Real estate is how many of the world’s richest people became wealthy. It’s also likely how their children and their children’s children got rich. In fact, huge empires have been built from a single property purchase. American author Mark Twain once said “Buy land. They’re not making it anymore.” By that logic, real estate will always be in high demand. Building generational wealth by buying real estate is not a new strategy, nor is it reserved for the rich.
Long before stocks, bonds and bitcoin, people aspired to own land, and many still do. According to a recent survey conducted by Leger on behalf of RE/MAX Canada, 51 per cent of Canadians are considering a buying a home in the next five years. This is up from 36 per cent one year prior. While Canadian housing markets have experienced their ups and downs in recent years, increased consumer confidence could be a key factor impacting the housing market in 2020.
Risks and rewards of real estate investing
Like all investments, real estate comes with some risks.
Financing
Unlike other types of investments which require 100 per cent of the capital up-front, many real estate investors take out a mortgage in order to buy their investment property. According to Ratehub.ca, properties with one to four dwellings are zoned “residential” so the mortgage application process is similar to that of a principal residence. Alternately, a building with five units or more is zoned “commercial” and the mortgage application process is more complex. Keep in mind that the minimum down payment to purchase a non-owner-occupied income property is 20 per cent.
Regardless of the size of building, or whether you choose to live it in or not, Canada has enjoyed a record-low interest rate environment for the last decade. The low cost of borrowing makes an investment property attractive to those who may not be able to pay for their investment outright, but through their investment strategy expect to be able to carry the mortgage and other ongoing costs, hopefully with some money left over to spend, save or re-invest.
The good news is that Canadian real estate has historically yielded solid returns when held for the long-term. According to the Canadian Real Estate Association, the average home price in Canada in 1984 was $76,351. Today in some Canadian housing markets like Toronto, that’s what you’ll need just for the down payment. By 1996 the average house price in Canada was $150,899. Now fast-forward to January 2020, where CREA’s latest market data reported an average price of $504,350. Granted, some housing markets see property values increase (or decline) faster than others, but if you bought a home in Canada back in 1984 and you still own it, odds are that you’re in line for a pretty solid return on your initial investment.
As a bonus, few other investment vehicles allow you buy and use your asset while you watch your equity grow. Then, when you sell a principal residence, the income generated is not subject to income tax. Double bonus.
While long-term resale value is one way to make money in real estate, smart investors explore opportunities that allow them to earn now. After all, why not get some help paying off that mortgage?
Building generational wealth by buying real estate
The sale of a principal residence, in the right location and at the right price, can certainly provide enough to boost, if not fully fund, your retirement. But if building generational wealth by buying real estate is your objective, don’t hold your breath for the next 30 years in anticipation of appreciation. Explore how your property can start generating income now and into the future, without you (or your children) having to sell it.
Remember: a single rental property – purchased once, consistently well-maintained and smartly managed – can provide a source of income for generations to come.
Building wealth through rental properties
Want to know how to build wealth in real estate? A positive cash-flowing investment property means renting it out for more than you’re paying in monthly mortgage, condo fees, property insurance, property tax, regular maintenance and those “unexpected” expenses that inevitably arise.
Before buying a property or narrowing down a neighbourhood, smart investors will have researched vacancy rates and average rents. A rising vacancy rate means more homes are available for rent – more competition for the landlord. A falling vacancy rate means there are fewer rental properties to choose from, giving an investment property owner the upper hand. Canada Mortgage and Housing Corporation releases rental reports that provide a good high-level overview. It’s also a good idea to check local rental listings to see what properties are actually renting for.
Evaluating a location’s income potential requires a “bigger picture” perspective. Here are 12 questions to ask, according to Vancouver-based real estate research and consulting firm, Cutting Edge Research Inc.:
Is the average income increasing faster than the provincial average?
Is the population growing faster than the provincial average?
Is the area creating jobs faster than the provincial average?
Does the area have more than one major employer?
Will the area benefit from an economic or real estate ripple effect?
Has the political leadership created an atmosphere conducive to economic growth?
Is the Economic Development Office progressive and helpful?
Is the area’s infrastructure being built to handle the expected growth?
Are there any major transportation improvements in the works?
Is the area attractive to Baby Boomers’ lifestyle?
Is there a short-term problem occurring that may be rectified in the future?
Is there a noted increase in labour and material costs in the area?
Buy, rent, repeat. Pass it on. Sell it eventually… maybe.
Once you’ve landed on a good location, where the economy is chugging, the population is growing and demand is rising, tenants who pay the rent – and your mortgage – will follow. Barring any major upheaval, future generations who inherit the property can continue to earn on your initial investment.
Scottish-American industrialist, philanthropist and billionaire Andre Carnegie famously said that 90% of millionaires become so through real estate. There’s certainly something to this strategy. If you’d like to learn more about how to invest in real estate, contact your RE/MAX agent today.
TORONTO – The Toronto Regional Real Estate Board says home sales in October surged as buyers continued moving off the sidelines amid lower interest rates.
The board said 6,658 homes changed hands last month in the Greater Toronto Area, up 44.4 per cent compared with 4,611 in the same month last year. Sales were up 14 per cent from September on a seasonally adjusted basis.
The average selling price was up 1.1 per cent compared with a year earlier at $1,135,215. The composite benchmark price, meant to represent the typical home, was down 3.3 per cent year-over-year.
“While we are still early in the Bank of Canada’s rate cutting cycle, it definitely does appear that an increasing number of buyers moved off the sidelines and back into the marketplace in October,” said TRREB president Jennifer Pearce in a news release.
“The positive affordability picture brought about by lower borrowing costs and relatively flat home prices prompted this improvement in market activity.”
The Bank of Canada has slashed its key interest rate four times since June, including a half-percentage point cut on Oct. 23. The rate now stands at 3.75 per cent, down from the high of five per cent that deterred many would-be buyers from the housing market.
New listings last month totalled 15,328, up 4.3 per cent from a year earlier.
In the City of Toronto, there were 2,509 sales last month, a 37.6 per cent jump from October 2023. Throughout the rest of the GTA, home sales rose 48.9 per cent to 4,149.
The sales uptick is encouraging, said Cameron Forbes, general manager and broker for Re/Max Realtron Realty Inc., who added the figures for October were stronger than he anticipated.
“I thought they’d be up for sure, but not necessarily that much,” said Forbes.
“Obviously, the 50 basis points was certainly a great move in the right direction. I just thought it would take more to get things going.”
He said it shows confidence in the market is returning faster than expected, especially among existing homeowners looking for a new property.
“The average consumer who’s employed and may have been able to get some increases in their wages over the last little bit to make up some ground with inflation, I think they’re confident, so they’re looking in the market.
“The conditions are nice because you’ve got a little more time, you’ve got more choice, you’ve got fewer other buyers to compete against.”
All property types saw more sales in October compared with a year ago throughout the GTA.
Townhouses led the surge with 56.8 per cent more sales, followed by detached homes at 46.6 per cent and semi-detached homes at 44 per cent. There were 33.4 per cent more condos that changed hands year-over-year.
“Market conditions did tighten in October, but there is still a lot of inventory and therefore choice for homebuyers,” said TRREB chief market analyst Jason Mercer.
“This choice will keep home price growth moderate over the next few months. However, as inventory is absorbed and home construction continues to lag population growth, selling price growth will accelerate, likely as we move through the spring of 2025.”
This report by The Canadian Press was first published Nov. 6, 2024.
HALIFAX – A village of tiny homes is set to open next month in a Halifax suburb, the latest project by the provincial government to address homelessness.
Located in Lower Sackville, N.S., the tiny home community will house up to 34 people when the first 26 units open Nov. 4.
Another 35 people are scheduled to move in when construction on another 29 units should be complete in December, under a partnership between the province, the Halifax Regional Municipality, United Way Halifax, The Shaw Group and Dexter Construction.
The province invested $9.4 million to build the village and will contribute $935,000 annually for operating costs.
Residents have been chosen from a list of people experiencing homelessness maintained by the Affordable Housing Association of Nova Scotia.
They will pay rent that is tied to their income for a unit that is fully furnished with a private bathroom, shower and a kitchen equipped with a cooktop, small fridge and microwave.
The Atlantic Community Shelters Society will also provide support to residents, ranging from counselling and mental health supports to employment and educational services.
This report by The Canadian Press was first published Oct. 24, 2024.
Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.
Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.
Average residential home price in B.C.: $938,500
Average price in greater Vancouver (2024 year to date): $1,304,438
Average price in greater Victoria (2024 year to date): $979,103
Average price in the Okanagan (2024 year to date): $748,015
Average two-bedroom purpose-built rental in Vancouver: $2,181
Average two-bedroom purpose-built rental in Victoria: $1,839
Average two-bedroom purpose-built rental in Canada: $1,359
Rental vacancy rate in Vancouver: 0.9 per cent
How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent
This report by The Canadian Press was first published Oct. 17, 2024.
