There are 6 ways to invest in real estate, so you’ll want to be sure you pick the right one based on how much you want to make, and in what timeframe.
BUY AND HOLD
This strategy is best for people who are into real estate investing for the long haul. Maybe you have children and you want them to be able to have a place to live once they’re ready to live on their own. In the meantime, you can earn a rental income from tenants, and watch your investment appreciate in value. As long as the property covers your expenses, such as mortgage, utilities, property taxes and repairs, then you’re in good shape!
All the TV shows are about the flip or the reno and that’s because they can be a LOT of fun. But you’ll only really get your money out of it if you do most of the work yourself, as opposed to hiring contractors. Having other people do the work is great, but it can eat into the money you make from the sale, so keep that in mind.
THE BUY, HOLD & FLIP
This one is popular as it removes the killer timeframe of the traditional flip (i.e. get rid of it quick!). Instead, you buy a property, upgrade it, and hold onto it while earning rental income from tenants. Then, when the time is right, you can sell it. This is a great strategy if ever you buy a home and then the market takes a downturn. Even in bad economic times, people need a place to live and rental units are always in high demand.
THE JOINT VENTURE
Don’t have the cash up front? Find a partner to do it with you – but get EVERYTHING (and we mean EVERYTHING) in writing before you embark on a purchase. You’ll need to outline things like:
• How and who decides on when and what repairs need to be made
• Who selects the tenants and deals with their issues
• When you intend to sell and on what conditions
The more you get in writing the better your JV will go!
And lastly: make sure your partner has good credit. No credit monsters in closets.
THE RENT TO OWN
This strategy has been gaining in popularity in Ontario recently, as home values have soared and fewer and fewer people have the means to plunk down huge down payments.
This is how it works:
Investors buy a property, but instead of looking for tenants, they look for future owners. These may be people with bad credit or that simply cannot come up with the down payment at the time when they need a house.
As the owner, you’d agree with them to purchase the home at a future date at an agreed-upon price, thus sheltering them from any giant leaps in home values, but also protecting you as the owner from any market downswings.
For a predetermined number of years, you charge them rent, and an additional amount collected and is put against the home so that they are building equity.
The owner needs to ensure that whatever rent they collect is sufficient to cover expenses.
The tenants need to work closely with a mortgage broker to ensure that, once the property is ready to buy, they’ve got enough down payment and their credit is in good standing.
THE PRE-CONSTRUCTION FLIP
You may or may not know that you can buy a condo that’s in the development phase, and, before it closes, you can sell it, typically at a great profit.
And all you had to do was sign a cheque for the down payment, which you pay over the 2-3 years it takes to get the project off the ground.
This is a great strategy for anyone who is risk averse, but wants to play in the real estate investment world.
It’s called selling “by assignment” and it’s a lucrative way to make money, considering the condo market in Toronto continues to grow at a steady, upward pace.
If, once the project is ready to close, you want to hold onto it and rent it out, then you can totally do so! The decision is up to you.