Advice From the Pros: What New Real Estate Investors Need to Know
This post is sponsored by one of our Trusted Partners, AMRIK. To become a contributing editor, please contact our Real Estate Investor Solutions Specialist, David Maxwell at firstname.lastname@example.org.
Canadians who are interested in investing inevitably begin to think about real estate investments at some point. Many new investors are surprised by the variety of options available in this space and the diverse ways to build their wealth. In this post, AMRIK Developments provides its top tips for green investors looking to get into the real estate space.
1. Revenue Properties aren’t the only option!
Many Canadians immediately think of owning a second property for rental purposes, which can be a lucrative investment.
Real estate does fluctuate in the short term though typically, long-term ownership will yield a net profit, and as the mortgage is paid down, it essentially acts as a savings account until you sell. Short and long-term rental options give more flexibility than ever before for making money. If you buy in an excellent area for Airbnb, you can potentially charge double or triple the amount that you would bring in with monthly renters.
The downside is that real estate requires capital and good credit to purchase. You are on the hook for expenses even when the home is vacant and any shortfall between the mortgage and rent prices. Rental properties also typically see more wear and tear than homeowner-occupied ones. So be sure you are ready for the added duties (and possible maintenance costs) of becoming a landlord.
2. Your starting capital will vary based on the type of investment
Each investment style has its requirements, and many investors worry about having enough capital on hand when they get into real estate. There are a couple of ways to invest with less to help you build your portfolio without draining your savings.
Real Estate Investment Trusts (REITS)
This is one of the most flexible options and the most hands-off type of investment. The REIT structure allows you to invest similarly to stock market trading, so a company purchases and manages multiple properties – usually commercial, industrial, retail, or multi-family residential – using funds from investors, then pay out dividends regularly. Because this is an indirect or passive investment method, you are not involved in selecting the real estate itself. There is no requirement to manage the property or provide ongoing funds.
Real Estate Investment Groups (REIGS)
This investment type is a great middle ground. The group purchases the property, then sells individual units to investors while keeping the operations in-house. This can be an excellent way to own a property outright and get a return from rent without the added time and effort of running it. You will often see this model in resort hotels. The biggest key is finding a group that does its homework and has a proactive management style.
Joint Venture Investment
The structure of a joint venture can allow even more flexibility with capital investment; however, it can also have increased risk. A group of investors buy-in, then select a property to put their funds toward. When the property earns money or is sold for a profit, the investors receive a return on their investment. Look for a group with proven past performance and transparent processes to get the most out of your venture.
3. Financing and Loans May Be Available
You might think that you have to scrimp and save to hit a dollar amount that will be big enough to invest in real estate, yet there are options for loans and financing that can help you with the purchase. Of course, you’ll likely be required to prove a business case to the lender to secure the funds.
4. Protect Yourself First
Success in real estate investment also means getting set up correctly from a tax and legal standpoint. Depending on how you choose to grow your money, you may receive the appropriate paperwork from a trust or group. In other cases, you may need to form a business entity or official partnership and keep a paper trail to ensure that you are not at risk from a liability or taxation perspective.
5. Calculating a Good Return
Your ROI will range depending on the amount you invest, the property type, and several other factors. Regardless, you should have a pretty good idea of what you can expect before putting any money into real estate. Do the math first! Decent returns start at 5%, with most savvy investors looking to put their funds into vehicles that will generate 8-10% or higher.
In AMRIK’s business model, they analyze each potential investment property and provide consulting and advice to ensure lucrative and well-managed portfolios for each investor.
Their most significant piece of advice for new investors? Do your due diligence! Research, interview, and ask for documentation.
If you are interested in getting into real estate investment yet aren’t sure where to start, AMRIK would love to help you decide what might be the best fit for you.