize a unit there are often code requirements that can be interpreted differently depending on the city. Having an agent who knows these while trying to find you a property is very important. You don't want to make a purchase only to find out that they property you've bought won't conform to certain needed codes such as ceiling height for a basement unit, or fire escape access for an upper unit.

4) Build a great team - As an agent, I'm one important part of a successful BRRR strategy buildout. Having a strong designer who understands building and municipal codes can save months of resubmissions to the city, delaying your project. An excellent contractor who understands code, can work on time and budget and get things passed is also important. We've all heard stories of unfortunate projects gone south due to less than reputable workmanship. As an experienced investor myself I have a team I'm happy to refer to my clients to ensure a minimum of hiccups along the way.

5) Expect the unexpected - When budgeting it's always wise to build in safety margins. Often unforeseen circumstances can arise, and being able to financially weather those can be the difference between a success and having to cut and run from a project. Knowing you've got some time and finances as a back up goes a long way for peace of mind.

Commercial/Mixed use

Some investors enjoy commercial properties, or mixed use places with a commercial component below and apartments above. These can work well also, but understanding how they work is also important. Commercial tenants tend to be longer term, but a bit trickier to find. Buying a place with an existing successful business helps ensure constant cash flow.

As well, mortgages for commercial and mixed use properties can require a bit more knowledge, and often a higher downpayment. Working with a mortgage broker who has experience with these types of purchases helps immensely.

Student rentals

While technically fairly similar to a single family home, they fall into their own category in terms of what an investor would have to understand.

Upside that many of my clients like is generally a fairly quick turnover, ensuring you're always getting market rents. There are several tenanting tricks that also help with ensuring you get top quality students. Placing all students on one common lease makes them all responsible for paying rent on time, and assists with them holding one another accountable.

Licensing for these types of properties can be an issue, as well as finding lenders who are willing to provide a mortgage on them. Working with a knowledgable agent and mortgage broker should help you navigate potential pitfalls.

In conclusion...

Real estate investing can be a powerful way to plan for you and your family's future. Ensuring you're working with an agent who actually understands the ins and outs of finding and analyzing properties will go a very long wat to ensuring your success.

Reach out for examples of past client's I've helped!