Knowing the real estate market will let you find your investment niche and might inspire you to diversify your investment portfolio
Real estate investing has long been considered a dependable way to make money. People will always need accommodation and a place to work, so real estate is an asset that won’t fade away. Knowing the real estate market and choosing the right investment can provide you with a steady income and help you to build wealth.
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Real estate investing has many benefits, including establishing a stable cash flow, passive income, tax advantages, diversification, and leverage. In addition to knowing the different types of real estate, other factors will influence your decision in buying real estate, such as will your property rise in value? Will mortgage rates and taxes permit you to obtain a mortgage?
Listed below are the different types of real estate if you're considering doing a deep dive into the world of real estate investing:
Residential
The residential real estate market was worth a whopping $6.1 trillion in 2020 in Canada, making residential real estate the most common real estate to invest in. In addition, according to the Canadian Real Estate Association, 630,634 properties were sold on the MLS in 2021.
Looking at the statistics about new home construction can let you predict how the housing market will fare in the future, and help you to decide if you should invest in residential real estate.
Residential real estate is comprised of any dwelling that contains less than five individual living spaces. For example, this includes single-family homes, duplexes, triplexes, quad-plexes, condos, townhomes, and cooperatives.
When an investor chooses to buy into residential real estate, they are usually doing so to live in the home themselves, to renovate and sell it (also known as flipping), or to become a landlord and rent out the property.
According to the Canadian Real Estate Association, as of November 2021, the average price of a home in Canada was $720,850 and this was mostly influenced by home sales in Greater Vancouver and the GTA, which are Canada's top expensive housing markets.
Although house prices can’t be predicted, it’s likely that prices will continue to rise, making investing in residential real estate a profitable venture.
Commercial
Commercial real estate is real estate that is used mostly for business. Examples of commercial real estate include strip malls, restaurants, gas stations, office space hotels, grocery stores, and hospitals.
Investors often purchase commercial real estate to rent out, with some commercial contracts lasting up to 10 years. However, investing in commercial real estate can be costly for beginning investors given that banks require a 20% down payment for this type of venture and down payments can be as high as 50%; the bank will look at your overall risk profile to determine the down payment you’ll need to pay.
Commercial real estate can provide you with a stable income if you find a reliable tenant to give you the cash flow from the rent to cover the monthly mortgage payments. With money left over, you won't fall into debt and you’ll generate income.
Investing in commercial real estate has its advantages: commercial rent rates usually remain stable and there are many businesses available to rent out offices. Investing in commercial property also has tax benefits; under Canada's Income Tax Act, you can deduct income from commercial properties and you can also deduct for repairs, insurance, electricity, and water needed to maintain the property.
If you're looking to invest in commercial real estate there are many commercial real estate lawyers and realtors who specialize in this area and can provide you with specialized knowledge of this market.
Industrial
Industrial real estate includes any building that is used for manufacturing, production, research and development, storage, and distribution. In the age of online shopping, industrial real estate is gaining traction as more businesses need to store their products before shipping them to customers.
If you are looking to invest in commercial real estate, you should ensure that the building is located near transportation to make for easier shipping and receiving of goods. This wouldn't be important if you were purchasing the real estate to use for offices.
Mixed-Use
Mixed-use real estate are properties that combine commercial and residential real estate. For example, the local pizza parlor with an apartment situated on the second floor is an example of mixed-use real estate. Similarly, an apartment building with retail stores in the lobby is also mixed-use real estate.
You should be aware that mixed-use real estate is always zoned by the city as commercial property and therefore, you'll need to pay the taxes for commercial real estate and not residential.
Vacant Land
A vacant land is also an option for investors to consider. However, this can be a risky proposition because you don't know what the land will be worth in the future and if a developer will be willing to pay you to build on your land. If you purchase a building, you have a good idea of what the property is worth.
Land can include agricultural properties such as farms and ranches or timberland. Sometimes, investors choose to purchase the land and invest in the agricultural business. For example, you could purchase timberland and sell off the timber for a profit.
Sometimes people invest in vacant land for personal use, such as purchasing land to store a trailer or build a cottage.
Becoming a Real Estate Renegade
Whether you're renovating a fixer-upper to flip, owning a duplex apartment building, or renting out commercial space to a local barbershop, investing in the real estate market can provide you with increased wealth over time. Just be sure to pick the right type of real estate for your circumstances.
In general, real estate is much less volatile than the stock market and historically, real estate prices have steadily risen over time. However, it's not as easy to turn a property into immediate cash when compared to other investments.
Real estate investing can be lucrative over the long term, but just be sure to research the market and the different types of real estate, obtain expert advice from real estate professionals, and be realistic about the gains you hope to make.
