When is a good time to invest in residential real estate? For many people the answer is simple – now.
Taken over a long period of time, owning residential property has been a solid investment for Canadians. For example, according to the most recent data from the Canadian Real Estate Association (CREA) in its MLS® Home Price Index, in January 2005 the benchmark price in Canada was $242,700 for a home and in July of this year it was $736,000.
“Real estate traditionally is one of the least volatile and most stable assets over time and particularly during turbulent times, such as we’re seeing right now during the pandemic,” says Jennifer Hunt, a national real estate investment expert, a former vice-president with the Real Estate Investment Network and now founder of the Real Estate Wealth Lab. “It’s not only stable but it performs over the long term.”
Hunt says that, at the beginning of the COVID-19 pandemic, capital that had been deployed in stocks or other investments veered more toward real estate because investors were seeking stability over the long term.
“And as we come into who knows what next with the pandemic, we’re seeing even more capital going into real estate,” she says.
For those interested in residential real estate investment, there are a number of ways it can be done. The first and most popular is buying a property and then hopefully watching its value increase over time. Homeowners increase their wealth as the equity grows in their home.
A second popular real estate investment channel is buying a property and then renting it out. Not only is the owner gaining a regular stream of revenue from that property but equity is also being built and the overall value of the property too has the potential to increase over time.
Also, investors can turn to Real Estate Investment Trusts (REITs), which invest in income-producing properties.
“I’m a big fan of being invested in all of those different ways and diversifying,” Hunt says.
Other options include fixing a property and then flipping it for profit, or hanging onto it and then renting it out. A less well-known strategy is what’s called a vendor take-back mortgage, in which the seller of the home lends money to the buyer for the purchase of their own property, which can earn interest and have tax advantages for the seller.
When considering how best to invest, having a game plan and doing plenty of research are key. What do you need your asset to do for you? If you want immediate cash flow, renting out might be a good option, whereas a buy-and-hold strategy is a long-term play in which you are building wealth over the long haul.
“The sooner you’re in a market, the better. I know that many individuals want to time it perfectly. …. If your horizon is long enough, then just get in and get started. There’s a saying that the best time to plant an oak tree was 20 years ago but the next best time is today,” Hunt says. “Anybody with any skill set can invest in real estate as long as they choose the right vehicle, the right asset.”
Generally though, a typical do-it-yourself investor is one who is analytical, willing to take action even in the midst of chaos, well-organized and knowledgeable about the market. An entrepreneurial spirit helps as you’re going to take an educated or calculated risk on your initial investment.
“On the grand scale of things I think real estate can be an excellent investment and it can definitely hedge against inflation and offer single-digit and double-digit returns,” says Romana King, a national personal finance and real estate expert and director of content for Zolo Realty.
Advertising feature produced by Globe Content Studio . The Globe’s editorial department was not involved.