How to Start Investing in Real Estate: Types of Real Estate Investments
Many investors are looking to real estate to grow their financial portfolios. There's potential for risk and reward in real estate, but learning about the numerous investment strategies will help you make well-informed choices. Read on to learn about types of real estate investments that are suitable for people at any experience level.
Residential Real Estate
For many new investors, residential real estate is the most common choice for those seeking to beef up their financial portfolio. Residential properties can give investors a long-term stream of steady income or serve as a primary home. The options are varied, giving buyers choices about the property they choose to rent or sell to others, including:
- Single-Family Homes
- Vacation Properties
- Multi-Family Properties
While new properties are hot in the investor's marketplace today, buying an existing property and rehabilitating it for sale can be lucrative. Fix-and-flip homes can be just as risky as they are profitable, so some expert advice and a thoroughly-researched market are necessary.
Not only can quick flips or outright sales generate cash, but renting out properties can serve as a source of income while property values rise. Holding on to a property and renting it out could see tremendous increases in home appreciation in the exploding Canadian real estate market.
There's no doubt that residential properties can increase the value of an investor's portfolio, and these profits can establish credit that permits future investments. Investors planning to sell right away should consider tech-friendly upgrades and renovations that will provide a good ROI.
Commercial Real Estate Investments
Anyone considering investing in commercial real estate must have some experience or solid guidance from a property professional. These investments have additional rules and guidelines that owners must follow before leasing spaces out to tenants. The regulations will depend on the type of commercial property one buys, which can be:
- Retail Space
- Strip Centres
- Mixed Use
- Office Space
Retail spaces like shops and corner stores typically have long-term leases, making them reliable income makers. Industrial businesses that ship and store goods from the location. That being said, mixed-use properties tend to have several tenants with different business interests. This could lead to a fluctuation in rental income when vacancies arise. However, the property itself retains its value.
Adding to Portfolios Through Real Estate Investment Trusts
Canadian real estate investment trusts (REITs) are often a source for investing in commercial properties. They have a track record of solid growth that reaps an excellent yield of close to 5 percent for investors. REITs get the preferential tax treatment of an income trust, meaning they are not subject to corporate taxation. Investors in REITs don't pay taxes on dividends, but they may be held accountable for offering higher distributions.
REITs require buyers to make monthly investor distributions payments rather than dividends. These trusts are investments that can be traded or sold, like stocks and bonds. Furthermore, investors can invest without taking on the responsibility of full ownership. These types of leases imply that tenants are responsible for certain costs, such as property taxes, insurance and maintenance. While it might seem intimidating initially, REITS can generate a stable and predictable source of income for all parties involved.
REITs allow investors to defer certain portions of their capital gains taxes by using the investment power of their portfolio to invest in other properties for further expansion. Cash can be liquidated in many situations, but be aware that certain tax penalties may apply. Savvy investors should work with a broker or have some real estate investment experience backing them when working with REITs.
Invest Smart and Profit Big!
The Canadian real estate market is booming, both in the residential and commercial sectors. This gives new and experienced investors an array of opportunities to reap huge profits or at least get their feet wet. Keeping an eye on the market and consulting with local professionals in the industry is essential to minimizing risk, and understanding capital gains taxes in real estate and the ins and outs of mortgages are musts. Still, all three of these types of investments are proving to be solid additions to investors' real estate portfolios.