Investing in Real Estate is the golden goose among other investments due to its endless benefits. In fact, according to Forbes, real estate investment is one of the safest investments one can make. It offers long-term advantages such as regular cash flow, protection against inflation, tax breaks, equity building, diversification potential, long-term financial security, passive income and many more.
You are at the right place, if you’ve been thinking of investing in real estate but not so sure about it. In this blog post, we will talk about why invest in real estate. What are the advantages of the real estate business?
The Canadian Real Estate Landscape
In recent years, the Canadian real estate landscape has established an increase in demand and has significantly increased in price appreciation, especially in big cities like Vancouver, Toronto, and Montreal. These cities have witnessed sustained growth in property values, as a result of an increase in population, its low interest rates, and a stable banking system.
Don’t get me wrong, it’s not all sunshine and roses. There have been massive downsides in real estate in Canada, especially within the past two years where occasional market correction and government policies have majorly interfered with the growth and stability of real estate in Canada. Despite that, the overall trajectory of real estate in the country remains positive.
Here are the current issues with housing/real estate in Canada;
- According to Global News, the housing market correction that has lasted almost two years is expected to end this year (2024). Forecasters have predicted a significant cut of absurd interest rates that has forced most Canadians from buying homes.
- There is an expectation that the housing market will increase in activity in the second half of 2024, as interest rates start to fall.
- Additionally, experts expect a pickup in sales and prices, an increase in demand, and more stability and growth in the housing or real estate market.
In essence, 2024 is the year to start crafting. Strike while the iron is hot, and invest in real estate.
Advantages of Real Estate Investment; Why Investing In Real Estate?
Wealth Creation
A key benefit of investing in real estate is making money even while you sleep. How? Real estate investors mainly generate income through rental payments. The value of the property you invest in increases over time, helping you beat inflation and increase cash flow once mortgages are settled. Not to mention, with a good investment, you can make significant profits when you eventually decide to sell. Then purchase more properties, and multiply assets and wealth even more.
Portfolio Diversification
To diversify your portfolio, or spread your investments across various assets, you need investments that have low or negative correlation. Real estate, among others like stocks and commodities, is a great option to diversify your assets. It has a negative and relatively low correlation that protects you from potential losses, which are less likely with a single investment. Also, there are multiple ways to invest in real estate. By diversifying your portfolio with investments like real estate, you reduce risks, as losses in one investment can be offset by profit increases in another
Tax Benefits
Real estate investors have the opportunity to capitalize on various tax advantages and allowances that can result in savings during tax season. Generally, you can subtract the reasonable expenses associated with owning, operating, and managing a property. You can also benefit from tax breaks by making use of a 1031 exchange.
Furthermore, as the expenses incurred in purchasing and enhancing a building can be depreciated over its useful lifespan (27.5 years for residential properties; 39 years for commercial), you can enjoy deductions spanning several decades, which effectively reduce your taxable income over time.
Long-Term Financial Security
Another reason you should invest in real estate is that it provides long-term financial security. Think about this: after investing in the property and covering initial costs, what comes next? As the value of your property increases and your mortgage debt decreases, you begin to build equity and reap greater rewards from regular returns or profits. With increasing equity, you gain more leverage to invest in additional properties, and the cycle continues. If you’re seeking an investment option that can double as a retirement strategy, real estate should be at the top of your list.
Real Estate Investment Strategies and Tips For Success
Choose your market wisely:
One key factor to succeed in real estate investment is to steer clear of overly competitive markets. Often, you’ll hear of people enjoying success or boasting about property appreciation, but that’s not reason enough to invest in similar projects, as there’s greater risk in purchasing properties already at market peaks. The most important aspect is to do due diligence or research markets and review documents before venturing into it. Identify the expansion phase, where sales and prices are on the rise, affordability is favorable, and construction is limited.
Your investment strategy should be tailored to the specific market you’re entering. Typically, when new real estate reaches its peak in a certain area, demand rises simultaneously, leading to oversupply, making it more challenging to succeed in that market. This downturn phase typically lasts for 1-3 years before stabilizing at a price base.
Buy when Prices fall.
After choosing your market, wait for the best time to enter the market. Real estate investment is not much different from investing in stocks or commodities, it’s advisable to buy when prices fall, so you can profit when they start to rise.
Know the HOA (Homeowners Association)
Every investor is under the HOA rules. It is important to know these rules and regulations because they outline your rights to renovate, rent, or even sell the properties. You may also be required to add HOA to your rental agreements.
Mitigate risk to reduce losses
Another important aspect is managing your risk. If you want to avoid debt, ensure you make a down payment of at least 10% when purchasing an investment property; the maximum you should risk is a 20% down payment. Secondly, secure enough funds to cover potential losses and resist the urge to sell the property at the slightest decline. Avoid rushing into investing in a property just to avoid missing out on a deal. Don’t take on more than you can handle, understand investment psychology, and stick firmly to it. One way to reduce risk is conservative underwriting, where you foresee circumstances and plan ahead of them; how much you can afford to spend on purchasing, renovating, or turning the property around, and how much profit you expect to generate before entering into the venture.
Common concerns and misconceptions about investing in Real Estate
Only rich people invest in real estate
Most people believe you need to raise thousands or even millions of dollars before you can venture into real estate. Well, this is only true if you are thinking of investing in luxurious or fancy buildings and properties. Real estate is a dynamic market that anyone can enter. There are different paths for different people. For instance, you can invest in house flipping, where you buy deteriorated or unappealing apartments, invest in low-cost renovations, and sell or rent them at a higher price. There is also crowdfunding, where you raise capital online from groups of investors.
It takes a longer time before profiting from real estate investment
You don’t have to invest in real estate only when you’re planning for the long term or intend to hold onto the property for an extended period. You don’t have to buy a home, wait for several years, and then cut your losses to make a profit. Several investors invest in properties acutely. Once again, house flipping is a great example of how you can make money through real estate in a short period.
Real estate investment is riskier than stock investment
This is one of the most common misconceptions out there. I’m sure you might have even heard of someone who invested in real estate and went downhill after that. But this is largely false. The volatility of real estate is far more stable compared to other traditional investments. After all, real estate is a physical asset that doesn’t just disappear into thin air, right? Also, when investing in real estate, you have full or partial control of the property. All you have to do is manage risk through conservative underwriting and other tips mentioned above
Being a landlord is too hard
Another misconception that prevents people from investing in real estate is that it’s not easy being a landlord. First of all, not all real estate investors are landlords, and you do not have to manage your property yourself if you are one. You can hire trusted property management agencies to oversee major tasks like tenant searches, employee management, property inspections, rent collection, and so on.
TAKE AWAY
Real estate is one of the best investments you can venture into. With the right property and timing, you can enjoy multiple streams of income such as rental, and flipping. Not to talk about its tax benefits, equity and portfolio diversification. The most important thing is to understand the market fully before committing, foresee the risk in whichever market you decide on, and make plans to counter it. Real estate is a safe, profitable business that you can start with limited resources. You do not have to be rich before you start, just remember to invest what you have wisely, and the benefits will follow.
