There are many strategies to get into real estate investing in Ontario. The out-migration from Toronto is resulting in an influx of people to nearby towns and cities and given that many of these areas offer great career opportunities and commuting options makes these towns and cities great real estate investing locations. The prospect of homes being significantly cheaper than in Toronto combined with transportation improvements such as expanded and new highways, and new light and heavy rail trains are attracting both tenants and homeowners. Choosing an investment strategy in cities and towns with more people moving in than out means continued real estate appreciation. The two criteria to success in investing in real estate are picking the town/cities where real estate demand is increasing and ensure that your real estate investing strategy works for you.
It is critical that each real estate investor selects the strategy that feels right for them and works with their available time, financial resources, and risk tolerance.
The top 5 Ontario investment strategies are:
- Buy and Hold
- Buy, Fix Up and Hold
- Joint Venture Partnership
- Rent to Own
1. Buy and Hold
Buy and hold is the least complex and less risky than some of the other investment strategies. This strategy is relatively simple: buy a rental property slightly under market, ensure it will cash flow, and hold for the long term. The tenants gradually pay off the mortgage and the property is purchased in a growing market will appreciate in value. This strategy is very popular with many investors as it is the simplest and most straight forward real estate investment strategy. It is however critical to ensure that the city or town that you are investing in has staying power.
The Flip real estate investing strategy has become quite popular in Canada primarily due to the television shows in Canada and in the US. In principle the strategy appears simple: purchase a home significantly under market, renovate, stage it and make a huge profit. In reality, it can take quite a while to find a property that is significantly under market to justify renovating and flipping it.
In addition, renovations can come with many surprises and expenses, and unless you have or know someone who has renovation experience it can be a risky strategy. In any event, if done well and timed when real estate prices are appreciating this strategy can be very rewarding. The financing of this strategy can, however, be a little trickier to obtain a mortgage as you will not be able to generate income until the property is sold. You may also possibly have to get a little creative to get financing and may need to utilize a combination of financing resources. There are three keys to success with this strategy: the first is timing, the second is to ensure that the property in a growing town or city, and the third is being realistic on the potential renovation costs.
3. Buy, Fix Up, and Hold
This strategy involves purchasing a property that is undervalued because the home requires renovation and is in a poor or outdated state. The home is then renovated with the intention of holding the home for the longer term and renting it out and selling when the market is favorable or enough equity has been accumulated. Similar to the Flip you may have to get creative with financing and possibly need to use a combination of financing sources. Being realistic about your financing and renovations costs when calculating the flip profits is absolutely critical to ensure a return on investment.
4. Joint Ventures
Many investors who don’t have the time, knowledge or don’t want to tie up funds in purchasing real estate investment property on their own, will partner with someone with the same investment goals, who also quite often have the knowledge and investment experience. In a joint venture arrangement, it is imperative to have everything in writing before any money changes hands. The initial financial expectations should be clearly spelled out and should also include some of the following:
- Spell out how decisions will be made when or how repairs and renovations will be done and who will pay
- How will tenants be selected and who will manage and deal with the tenants
- What timelines and what criteria will be used to determine when the property will be sold
5. Rent to Own
Rent to own has been gaining popularity in Canada over the last 10 years or so. The way this strategy works is that investors purchase a home but rather than advertising for short term or long term traditional rentals they look for future owners. These owners are typically people who want to own their own home but who can’t because they do not have the down payment or have bad credit. A sale price and time would be negotiated in advance. Normally a “transaction fee” of a couple of thousand dollars is typically charged to secure the home. For the predetermined time frame rent is charged plus a predetermined additional amount is charged on top that will go towards the tenant’s future down payment. From a financial perspective, the investor needs to ensure that the tenant can qualify for a mortgage when it comes time to purchase the home. It is also critical that the future owners work with a qualified mortgage professional to ensure they stick to a financial plan that will allow them to end up in a financial position to qualify for a mortgage when the time comes for them to purchase the home.
The above is a brief summary of the most popular real estate investing strategies. Knowledge of market conditions is also crucial to ensure success in real estate investing.
If you are interested in real estate investing and working with a knowledgeable real estate investing Real Estate Agent please reach out it would be my pleasure in educating you and supporting you with establishing your real estate investing strategy.