James Gurney thinks investing in real estate is a great way to build your nest egg, whether you’re 30 or 60, as long as you consider this advice: If you’re buying property, act your age.
“I’ve been buying, fixing up and selling properties for years. You have different things to think about when you’re 30 than when you’re 60,” says Mr. Gurney, a Toronto-based investor who hits the big-60 this year.
“You have time to take more risk at 30 than 60. You have more time for neighbourhoods to change and pull up the value of your property even more than the work you do on it,” Mr. Gurney explains.
At 30, whether it’s a residential property that you hope will generate income or profit, or a storefront or office building, you can better afford to invest in a neighbourhood that may still be down at the heels, he says. Unlike buying stocks or bonds, though, you will need to be a hands-on investor if you buy property.
“At 30 you can do more physical labour and have time to learn skills of electrical, plumbing and carpentry so that you can perform sweat equity on a property,” he says. Outsourcing too much work can run up costs.
At 60, your timelines are, well, different.
“If you buy a building at 60 [and plan to hold it] you need to ask yourself: Will you leave behind a building with issues such as roofs, furnaces or plumbing that need to be replaced, with a huge bill when your real estate investment is passed on to your loved ones?” Mr. Gurney asks.
It can also be trickier – though not impossible – to get a mortgage at 60, and there’s estate planning to consider, because you risk leaving your heirs not only with a property, but also a tax bill.
At either age, real estate investors need to be patient about when to expect their properties to generate profit, says Trish Bongard Godfrey, a sales representative at Chestnut Park Real Estate in Toronto.
“Over all, I think real estate investing is a buy, wait and see situation. It’s not an investment for a positive cash flow. It’s for capital gains,” she says.
How long does an investor need to wait before seeing these gains? This varies according to each property, neighbourhood and region, but, “it needs to be long enough to cover the transaction costs,” Ms. Bongard Godfrey says.
The average selling price for a home in the Greater Toronto Area is expected to go up 4.2 per cent this year, according to the Toronto Real Estate Board. That may sound like a reasonable rate of return, but the costs can add up.
Those costs include land transfer taxes (which vary from province to province), agents’ commissions, property taxes (which can be higher for business properties than residences) and maintenance, utility and repair costs. The profit on property, including houses, that is not your principal residence is also subject to capital gains tax.
Investors at either 30 or 60 who are considering buying condos as investments should also note that they will need to cover monthly condo fees.
Mr. Gurney recommends generally against buying condos as investments. “Houses in the right location go up in value faster than condos. A fixer upper with some work goes up in value by a larger percentage than a condo, too,” he says.
That shouldn’t necessarily stop you from buying and selling different types of property at 30 if you are entrepreneurial, says John Oldman, a Toronto resident who now holds several rental properties in Peterborough, Ont.
“In my 20s, my primary focus was to find a condominium downtown in a neighbourhood full of fun and action. I made a series of short-term real estate holds. I bought and sold several condos and had a bit of luck riding the wave of fast appreciation. I had moved upwards of 10 times in the previous decade,” says Mr. Oldman, now 36 and married with two young children.
“I knew my 30s would be different. I was ready for a house in a family-centric neighbourhood. With consideration given to the cost of moving, it was important to me to find a house that my spouse and I could settle into for the long haul,” he says.
While he still owns and operates rental properties in Peterborough, the family home is also an investment in his view. “We looked at that investment [the family home] from a long-term perspective – perhaps 15 years or more,” Mr. Oldman says.
Investors don’t necessarily have to buy actual property to buy into real estate, says Justin Khouw, chief financial officer of Bold Properties in Vancouver.
“For young investors starting out with presumably less capital, the easiest entry point is through the many public real estate investment trusts [REITs] available on capital market exchanges,” Mr. Khouw says.
“Public REITs trade just like shares in a publicly traded company, which means they are accessible, while offering liquidity and strong cash flow. REITs can also vary significantly in focus so an investor can gain access to many different real estate asset classes by purchasing shares in multiple REITs,” he says.
Nevertheless, if you can swing it, in a rising market, there’s nothing like owning an actual property, says Jenelle Cameron, sales representative with Re/Max in Toronto.
“I would start investing in secondary properties as soon as possible. I wish I had done it sooner,” Ms. Cameron says.