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Investing in Real Estate

Today a seminar on investing in real estate, tomorrow you’re a millionaire. Is it really that easy? If it was really that easy, everyone would be doing it.

And it actually was easy for a while…

Starting in the spring of 2015, we’ve had record breaking years. Houses were being sold in record time. Bidding wars left and right, properties were being sold for anywhere between 15% to 30% over asking in the blink of an eye. It didn’t matter where you were – it was a sellers market no matter were you were in the GTA. This created a buying frenzy because it seemed like there was no end to how high prices could go – the sky was the limit. Money was being made everywhere, and it seemed like it would never end.

Until it did…

What comes up must come down may be cliche, but from an investor’s standpoint – nothing can go up significantly in such a short period of time without coming back down. In April 2017, the Fair Housing Plan was introduced. A Non-Resident Sales Tax (NRST) of 15% was added that stole the opportunities to make a quick buck as fast as the bidding wars created them. In the months following the introduction of the NRST legislation, many of these “flipper investors” lost a lot of money.

Read: How to Lose Big Money in Real Estate

Having grown up in a family of real estate investors, I’ve learned that slow and steady is the way to go. Fast money, like what the property flippers made throughout the past few years is good, but real wealth comes from holding a portfolio of assets, whether it be equities or real estate.

Whether you’re new or old to the scene of investing in real estate, I believe condominiums are still king. They are and remain, king, because they’re the most affordable to the general market, therefore more liquid than a detached home. They’re also easier to rent out, meaning it’s easier to get cash flow from your portfolio and is generally low risk since the amount of capital needed is much lower. With low risk comes low reward, and newer investors will have to be prudent about condominium choices and proper property management.

On the flip side, there are the high-risk high reward scenarios. These scenarios generally include buying and flipping, or if you’re in the business of owning real estate, doing extensive renovations to your property for two reasons: being able to command a higher rent and increase the value of your asset. This would include detached property in a hot neighborhood or residential/commercial buildings. These scenarios are high risk because a lot of money is involved.

Such an example can be found in a recent property sale, 28 Woodfield Road in Leslieville, one of Toronto’s hottest neighborhoods. A tear-down home with no door or key was listed for $699,500 and sold for under asking at $691,500. It’s an amazing deal as the entry point into the neighborhood is from $900,000 to $1,000,000.

Read: Realtor calls dilapidated Leslieville home a ‘rare opportunity’ at $700K

But was it really as great of a deal as it seemed? Close to $700,000 for a strictly tear down property. The time to acquire permits and approval from the city, demolition costs, building costs, labor, materials, and the risk that the market will change and fall out of your favorites are all things that need to be considered. Will you ultimately profit from the flip? Or will your funds be tied up in your property and potentially be forced to lose money?

Alternatively, you can decide to invest in Real Estate Income Trusts (REITs). If you’re an average investor and just want to gain exposure, this is the investment for you. Keep in mind that publicly traded REITs are subject to the volatility of the overall market.

Private REITs are harder to find and are only available to qualified investors who meet certain criteria. These types of REITs have little correlation to the public market, and the price is based solely on the appraised value of real estate holdings. This, in turn, means that there’s a lack of fluctuation during the times where the market is more volatile, making private REITs are a safer investment.

Read: No such thing as a free lunch, even with private REITs

Regardless of what your experience is, real estate remains to be the main asset class that’s “bricks and mortar”, which is never going to physically go away. Pair that up with the fact that real estate is a shelter for most people, and can easily generate cash flow – it’s something great to invest in. Whether you’re looking for slow and stable income generating property, or quick money by flipping, there’s always money to be made somewhere and it’s never too late to start.