Updated on Jun 7, 2024
Investing in real estate is one of the most popular ways for Canadians to build their wealth. It’s relatively low-risk and offers the possibility of constant cash flow. Additionally, the tax breaks and long-term capital appreciation make this asset class a solid and attractive addition to any investment portfolio.
When considering real estate investing, buying a personal residence comes to most people’s minds. However, real estate offers a wide variety of investing options beyond owning the place you live in. If you are considering immersing yourself in real estate investing and want to know the best options for beginners, you are in the right place.
The Best Beginner-Friendly Real Estate Investments
Buy Your Own Home
The first real estate investment for many people is buying their own home. You can buy a single-family home or take a step further by buying a multifamily home with two units or more. This not only gives you the benefits of owning the place you live in, but it can also give you the possibility of renting the vacant units to start taking your first steps as a landlord. In the next sections, we provide more details on using your multifamily home to earn income as a landlord.
Buy Rental Properties
The next stage in real estate investment often is buying a rental property, whether it is for residential, commercial, or vacation purposes. With this type of investment, you buy a property to rent it out. This means you become a landlord with all the responsibilities of the role: mortgage, taxes, tenant screening, property maintenance, and any other issue that could surge.
Even though this is a hands-on investment, rental properties are a very lucrative and safe way to invest in real estate, especially in the long term, once the mortgage is paid off. However, you can skip all the hard work that implies being a landlord by hiring a property management company to handle all the logistical details. At Amhurst, these small landlords make up most of our clients, who want the benefits of investing in real estate without the hard work of being a landlord.
Buy land
Another beginner-friendly real estate investment is buying vacant land. This type of investment allows the flexibility of renting the land for agricultural or recreational purposes, raising livestock, building on it, or selling it to a developer once its value increases.
Depending on your circumstances, a good way to start buying land is to purchase surrounding properties close to your home. This can increase the value of your home and give you access to all the profit possibilities that owning vacant land offers.
There are some general criteria you should follow when you look for land to purchase:
Intended usage: what usage do you envision for your land? Having a clear picture of what you want to do with your land will serve as a guide to looking for land close to specific types of businesses and developments and weather conditions.
Location: you should look for land with proper road access, preferably close to some residential and commercial developments, and located in a desirable area, with a good perspective on further development in the near future.
Soil quality: Before making any purchase, it’s key to run a percolation test to determine if a septic system can be installed in case the land doesn’t have a connection to the local sewage system. If a parcel of land fails this test, it may be difficult to build residential or commercial buildings on it, decreasing its chances of appreciation over time.
All in all, buying vacant land is an excellent way to diversify your portfolio, and it is definitely worth researching.
House Hacking
House hacking involves buying a multifamily property (such as a duplex, triplex or condo units), living in one of the units, and renting out the others to tenants. This strategy can also apply to single-family homes where the owner rents out individual rooms or an extra unit, such as a basement apartment or a secondary suite.
This type of investment is an entry-level real estate investment that many use to earn revenue from their own residence. They use it to offset mortgage payments and other housing expenses while building equity in the property. In some cases, the rental income may cover the entire mortgage payment, allowing owners to live rent-free.
Another benefit of house hacking is that managing tenants and maintaining the property while living on-site provides hands-on experience in property management and real estate investment, preparing you for future investments. However, the closeness with your tenants can increase the job’s demand and bring in privacy concerns due to the shared space that can negatively affect your lifestyle.
Real Estate Crowdfunding
In this method of investing, you join multiple investors to pool money to purchase or develop real estate properties. This is facilitated through online platforms that connect investors with real estate projects. These platforms offer the users a diverse range of investment opportunities, including residential, commercial, and industrial projects.
One of the most attractive features of real estate crowdfunding is its low minimum investment requirement, sometimes as low as $500, making it accessible to many investors without enough capital or experience. This type of investment is also one of the most passive ways to invest in real estate because investors can earn passive income through rental income, interest payments, or property appreciation without actively managing or visiting properties.
Real estate crowdfunding can also be a valuable tool for seasoned investors, as it helps build a more diverse investment portfolio with relatively low capital and effort, offering a blend of accessibility, professional management, and potential for attractive returns. In Canada, platforms like Addy and Fundrise are among the most beginner-friendly for their low investment requirements.
Invest in REITs
If you want exposure to the benefits of investing in real estate but don’t want to deal with any bureaucracy involving buying physical properties, real estate investment trusts (REITs) are another attractive alternative. REITs are companies that own and manage several real estate properties that produce revenue and allow investors to buy shares and benefit from the profitability of the properties without owning them physically.
REITs are like stocks you can buy and sell in major exchanges. There are REITs of all types of properties, and there are even ones that include properties in various regions across Canada, making them an ideal option to diversify your portfolio; compared to other forms of investment in real estate, they offer high liquidity. And since investors can enter by buying shares instead of the properties, it offers a lower entry barrier for those who can’t afford to buy property.
House Flipping
Made popular thanks to HGTV, house flipping is often seen as a trendy real estate investment. In general terms, house flipping consists of buying a home, holding it for a short period of time (we are talking about months) and then selling it for a profit. There are two main ways to approach this investment strategy:
Repairs and renovations: house flippers use this approach when they think a property will significantly increase in value with a series of repairs. The goal is to complete the property renovation as quickly as possible and sell it at a price that exceeds the initial investment, including the renovation costs.
Investors using this approach don’t buy any house: They look for properties that need cosmetic repairs since those are cheaper and quicker to make. As you’ve probably seen on those HGTV shows, buying a property with more damage than expected can result in monetary loss.
Hold and resell: This strategy is used during booming markets. It involves buying the property without making any repairs, holding it for a few months, and then selling it at a profit.
House flipping is a more advanced investment since it requires knowledge of the market and its timing. It also has changing tax implications. Since 2023, home sale profits are calculated as business income if you’ve held the home for less than a year. Previously, Canadians did not have to pay tax on profit from the sale of their main residence. Still, flipping can be a very lucrative investment that beginners may want to consider once they’re more seasoned in real estate investing.
Investing in real estate is a good way to grow your portfolio. You can diversify your assets, benefit from some tax breaks, and have a good stream of income that will give you peace of mind towards retirement. Like other types of investment, it carries some risk. However, with due research and discipline, everyone can enjoy the perks real estate investing has to offer.
