Prioritizing financial literacy all year is important, but how can you do it? Here’s what you should know as we leave November.
What should first-time investors know?
If you’re thinking about investing in real estate, you are likely weighing your different options, considering the pros and cons, and wondering about the essential information you should know. Real estate investments provide a wide variety of paths you can take, with a ton of potential challenges and rewards. This is exciting, but it can also feel overwhelming. Before plunging into the market, we recommend first-time investors learn the basics about real estate, opportunities that match their goals, and resources available to them.
What are the types of real estate investments?
There are several types of real estate investments. We will focus on three of the most common ones, which include rental properties, commercial properties, and house flipping.
Buying a rental property is the most well-known form of real estate investing. This investment strategy provides you with steady monthly cash flow, in the form of tenant rent. You have the freedom to set your own rent price and select your own tenants. Plus, this is an investment that could appreciate in value over time, depending on market conditions. Of course, this also means you will become a landlord. You must be prepared for the maintenance and problem-solving responsibilities that come with this form of investing.
Investing in commercial real estate focuses more on office buildings or warehouses as opposed to houses. Generally, the return is higher on these forms of investments, since your tenants are businesses. If you are a first-time investor, however, this path may not be the best fit. Lease agreements tend to be more complex and require a higher level of investment experience.
Finally, we arrive at house flipping. This is when people invest in fixer-upper properties, or homes that need major repairs or renovations. The idea is investors purchase a home at a low value, significantly increase its value with necessary repairs, then sell it and earn a profit. This is an exciting form of investing, but it also requires a lot of market knowledge! You must be able to act quickly before potential market changes. You also need to ensure you spend just the right amount on renovations that you can still earn a profit.
What are the pros and cons?
First-time investors will find there are various benefits and drawbacks to real estate investing. One of the biggest advantages is the fact that you have direct control over your assets. For example, investing in stocks takes a lot of the control away from you. However, real estate allows you to decide on tenants, prices, and renovations. Rental properties can also offer steady cash flow if you own a property in a high-demand area. If you understand the market and purchase in the right places, you will often find your properties appreciate in value. This gives you the opportunity to achieve long-term growth.
On the flip side, real estate investments are not always picture perfect. The market can be unpredictable, and certain factors are out of your control. For instance, you cannot influence interest rates or economic conditions, which have a huge impact on prices and demand. Entering the market can also be a hurdle, as down payments on these properties tend to be significant. Plus, you are responsible for ongoing maintenance costs and taxes. Finally, remember that being a landlord is not for everyone! This requires a lot of patience and proper communication to establish a successful relationship with tenants.
Helpful resources for first-time investors
There are several resources available to first-time investors that can help prepare them for the market. We recommend keeping up with the Canada Mortgage and Housing Corporation (CMHC) and the Canadian Real Estate Association (CREA). These resources offer news, analyses, and insights on Canada’s markets, plus all kinds of tips for investors. You should also spend some time on Realtor.ca and Zolo. These provide you with important data on prices, supply, and demand, as well as house listings. Finally, you may want to explore a budgeting tool to help keep you on track throughout your journey! You can check out this post to see some of our top picks.
Investing in real estate offers lots of opportunities and benefits, as well as some challenges. The decision to enter this market depends on your financial goals as well as your risk tolerance levels. It can be hard to know where to start, and that’s where a mortgage broker comes in! We are here to help you find the route that aligns with your goals. Be sure to reach out if investing is something you are interested in pursuing!
If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.