Is real estate a good investment in Canada?

by Taylor Pipe on 15 Mar 2021

A look at the Canadian real estate market and opportunities for investors from within and abroad.

When it comes to investment opportunities in the True North, investing in real estate is one of the safest options for those looking to increase their net worth and invest in properties that will quickly grow in value. For those looking to buy property in Canada, there are plenty of options for making an income by buying land. As an investor, purchasing a rental property or investment home can help you grow your income, while also contributing to the Canadian housing market and economy.

Since the onset of the COVID-19 pandemic, there has been a dramatic increase in people looking to purchase property and move abroad. According to a study conducted by Remitly, "how to move to Canada" was the most searched emigration query in 30 countries out of 101. Part of Canada's appeal is low unemployment rates, lower interest rates and immigration options.

Currently, Canadians are taking advantage of closed borders and the real estate market is seeing an influx of first-time buyers from Canada. However, when the border reopens post-pandemic, the Canadian real estate market will see a heightened number of investors from abroad scooping up real estate investment opportunities.

The best times and places to invest in real estate

Real estate investing is one of the safest, risk-free ways to earn money from investments. Since the housing market in Canada is booming, houses are seeing an increase in appreciation over a short period of time. As an investor, building home equity for financial gains can typically be a long waiting game that could take years, whereas, in Canada, the market is so hot that homes are seeing appreciation in value on a month-to-month basis. For investors, real estate is an opportunity to diversify their investment portfolio while taking advantage of long-term capital gains.

Since the pandemic is still in full swing, low-interest rates are becoming part of the allure to purchasing single-family homes as an investment property, which makes 2021 the best year for investing in real estate. Even if you plan on living in your investment and making it your principal residence, your property will increase in value over time and you'll get a decent return on your investment - especially if you undertake projects that help increase value like finishing a basement or renovating and updating your kitchen.

Rental Properties

Although Toronto and Vancouver are some of the most sought-after areas in Canada, other areas are great places to purchase a house due to their low purchase price and tax-related fees. The Greater Toronto area is one of the best places to purchase as it's close enough to the big city, while also having a lower cost for buying properties.

Aside from Toronto, Halifax, Windsor, Quebec City and Winnipeg are some of the country's more affordable cities to consider buying a property in. These areas may take a bit longer to grow, so there is more risk associated with investing in real estate in these areas, but they also have some of the cheapest homes available in the country, which can help reduce your monthly payment on your mortgage.

Real estate investment opportunities

When it comes to real estate investing, there are many options for which kind of investment opportunity to go with to maximize cash flow. When you're looking to invest in real estate in Canada, you need to consider which kind of investment you're looking for. Different investments come with different levels of risk, but real estate is one type of investment that is solid throughout time.

Primary residence

If you're choosing to live on your purchased land, you'll see a return on your investment after you sell your home. You'll have to pay your mortgage throughout the tenancy and pay for utilities with your personal funds. You'll see you're gaining equity through keeping your property as a principal residence. When it comes to real estate investing, most don't think that buying their primary residence is an investment, but your home will increase in value over time and you'll see a difference in your purchase price, and what someone else may buy your home for.

Short-term rental

Another option for properties is to convert them into short-term rentals. Having short-term tenants pay to use your home is a great way to increase your cash flow. Canadians are looking for personal escapes, so you're single-family home or new condo could be a great place to escape for a weekend while paying a premium to you as the primary owner. You could make as much as $400 a night. Long-term rental property

Another option for your investment house is to consider making it a rental property. Having tenants pay rent makes it easy for you because they can cover most, if not all of the cost of your monthly mortgage payment, and property tax. When you invest in rental properties, you also assist the housing market by providing rentals. Rental income can increase your cash flow, and having rental income allows you to fluff out your own personal financial situation.

Investing in a REIT

An alternative to physically owning a house is investing in a Real Estate Investment Trust, (REIT). These are great for real estate investing because they put your money into the real estate stock market instead of physical property that you have to maintain. These companies own and operate real estate and allow people to invest in real estate, and gain monthly dividend-based income while helping create a thriving housing economy.

In 2020, REITs took massive hits, but with vaccines on the horizon, investing in a REIT is a good, solid investment for people looking to invest in the stock market, but want stocks that are slated to grow while contributing to the way Canadians live.


Canadians purchasing Land

Real estate investing made simple

When it comes to real estate investing, income-producing properties are the best thing to invest in. When you buy a property with the intention of being able to rent it out, you can still make money through your tenants and also build equity on the property after you sell. The only real downside is the risk and cost associated with any damage your tenants may cause to your property.

Investors are looking for properties with a low-interest rate and low property taxes to ensure monthly cost is low. Real estate investors typically want to capitalize on the financial aspect that comes with having tenants pay rent. But you could potentially make the same amount when you rent out your condo on Airbnb for three weekends, so it's really up to you if you want people to live in your home or condo year-round or only on a short-term, cost-effective basis.

The major deterrent for investing in real estate is the financial implications related to caring for your land. Whether it be small issues, or issues requiring a full renovation, you'll be on the hook as a homeowner or a landlord. This is why investing in a REIT is so appealing. For REITs, you don't need to worry about tax-implications, land issues, or mortgage payments since you just buy into the trust. It works similar to investing in the stock market - you put money in, and watch it grow.

Tips for investing in Canadian real estate

When an investor begins to consider buying real estate in Canada, there are many aspects that the buyer must take into consideration as an investor. One of the best things investors looking to invest in real estate can do is contact a realtor or real estate agent. These professionals often have years of experience in the industry and can help determine whether your investment should be your principal residence, a short-term rental, or an opportunity to rev-up your cash flow with rental income.

Real estate professionals can also help you find a home with low taxes and a mortgage with a lower interest rate. They can also help you pick rising neighbourhoods to ensure your house rises in value. When it comes to making a good investment in real estate, agents can help you find the single-family home or condo of your dreams at an affordable rate. These agents can also gauge your personal style, so they know to only sell you houses they know you'll approve of.

Vancouver homes

Real estate investing during COVID-19

While many people may be unwilling to sell in today's pandemic-charged market, the pandemic has actually changed the way we view real estate investment opportunities. As an investor, COVID-19 has halted any risky moves, and since real estate investments are a safe, low-risk investment it's natural that the market is still thriving despite everything else suffering.

What's more, is that the pandemic has provided a spotlight on the need for housing in Canada. As more and more people are forced to share personal space and work from home, the opportunity for buying homes outside metropolitan areas is arising and appealing to younger generations. But investors are taking notice of these outliers and scooping up investment properties to ramp up the rural rental market.

One of the biggest benefits of buying an investment property in today's real estate market is the opportunity for rental income from students. In University towns like Guelph and Waterloo, investors are changing their principal residence into a place for students to rent out on a room-to-room basis. This means investors can capitalize on the need for student housing in certain cities and towns.

Objections to real estate investing in Canada

There are a lot of objections when it comes to investing in real estate in Canada. Whether it be the relocation aspect for those looking to immigrate or issues with personal finance from residents in places like Toronto or Vancouver. However, investors should still consider the long-term benefits associated with choosing to invest in property or a REIT.

Requires more money upfront

The biggest objection is that it takes money to make money. Even if you're playing stocks, you need to have money to invest to get that long-term return and profit. The financial aspect is often what deters most Canadians from purchasing a house or condo. The average price of a stand-alone home in Canada is reaching over $621K, according to the Canadian Real Estate Association. Since most mortgage lenders want buyers to have a down payment of 20%, the average down payment would be just over $124k.

But with options that allow you to make payment installments, like a mortgage, many are seizing the opportunity to buy a home and generate income through a rental property or capital gains. These lending programs are allowing people to get their hands on something that might have once seemed completely unattainable and with the housing market

It may take a long time

The other main objection to investing in the real estate market is that it can sometimes take a while to see the appreciation, real profit and appreciation in your home, especially if your property is your primary residence. If your investment is your principal residence, a good idea would be to buy under budget to renovate and add additions to your property to quickly add value.

The other option is to stay in your home, but take out a reverse mortgage once your home has built up enough capital. This could even allow you to invest in a second property without the risk of losing personal savings.

But it could also take time to see capital if you were buying a property with the intention to rent. When you're dealing with tenants and rent, each monthly payment will probably only be enough to cover your mortgage, instead of a second income. However, if you can get someone to rent out your home and pay off your mortgage, it's definitely better than having to pay it all on your own.

Homeowner problems

In general, being a homeowner has risks related to property damage and liabilities. This is especially prominent for those who list their home as Airbnb-style accommodations as guests might cause damage to your rental property that you'll have to repair. Even if you're investment property is your principal residence, there is still a risk that you might be the one to damage your walls, plumbing or outdoor space.

Another aspect of the unique challenges that face homeowners and investors in real estate is that when you buy a home or property, you also buy all the liabilities that come with it. If someone gets injured on your property, you're the one responsible and you may face legal action. This is another case that is especially prominent with rental properties.

Getting real about real estate investments

If you're looking to invest in real estate in Canada, it's important to weigh the pros and cons. With any investment opportunity, there is risk involved. When you purchase any type of investment, be mindful of the risk you're taking and determine if it's right for you. Real estate is often a safer bet than investing in stocks, and REITs are even safer than investing in properties.

Since investments that are geared toward the real estate market are one of the safer options, you can be sure that you're going with a good investment when you purchase a home or condo. These investments can be helpful if you're looking for an investment that will expand your portfolio and net worth, while also helping others by providing options in Canada's competitive rental market.

The bottom line is that the Canadian market is thriving and abundant with options you can purchase at a good price. The current interest rate in Canada is also appealing to people looking for a mortgage that is easier to make payments on. Investors need to consider that these properties will eventually increase in value and they may need to put in more money to be able to ask for a higher purchase price from prospective buyers.

Still, the True North is growing quickly, and areas like Toronto are having a hard time keeping up. Investors should definitely consider buying a property in areas that are often underrepresented as their prices will be lower and the rate of growth will be higher. Buying in these areas can help boost the economy further and can help these smaller communities reach their mandated growth goals.

Rental income and cash flow from property ownership

Cashing in on your real estate investments

Whether you invested in properties or REITs, you'll notice an increase in your cash flow. For those who purchase property, the return can take longer since you won't get the monthly payout that REITs offer. Since REITs offer payments throughout your investing period, you can be sure that you'll get a boost in your monthly cash flow. In contrast, property owners will only see the benefits of their investments once they choose to sell their houses.

When you're considering selling your properties, consider acquiring the assistance of a professional realtor. Perhaps even the one you used to purchase your properties. These experts can help you get the most for your investments and can provide advice on how to present your home to prospective buyers. They can also help you navigate the responsibilities of being a seller in today's real estate landscape.

Whether you live in the country or are a Canadian, the opportunity to invest in real estate is abundant. Real estate investing can help you earn money, while also helping you boost the Canadian economy. Since the end of the COVID-19 pandemic is in sight with new vaccines coming into play, the need for housing is going to explode in a matter of a few short months.

There has never been a better time to get into Canada's real estate opportunities, as there will soon be an influx of people coming in and scooping up all the good land that's available. For an investor, it's extremely savvy to take advantage of all the opportunities while the border is still closed. Since the pandemic is going to end and increase demand, that means the prices of land are going to increase even further to new astronomical records. If you want to see increased capital, unique homes, an abundance of opportunity and the beautiful great white north, get in on the fantastic real estate investment opportunities while they're still around!

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