Real estate is one of those industries that every investor should have in their portfolios. The industry, especially residential real estate, is one of the most defensive investments you can make. That’s why owning income-generating properties is such a popular investment for so many Canadians.
While income properties can be great investments, real estate stocks offer a lot of benefits to consider. Investors can gain exposure to a portfolio of high-quality assets. They offer significant diversification and access to real estate projects with major potential.
Real estate stocks are also a lot less time-consuming. Investors will still have to do a lot of research before making the investment and keep up to date with business developments. However, they’re a lot less work than owning your own income property.
There are several high-quality real estate stocks, depending on what kind of investor you are. Here are three of the top Canadian real estate stocks to buy today.
A top residential real estate stock
If you’re interested in residential real estate, one of the top Canadian stocks to consider is InterRent REIT (TSX:IIP.UN).
Over the last decade, InterRent has been one of the top growth stocks in Canada, let alone the real estate industry. It’s gained over 1,100% in the last decade, showing just good management is.
The company’s main business model consists of buying older properties to renovate them inside and out, ultimately increasing the value substantially. This not only grows shareholder value, but it allows the company to charge higher rents on these improved units.
In just the last 10 years, revenues have grown by over 350%. This is a combination of higher rental rates and more acquisitions by the company.
The pandemic has somewhat delayed the top Canadian real estate stock’s growth in the short term. However, long term, nothing’s changed.
So, if you’re looking for an incredible residential real estate investment, InterRent is a top choice.
An attractive value stock
InterRent is a great choice for growth investors or those who want exposure to the residential real estate industry. If you’re looking for more a value stock to buy, consider First Capital REIT (TSX:FCR.UN).
First Capital owns a high-quality portfolio of mixed-use real estate. Its residential real estate has been understandably resilient. It’s the retail real estate that’s been most impacted, which has caused First Capital to trade at a significant discount.
These are only short-term issues, though. First Capital still owns one of the highest-quality portfolios of real estate assets in Canada.
So, over the next few years, as the economy fully rebounds, you can expect the stock to make a full recovery, rewarding long-term investors willing to take a position today.
The stock has already begun its recovery, though. So, I wouldn’t wait too long to take a position, or you could miss out on the recovery altogether.
Industrial real estate stock
Lastly, one of the top real estate stocks to buy for the long term is Granite REIT (TSX:GRT.UN). Granite is a rapidly growing industrial REIT.
Industrial real estate stocks offer investors incredible long-term growth potential, especially with the growth in e-commerce. This makes Granite a great hedge if you own other retail real estate stocks.
As companies decide to go online only, the need for warehouse space is rising rapidly. In the past, brick-and-mortar stores could hold much of these companies’ inventory. Today, though, more companies are needing warehouses to store their inventory.
This is resulting in stocks like Granite seeing massive increases in business. In just the last three years, the REIT has gained roughly 80%. And as it continues to make new acquisitions and expand its operations, its potential only continues to grow.
So, if you’re looking for a high-quality growth investment, Granite is one of the top real estate stocks you can buy today.
In addition to these three incredible real estate stocks, check out the TOP 10 STOCKS TO BUY IN MARCH!
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Fool contributor Daniel Da Costa owns shares of INTERRENT REAL ESTATE INVESTMENT TRUST. The Motley Fool recommends GRANITE REAL ESTATE INVESTMENT TRUST.
How to Buy a home in Canada
Homeownership can be very exciting, but it isn’t always the best thing for everyone. Before you decide to buy a home, make sure you carefully consider the costs.
According to Canada Mortgage and Housing Corporation (CMHC), your monthly housing costs should not be more than about 35% of your gross monthly income. This includes costs such as mortgage payments and utilities.
Your entire monthly debt load should not be more than 42% of your gross monthly income. This includes your mortgage payments and all your other debts.
Saving for your home
To buy a home, you need a down payment. You also need money to pay for the upfront costs.
Make saving part of your monthly budget. Most employers deposit your pay directly into your chequing or savings account. Increase your chances of reaching your savings goals by setting up automatic transfers to a savings account each pay cheque.
Saving with a Tax-Free Savings Account (TFSA)
A TFSA is an account that lets you save or invest your money tax-free. You won’t pay tax on money you withdraw from your TFSA. You can also use your TFSA to help you buy a home.
Saving with a Registered Retirement Savings Plan (RRSP)
An RRSP is an account that allows you to save money for your retirement. You don’t pay taxes on your savings until you withdraw money from the RRSP.
The Home Buyers’ Plan (HBP)
If you’re a first-time homebuyer, the HBP allows you to withdraw up to $35,000 from your RRSPs tax-free to put toward buying your first home.
The First-Time Home Buyer Incentive
This incentive offers 5% or 10% of your home’s purchase price to put towards a down payment.
Using savings and investment
If you plan to buy a home in the near future, focus on building your savings. You’ll want to keep your money protected and easily accessible.
Short-term savings and investment options may include:
- savings accounts
- short-term guaranteed investment certificates (GIC)
- low-risk mutual funds
Ask your financial institution or advisor about the short-term investments they offer and how they work.
Paying for your home
Most people need to borrow money to buy a home. You also need to put some of your own money into the purchase.
When you buy a home, you must put a certain amount of money toward the purchase upfront. This is called a down payment. Your mortgage loan will cover the rest of the price.
A mortgage is likely the biggest loan you get in your lifetime. It’s important that you understand the process.
Check your credit report before you apply for a mortgage
A potential lender considers your credit history before they decide whether or not to approve your mortgage application.
Before you start shopping around for a mortgage:
Shop around for a mortgage
Lenders may have different interest rates and conditions for similar mortgages. Talk to several lenders to find the best mortgage for your needs.
You can get a mortgage from:
Mortgage lenders – These institutions lend money directly to you. Explore the different types of lenders that are available, including banks and credit unions.
Mortgage brokers – They don’t lend money directly to you. Mortgage brokers arrange transactions by finding a lender for you. Since brokers have access to many lenders, they may give you a wider range of mortgages to choose from. The lender pays a commission to the mortgage brokers, so there’s no cost to you.
Get the mortgage that meets your needs
Mortgages have different features to meet different needs. It’s important that you understand the options and features.
Questions you should ask yourself include:
- do you want a mortgage with a fixed interest rate or one that can rise or fall
- how long of a term do you want
- how often would you like to make payments toward your mortgage
Mortgage loan insurance
If your down payment is less than 20% of your home’s price, you need to purchase mortgage loan insurance. In some cases, you may need to get mortgage loan insurance even if you have a 20% down payment.
Mortgage loan insurance protects the mortgage lender in case you’re not able to make your mortgage payments. It does not protect you. Mortgage loan insurance is also sometimes called mortgage default insurance.
Optional mortgage life, critical illness, disability and employment insurance
Your lender may ask whether you would like to purchase life, critical illness, disability and employment insurance.
These products that can help make mortgage payments, or can help pay off the remainder owing on your mortgage, if you:
- lose your job
- become injured or disabled
- become critically ill
There are important exemptions for each of these insurance products. An exemption is something not covered by your insurance policy. Read the insurance certificate before you apply to understand what this insurance covers.
These insurance products are optional. You don’t need to purchase this insurance coverage for your mortgage to be approved. You must clearly agree to sign up for this insurance before the lender charges you for it.
Tax credits for homebuyers
The Government of Canada offers two tax credits for specific types of homebuyers. Your provincial or territorial government may also offer other home-buying incentives.
The Home buyers’ amount
You get access to this tax credit when you purchase your first home and submit a tax return. It’s an effective means of offsetting some of the upfront costs associated with buying a home. Eligible homebuyers may receive a tax credit of up to $750.
GST/HST housing rebates
Generally speaking, sales of new homes are subject to the GST/HST. You may qualify for a rebate for some of the tax you paid.
You may move into a new home to work or run a business in a new location. You can deduct eligible moving expenses from the employment or self-employment income that you earn in the new location.
Home buying costs
When you buy a home, you have to pay for upfront costs in addition to your mortgage. These are called closing costs. You can expect to spend between 1.5% and 4% of the home’s purchase price on closing costs. You usually pay these costs by the time the sale is completed or “closes”.
You have to pay legal fees on your closing day. This is the day that your home purchase is complete. These fees are usually range between $400 to $2,500 but will vary depending on your lawyer’s or notary’s rates.
A lawyer or notary can help protect your legal interests. They make sure that the home you want to buy does not have a lien against it. A lien is a legal claim over another person’s property that someone files to ensure a debt gets paid.
A lawyer or notary reviews all contracts before you sign them. They also review your offer or agreement to purchase.
You must have home insurance in place as a condition of getting a mortgage.
Home insurance can help protect your home and its contents. It typically covers the inside and outside of your home in case of theft, loss or damage.
Before the sale closes, you’re required to pay to register your property’s title under your name. This may be called a land transfer tax, a deed registration fee, a tariff, or a property transfer tax.
The cost is a percentage of the home’s purchase price. For example, if your land transfer tax is 1.5% and your home cost $300,000, you pay $4,500.
The seller of the home you’re buying may be entitled to adjustments. For example, the seller may have already paid the property tax on the home past the purchase closing date. If that’s the case, the seller receives a credit on the closing date. You must then pay this credit amount to cover the money already paid by the seller.
New build GST/HST
Generally, if you buy a new build home, you pay GST or HST. Some builders include the HST in their sale price while others don’t. Make sure to check. Otherwise, you have to pay this cost upfront on closing day.
Other closing costs
Other closing costs may include:
- interest adjustments (period between your purchase date and your first mortgage payment)
- Certificate of Location cost
- estoppel certificate (for condominium units)
- township or municipal levies (may apply to new homes in subdivisions)
- mortgage default insurance premium (if paying premium up front instead of adding it to mortgage loan)
- provincial sales tax on premiums for mortgage default insurance (applicable in some provinces)
Other home-buying costs
Other costs you may need to budget for include:
Mortgage lenders may ask you to have an appraisal done as part of the mortgage approval process.
An appraiser provides a professional opinion about the market value of the home you want to buy. An appraisal fee is generally between $350 and $500.
An inspector provides a comprehensive visual inspection of a home’s overall structure, major systems and components such as:
- electrical and plumbing systems
- the foundation
- the roof
CMHC recommends that you include a home inspection as a condition when you make an offer.
Before moving in, you may also have to pay for:
- moving costs
- storage costs
- real estate costs for selling your home (if applicable)
- redirecting mail
Once you move in, you may immediately face other costs, including:
- utility hook-up fees
- basic furniture and appliances
- painting and cleaning
- water tests
- septic tank tests (if applicable)
Working with a real estate agent
Using a realtor is optional. A realtor typically searches for homes, negotiates a purchase price, fills out and file paperwork, and more.
The seller pays the realtor’s fees when you buy a home.
Home buying and newcomers to Canada
CMHC has a guide with comprehensive information on housing for newcomers.
Buying a condominium
Condominiums, or condos, are shared properties that contain individual housing units. Each unit has its own owner. Owners share the common areas outside of the unit such as the lobby and parking lot.
There are pros and cons to owning a condo. For example, if you buy a condo, you pay monthly condo fees. However, you may like the idea of sharing the building maintenance costs with the other unit owners.
Buying to rent
You can buy a property with the intention of renting it out. Keep in mind that you have to declare your rental income at tax time each year.
How to Renew and renegotiate your mortgage in Canada
Your mortgage may end when the term is over, or by agreement between you and the lender. When the term ends, if you still owe money you may have to renew the mortgage. If you want to change the agreement or end the mortgage before the term is over, you will usually have to pay a fee and negotiate a new mortgage.
When your mortgage agreement comes to the end of its term, you may still owe a large amount of money to the lender. If you have money available, you can pay any amount to reduce the principal. If you can’t pay it off completely, you will have to renew the mortgage, either with the original lender or with a new one. This is a chance to review all the terms of your agreement and make sure they still meet your needs.
The lender must send you a renewal statement at least 21 days before the end of the term, summarizing the information about your mortgage. The lender has the option not to renew the mortgage if you have a poor payment record, but it must notify you if it decides not to renew.
Just as with a new mortgage, you should find out what terms your lender is offering, and compare them with terms you can get from other lenders. To find out your options, you should start researching several months before the term expires. You may be able to get better terms if market conditions have changed, or if your own situation has changed.
Don’t hesitate to take your mortgage to a new lender if you can get better terms than your original lender is willing to offer. However, there may be additional costs and legal fees to change your mortgage from one lender to another. See if a new lender would be willing to cover these costs to get your business. You should get legal advice if you make a new mortgage agreement.
Check that the benefits of transferring a mortgage outweigh the costs. The new lender may be willing to absorb some costs of transferring the mortgage.
A mortgage broker can help you look for a new mortgage with better terms. However, the broker may not check if your current lender can offer you a better deal. Contact your lender directly to see if it will match any offer you receive.
Some mortgages allow you to renegotiate some items before the term is over. For example, if interest rates available in the market have fallen significantly, you may want to renegotiate your interest rate or even terminate the agreement early.
Normally, you can renegotiate only if you pay a significant charge that provides the lender with the profit it would have made had you continued the agreement. Before you decide to renegotiate, ask your lender what the total cost of all charges and fees will be. The lender must explain to you how it calculates the charges. The costs are likely to be more than any savings you might get.
Some lenders offer a “blend and extend” option—they will allow you to extend the mortgage for a longer term at a lower interest rate by blending your current rate with a new lower rate.
Carefully weigh the benefits and risks of renegotiating. You might get a lower interest rate or extend it over a longer term. But the costs might be more than the savings. And rates might continue to go down to an even lower level when your normal renewal date arrives.
Jim has a mortgage of $100,000 with a fixed interest rate of 7.5 percent. He has three years left on his five-year term. The current market mortgage rate for a three-year term is 5.5 percent. Jim is thinking about renegotiating, but his mortgage agreement says that to renegotiate he must pay a prepayment charge based on the difference between his existing interest rate and the new one.
- The lender calculates his prepayment charge to be $5,820.
- Jim calculates that at 7.5 percent, he’ll pay $25,545.89 for the remaining three years of his mortgage.
- At 5.5 percent, his payments for three years will total $21,314.87.
- His interest saving would amount to $4,231.02. But he’d pay about $1,600 more in charges than he’d save in interest. In the end, renegotiating is not worthwhile.
To calculate the savings from changing to a lower interest rate, you can use the Financial Consumer Agency of Canada’s Mortgage Calculator to compare costs with different interest rates.
Use the Financial Consumer Agency of Canada’s Mortgage Calculator to compare the costs of renegotiating a loan. If you have a mortgage, use the information from your own mortgage. If you do not, use the sample information on the website to view the results.
Mortgage prepayment charges
Financial institutions have a variety of ways to calculate the cost to break or change your mortgage. The most common methods are three months’ interest, or the difference between the interest rate on your mortgage agreement and the rate the institution can get when it re-lends the money, multiplied by the number of months remaining. Check your agreement or contact an agent to see how the prepayment charge is calculated.
Charges and fees may change when you renew your mortgage.
Charges may also apply if you:
- are late in making a regular payment or don’t pay the full amount
- pay more than the allowable prepayment in your agreement
Protecting your mortgage in Canada
Protecting your mortgage in Canada- What happens if you lose your job or get injured and can’t keep up the payments on your mortgage? Would you be forced to give up your mortgage and sell your home? Insurance helps you manage the risk of losing your home.
Protecting your mortgage. There are four main types of mortgage insurance—one protects the lender, and three protect you.
Insurance that protects the lender
- Mortgage default insurance protects the lender if you don’t make your mortgage payments. It’s required for all mortgages where the down payment is less than 20 percent of the purchase price.
- Often it’s added to the mortgage, so you pay for it over the life of the mortgage—and you pay interest on it, too.
- Some lenders ask you to make a separate lump-sum payment for the cost of the insurance.
- The table below shows the cost of standard mortgage default insurance provided by the Canada Mortgage and Housing Corporation. (Your lender can also use independent mortgage default insurers.) The rate is calculated as a percentage of the value of the mortgage loan, and may vary in certain conditions.
|Mortgage value||Standard premium % of loan amount*|
|Up to and including 65% of property value||0.60%|
|Up to and including 75% of property value||1.70%|
|Up to and including 80% of property value||2.40%|
|Up to and including 85% of property value||2.80%|
|Up to and including 90% of property value||3.10%|
|Up to and including 95% of property value||4.00%|
|Non-traditional sources of down payment**||4.50%|
|*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.
** Down payment requirements:
Insurance that protects the homeowner
- Mortgage life insurance covers your mortgage payments if you die. If that happens, your family will not have to worry about losing their home as well. Mortgage life insurance expires when the mortgage is paid off.
- While your premium payments stay the same, the insurance benefit declines to match the amount remaining on your mortgage.
- Mortgage life insurance may be offered by the financial institution that provides your mortgage. (It is an optional service, although the institution may offer a preferred rate if you buy the insurance.)
- When banks offer mortgage life insurance, they must follow a code of conduct, which requires that they explain, among other things, the details of the policy, the charges and the conditions to cancel.
- Mortgage disability insurance covers your mortgage payments in case you have a serious illness or accident. You may already have disability insurance provided by your employer, so check to see what added coverage you may need to ensure your mortgage payment is covered.
- Term life insurance covers your life up to an amount that you choose, but it doesn’t normally cover illness or disability. If you die, your family receives the insurance payment, and can use it to cover the mortgage payments. Coverage continues as long as the term you choose.
- The cost of term insurance depends on many factors, such as age, state of health, personal situation and the length of time the insurance is needed. The cost could be less than the cost of mortgage life insurance.
- Because term life is not tied to a mortgage, it can be used for any other purposes when it’s paid out.
For more information about insurance in general, see the module on Insurance.
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