If the thought of investing your money into brick and mortar excites you, join the club. Investing in real estate has long been one of Canadians' favourite ways to grow their wealth.
According to a poll by CIBC, 15% of Canadian homeowners already earn some rental income, while another 11% aspire to it. What's more, over a third of current homeowners (37%) say they'd look for a property with income potential if they were buying a new home.[1]
But how do you know if you’re well-suited to take advantage of real estate investment opportunities? Here are three signs that owning a rental property could be right for you.
YOU'RE A HOMEBUYER WHO WANTS HELP COVERING THE MORTGAGE
If you're looking for a creative way to buy a home without overspending, “house hacking” could be the answer. Increasingly popular with first-time homebuyers and budget-conscious investors, house hacking simply means buying a home that you intend to live in while renting out a portion of it to one or more tenants.[2]
In addition to padding your monthly income, buying a home with a self-contained income suite can make it easier for you to qualify for a mortgage. If a secondary dwelling is move-in ready, a lender may be willing to add half of the rental payments you can plausibly collect from future tenants to your qualifying income, making it easier to pass the mortgage stress test.[3]
If the concept interests you, we can help you find a property that's ideal for house hacking, such as a house with a walkout basement, a multifamily unit, or a home with enough outdoor space to build a laneway or garden suite.
YOU'RE AN INVESTOR LOOKING FOR STEADY AND RELIABLE INCOME
If you don’t want a live-in tenant but still desire an additional stream of income, a dedicated long-term rental property could be a better option for you. Purchasing a rental home can also add diversity and stability to your investment portfolio.
According to data from the Canadian Real Estate Association, real estate owners have historically prospered.[4] However, the rate of appreciation can be hard to predict, so it’s prudent to invest in a property that also offers positive cash flow, which means the rent you take in exceeds your expenses. This strategy helps ensure that you’ll put money in your pocket each month, even if the property’s value takes time to grow.
If you want to explore opportunities for a rental property that's good for your wallet and attractive to renters, we can help.
YOU'RE AN EXPERIENCED INVESTOR LOOKING TO MAXIMIZE YOUR POTENTIAL RETURNS
Another popular way to draw income from an investment property is to convert it to a short-term rental. If you find the right property, you can earn significantly more renting it on a platform like Airbnb than to a long-term tenant.[5]
But beware: This strategy can be riskier as certain municipalities have tightened restrictions and others are suffering from market oversaturation.[6] The vacation rental market enjoyed a boom during the pandemic, and some inexperienced investors are finding they bit off more than they can chew.[7] As a result, there's an opportunity to snap up some of these properties, but you'll need capital and a willingness to learn the business.
We can help you scout opportunities in our local market or, if you’re interested in investing in another area, we can refer you to an agent there for assistance.
BOTTOMLINE
Investing in real estate can be a great way to build wealth and earn extra income, but it pays to be strategic. Call us for a consultation so we can discuss your goals and budget. We'll help you discover neighbourhoods with the best income potential, point out homes most suited to renting, and help you brainstorm the best investment strategy for you.
The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.
Sources:
1. CIBC
2. HGTV.ca
3. Wowa.ca
4. Canada Real Estate Association (CREA)
5. TurboTax Canada
6. The Canadian Press
7. Statistics Canada