October 4, 2022

A Beginner’s Guide On Investing In Real Estate

If you're thinking about investing in real estate, you're probably wondering “where do I start?” This article is going to walk you through the very basics of investing in real estate, so that you can decide whether or not this is something that could work for you.

If you're thinking about investing in real estate, you're probably wondering “where do I start?”

For a lot of people, the idea of investing in real estate can seem overwhelming. But if you're really committed to making it happen, and you have the patience to learn some key principles, you'll find that it's actually pretty accessible.

This article is going to walk you through the very basics of investing in real estate, so that you can decide whether or not this is something that could work for you. You'll be able to decide whether or not it's worth digging deeper into—and if it is, we’re here to help guide you!

Property Types

Investing in real estate isn’t just about buying and selling homes.

There are other property types to consider when investing in real estate: commercial, residential, and Real Estate Investment Trusts (REIT). Let’s go over each of these in more detail.

Commercial Real Estate

Commercial real estate is a property that is used for business purposes. There are four types of commercial real estate: office, retail, hotel, and industrial. 

Commercial properties are usually more expensive than residential properties. However, the return on investment (ROI) is typically higher and the lease agreements are more stable. 

Furthermore, there are creative leasing options that can be used with commercial properties. For example, a triple net lease allows the owner to pass on the costs of maintaining, repairing, and operating the property to the tenant.

Residential Real Estate  

Residential real estate includes all properties intended for private occupancy. This encompasses single-family homes and properties with less than 4 rental residences. Properties with 5 or more rental residences are classified as commercial real estate.

Residential properties tend to be less expensive than commercial properties and can also provide steady rental income if they have tenants living in them. Residential properties do require more of an active role from the owner. However, if you don’t want this hassle, you can hire a property manager to manage and maintain the property.  

Real Estate Investment Trusts (REITs)

Lastly, you can invest in Real Estate Investment Trusts (REITs) through the Toronto Stock Exchange. 

But what exactly are REITs?

When a real estate company buys and manages real estate using money from investors, they need to distribute income back to the investors in the form of REIT. Most REITs are bought by individuals who want to invest in real estate but don’t want the hassle of dealing with property management, rent, and other issues.

REITs are classified as an income trust which means you buy them in units and pay capital gains tax on the number of units you hold (unless it’s in your TFSA).

So, if you’re thinking of investing in real estate and want to get a feel for it, REITs are a great way to get started. 

Strategies

What are you looking for in your investment property? Do you want to buy and hold real estate, or do you prefer the thrill of flipping?

Here’s what you need to know about each strategy when investing in real estate.

Buy and Hold 

Buy and hold is the strategy that most of us are familiar with. The idea is that you buy a property, hold onto it for a long time, and eventually sell it for a profit. During the time you hold the property, you can rent it out to tenants. 

This strategy can be lucrative if done right. It promises short term cash from rent and long-term financial gain when the property is sold down the road. 

Flipping

Flipping is a more active approach to investing in real estate.

Flippers buy properties at low prices, renovate them to improve their resale value, and then sell these properties for profit. This can be very lucrative if done correctly, but can also result in financial loss if done poorly. Overall, house flipping is usually done by professionals with years of experience investing in real estate.

We’re Here To Help!

At Scott Vanderspeck, we aim to make your real estate investment experience a great one. We’re here to guide you through this process and answer any questions you may have. 

Contact us today for more information about investing in real estate.