5 Considerations When Investing in Real Estate Properties

beginner's guide to real estate investing Apr 16, 2024
5 Considerations When Investing in Real Estate Properties

There’s an old saying attributed to legendary writer Mark Twain that should motivate every real estate investor in the industry. Now, you might wonder why citing one of the fathers of American literacy is relevant to a post about real estate investing. Trust us, the quote explains it all.


Buy land because they’re not making it anymore.”


Only a finite amount of land exists on this planet, making it a precious asset. Therefore, owning coveted properties in select communities increases your net worth as an investor. Studies by Statistics Canada have shown that people who own properties have “considerably higher” incomes than those who don’t own real estate.

However, don’t fall into the trap of thinking any real estate property is worth an investment. To become a wealthy and successful real estate investor, you must make strategic investments with the highest potential value.


How to make money with real estate


There are a handful of ways to make money with real estate investments. These are the most common methods when building a real estate empire.


Invest in multifamily residential rental properties


Multifamily real estate investing is one of the most common investment strategies. Simply put, you acquire a building and rent each unit to willing tenants. Every month, you collect monthly rent payments in a steady stream of inbound cash flow. Returns on multifamily property investments are usually very high, which explains their popularity.

Take note that you will require a sizable down payment to complete the transaction, and you’ll also require financing for a very hefty mortgage. But a high-value property attracts quality tenants like moths to a flame, and a successful multifamily investment will pay significant dividends over the long term.


Purchase properties and flip them for higher returns


If you prefer investing in fixer-uppers, this is the strategy for you. To “flip” a property means to buy low, make improvements, and sell it at a higher price.

Before you sink your time and money into any fixer-upper on the market, conduct a very diligent walkthrough first. You must understand what improvements are needed and how much they will cost before you acquire the property. Otherwise, you risk writing a blank cheque for endless repairs. It’ll be hard to make your money back when it’s time to sell.


Purchase a vacation home and rent it out


Of course, you can build your real estate empire by adding a vacation property to your portfolio. It’s an intriguing strategy because you can enjoy the property when tenants aren’t using it.

Vacation rental properties attract short-term rentals. Traveling tourists need a place to stay, and they will pay a pretty premium for a quality vacation property. There are many ways to earn a steady income from vacation rental properties, provided you select the right one.


5 considerations when investing in real estate properties


Remember Mark Twain’s quote — buy land because they’re not making it anymore. Owning a parcel of land and the building built upon it provides valuable leverage.

That said, you want to select properties with the highest potential to generate value over time. To that end, here are five considerations as you undergo your process to select quality real estate investment properties.


Real estate values vary between local markets


Across Canada, real estate values vary depending on the market. For example, a listed property in Toronto will sell for a much higher premium than a similar property in Saskatoon. That’s just a byproduct of the population of each city and the demand for rental housing in each market.

As you search for properties across the country, don’t assume that list prices in one city will be equal or higher value in another market. Research the local communities, specifically recent real estate deals that closed in those neighbourhoods. That will give you market data to surmise what your properties will list for if all other factors are equal.

An important point to remember is that successful real estate investors understand the relationship between supply and demand. If a city or community has a rising population, that’s a good sign that people are looking for quality rental housing.


Evaluate your risk tolerance


Any investment carries some measure of risk. You have to assume some of that risk to succeed as an investor.

But you can calculate how much risk you can tolerate. For example, a high-risk tolerance means you’re willing to undertake a “buy and flip” investment strategy. You can find buildings that require repairs, assume the cost to fix things up, and then sell the building for a healthy return.

Conversely, if you want to minimize risk, look for multifamily buildings that require fewer repairs. Instead of costly maintenance, you can choose when to invest in upgrades to the building. You can add amenities like:


  • A patio
  • BBQs
  • Whirlpools
  • Fitness equipment


The difference is that you decide when to make these investments instead of feeling forced to make repairs. It’s a more effective way to control costs as you improve the building.


Maintain a healthy reserve fund


Real estate has the potential to make a lot of money and help you build generational wealth. But you don’t want to put yourself all in on your investments.

Liquidity means you have a healthy amount of cash on reserve. When you invest in real estate, your properties are your main assets. If faced with a sudden emergency, you need enough money to cover those costs. Without a healthy reserve fund, you’ll have to sell your property and potentially take a loss.


Be prepared to assume all the costs


You must make a down payment on every property you purchase. If the down payment is less than 20% of the purchase price, you must assume the additional cost of mortgage insurance.

Additionally, every real estate deal has closing costs, legal costs, land transfer fees, and other necessary expenses. Ensure you’re fully prepared to assume those costs before building your real estate empire.


Budget for a capital gains tax when you sell your properties


If you’re just acquiring your properties today, you have a long time to wait before worrying about capital gains. But when it comes time to sell the property, expect to pay a capital gains tax on 50% of the value your property increased from the date you acquired it.

A capital gains tax applies to almost any real estate deal. You can calculate it by subtracting the price that you sell your property from the initial purchase price. The only properties exempt from a capital gains tax are your primary residences.

One thing to note is that a capital gains tax doesn’t mean you pay 50% of your earnings in taxes. It just means that 50% of your capital gains are taxable. It only matters when you sell a property, but keep it in the back of your mind as you build your real estate portfolio.


Ready to make money from real estate?


Buy land because they’re not making it anymore. But remember to take it one step further and buy the types of properties with the highest potential to make you money.

You don’t have to build a real estate empire on your own. Instead, you can join an expansive real estate education community and connect with hundreds of people who share your passion for real estate. You’ll receive coaching from successful investors, and you can learn about early successes and setbacks from people at a similar stage in their investment journeys.


Ready to make your dreams a reality? Join the WealthGenius investment community today and take a massive step towards success!



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