Real estate has always been a profitable business with perceptible ups and downs. In Canada, not only do upscale areas like Vancouver offer high mortgage and investment rates, but inland cities like Ottawa were also at their best growth rate as recently as 2019. But for a year like 2020, real estate is more of an uncertain market worldwide.
In Canada, prices for a single-story house rose by an average of 3.32% in 2019 and are expected to increase further. If you are looking to do business cost-effectively in real estate, without buying too much property, here are the 10 surprisingly profitable ways to invest in the Canadian real estate market in 2020.
High yield real estate investments
1. Investment In Construction
Canada’s population is growing and if you’ve observed the real estate market for a while, then you may know that investing with commercial/home builders like Mattamy or Builders capital can be substantially profitable.
Working with such builders may be a great way to start your business if you are new to real estate. Many builders operating within Canada offer investment plans in this regard. Just a little research and the right information can help you step through the right door.
Pros: Investing with commercial builders can result in a considerable profit and serves as a great source for establishing a professional network in the market, especially if you are new.
Cons: Huge profit demands equally large investments. That can continue to increase further without you being successful every time, if you’re not smart about it and don’t follow the market.
2. Private Mortgage Lending and Hard Money Loans
If you have some money and want to try your luck in real estate, then lending private money loans is one way to go. These loans are also termed 'Hard Money Loans' because you’re giving your money to real estate investors, who invest this money and agree to return it to you with a pre-decided percentage as a profit. There are many companies based completely on lending Hard Money loans so does have a chance to become a hugely profitable business.
Pros: If you know your way around business, and have the mindset for making smart investments for profit and interest, hard money loans are for you. These are high-interest loans given to real estate investors for the short-term, so you can get your money back with a higher interest within a short period of time.
Cons: Lending hard money to small, relatively unknown companies can be risky as these investments are not verified like conventional loans, and may be of a fraudulent nature. Therefore, before giving hard money loans to investors, make sure you carry out due diligence on your end about where they’re planning to invest the money.
3. Investment In REITs
If you are searching for a stable and less time-consuming way of getting into real estate, REITs are for you. REITs stands for REAL ESTATE INVESTMENT TRUSTs and operates on the idea of investing in these trusts, which further invest in different real estate investment opportunities. The average REIT annual yield is between 6% and 12%.
After each period, you will receive a fixed amount of income. It's for those people looking for a profitable and non-stressful business opportunity in real estate.
Pros: REITS are all about benefits that guarantee a cent per cent potential return with direct access to the market and without paying corporate taxes. If you lose money, you can deduct from your taxable income.
Cons: It doesn't come with corporate taxes but demands taxes on dividends. REITs are also notorious for fluctuating stock prices, which indicates that you are never stable regarding your income. Besides, these companies also demand a highly developed portfolio, which is difficult for a newbie to achieve in the market.
4. Investing in ETFs
It stands for exchange-traded fund operating. It holds assets such as stocks, bonds, and commodities. It is sometimes regarded as the same as REIT, but both are different terms, where purchasing shares in REITs provide access to commercial real estate sectors with guaranteed higher dividend yields while ETFs involve the exposure of investment to specific market sectors. If you are looking for taking an elemental step in real estate without any sort of purchasing than investing in ETFs issued by Real Estate Investment Fund (REIT) is a way to go. According to the leading Canadian finance and lifestyle magazine Moneysense “Vanguard FTSE” is the best Canadian ETF in 2020, that you might like to consider.
Pro: For individual investors, ETS proves beneficial as they are available on low deposits and the person can hold a basket of stocks, bonds, and commodities resulting in the development of an established portfolio with diversification.
Cons: Unlike Mutual Funds, ETFs don't provide us with the benefit of redeeming any time, which indicates the lack of liquidity and the yield is not much higher as compared to stocks or mutual funds, as the shares are traded at the market rate, which in most cases is lower than the NAV (Net Asset Value).
5. Investing In Real Estate Notes
Real Estate Notes are getting popular day by day. They are seen as a beneficial trade in the estate market nowadays. It is evidence for the transaction made between two parties, the owner of the property and the person who wants to buy the property. The one who is the owner and is going to sell his property is the note owner and receives a certain amount of money from the borrower time to time on loan. Royal Bank of Canada and TD Canada Trust are operating on a similar idea by providing notes to the applicants.
Pros: It is much easier to work with real estate notes rather than rentals as you are directly linked to homeowners, not tenants. Landlords are tied to dealing with numerous problems like frequent evictions by tenants, stress over property management, and making renovations, are never faced by a note owner, as he is dealing with the new owner of the house, not some tenant. Also, there are typically higher return rates on loans than what a bank offers.
Cons: The person who is intended to pay the loan can turn to be a defaulter. It can cause a mess to the note-owner, who then has to go through several procedures to take possession of the land.
6. Become A Partner Who Invests
Many people want to hit the real estate market with their ideas about real estate but they don’t have enough money to do so. Good news; you can still become a partner and pool your money with peers, starting your own real estate company. You can become a stakeholder in that business agreeing that you will be paid a certain percentage from the total profit that the company makes.
Pros: It requires little hard work. You just have to invest and wait for the profits.
Cons: As the idea is operating on someone else's efforts, things may not always go as intended and you may incur unexpected losses.
Low cost and low risk real estate investments
7. Investment Through Lease
If you are looking for a way to start off in the real estate investment world without buying a new property, then leasing your property is one of the best ways to do that. In Canada, leasing is an excellent way to gain entry into the real estate business. According to a survey by OSLER.com;
“Most office, retail, and industrial space in Canada are available only through a commercial lease.”
Pro: Leasing your own property is a surefire way to enter the real estate world, besides the fact that it provides you with an extra source of income.
Cons: Market rates in Canada tend to fluctuate considerably. That can result in you having lower income than you expected. And dealing with tenants and property maintenance is not something everyone is ready for.
8. Real Estate Mutual Fund
If you are looking for a profitable dig into the real estate market that’s light on investment, then Mutual funds are a suitable option. Not only do these funds operate on low investment but guarantee a secure and profitable result. Some banks like CIBC offer a good real mutual fund investment plan in this regard.
Pro of mutual funds : You don’t need a high initial investment to get started. Moreover, the risk of reduction in case of mutual funds is low. It also provides the advantage of redeeming the funds into money instantly, anytime.
Cons: Poor trade execution and tax inefficiency add to its disadvantages. High fees and poor management are also included in their flaws.
9. Investing In Real Estate Companies
Either online or offline investment in the real estate companies is similar to REITs. These programs operate on the idea of finding peers to invest in these companies. These companies will invest your money in the right place and you will receive a guaranteed percentage profit on your investments. Online companies like Fundrise are operating on a similar vein.
Pros: Guaranteed profit without much hard work.
Cons: These companies again require a highly established portfolio for investments, and a genuine company is hard to find in this regard.
10. Start Real Estate Freelancing
If you are familiar with the scheme of real estate but quite hesitant in buying property, then you can work as a freelancer providing your services to real estate agents, companies, and investors.
Pros: It is quite an easy way to earn considerably with less initial investment and efforts, right from your home. Freelancing can provide you with an income as high as $400 per day if you are professional, persistent and diligent in your niche.
Cons: Freelancing is not only about knowing your gig. It's also about having a the appropriate writing style to offer for your services.
In Canada, real estate is an important business with a broad scope compared to many other businesses. Unlike any other market, however, it offers less liquidity and stability. It requires persistence and a well-thought-out strategy, as this market is always changing. You have to make the right choices at the right time.
The initial stages in real estate without property buying involve the creation of a diverse and robust portfolio that can serve as a practical and sustainable step for future steps in your real estate journey.