Home ownership is likely the first thing that comes to mind when thinking about investing in real estate but buying a house in today’s market can feel incredibly challenging, if not impossible.
Indeed, six in 10 Canadians feel homeownership is completely out of reach, according to a poll by Ipsos SA earlier this year. Yet, including real estate in your investment portfolio can be a smart move for a few key reasons.
First, it’s a great way to protect your money from the eroding effects of inflation. Over time, property values tend to rise with the cost of living, helping you keep the real value of your investment intact. Second, real estate can add a healthy dose of diversification to your portfolio, smoothing out the ups and downs of stock and bond movements.
Traditional home ownership may not be the right choice for everyone, but there are investment alternatives such as real estate investment trusts (REITs) and private real estate investment funds that offer exposure to the real estate market. Like any investment, however, thorough due diligence is crucial to understand how real estate fits into your overall investment strategy.
Homes and rentals
Homeownership can indeed act as a safeguard against inflation, given the tendency of residential property prices to keep pace with rising costs. Leveraging your investment and capitalizing on favourable interest rates can also be a strategic path to building wealth, all while providing a reassuring sense of emotional security.
The dream of owning a home is a common aspiration, but it’s vital to tread carefully and avoid becoming “house poor” — the state of paying too much on housing expenses relative to one’s income. It is essential to balance these benefits with the potential downsides of homeownership, including a lack of diversification, reduced liquidity, steep transaction costs, tax implications and the ongoing burden of maintenance expenses. These costs often catch homeowners off guard, highlighting the need for careful planning.
Additionally, property-specific risks, such as environmental factors and interest rate changes, can impact the financial stability of homeowners. Without expert guidance to navigate these complexities, homeowners may find themselves ill-prepared for unforeseen challenges, like the recent case of the Seawatch subdivision in Sechelt, B.C., where homeowners were forced to evacuate due to the threat of sinkholes, making their homes inhabitable and worth a lot less.
For those already on the homeownership journey, expanding your real estate investments through rental properties is a compelling option. This allows you to maintain control over property management, tenant selection and provides a dependable source of income.
Nevertheless, it’s important to acknowledge the considerable responsibilities, initial capital demands and property-specific risks that come with this territory. Maintaining a prudent balance between investing in real estate and having adequate reserves for ongoing maintenance is crucial. This will help secure your financial well-being and achieve your investment goals.
REITs
In contrast to purchasing a property, real estate investment vehicles — such as REITS — are intangible assets that provide financial exposure to the real estate market, all while benefiting from professional management.
Unlike the traditional homeownership route, which demands a substantial down payment, investing in REITs can be done with just a few hundred dollars. They are often prized for their high liquidity, low initial financial commitments and transparency.
Though REIT prices often closely correlate with equities — rather than deliver entirely uncorrelated exposure such as some alternative assets — they allow investors to buy and sell at their convenience.
With the wide variety of REITs available, spanning from commercial to residential REITs across various sectors and locations, investors can achieve an adequate level of diversification compared to buying individual properties.
Investing in REITs also involves relinquishing direct control over property management. This shift of responsibility to professionals and the freedom from the hassles of maintenance can be a compelling factor for many.
For those yearning for real estate exposure, but lacking the capital required for property purchases or private fund investments, REITs offer an effective and accessible alternative.
Private funds
For those seeking more sophisticated solutions, private real estate investment funds offer diversified portfolio management that can potentially outperform other forms of real estate investment under certain conditions.
These funds are managed by professionals and may offer solid returns, but also risks that may not be right for everyone. For instance, the investment strategy — including leverage rules and property types — varies among different funds. Investors should always account for factors such as lock-up periods, which can extend for more than a decade, and the potential for redemption suspensions during market stress.
Adequate due diligence on real estate investment funds often involves advisers conducting six to 12 months of research, including face-to-face meetings with fund managers, site visits and fund provision analysis. With these complexities and restrictions, private funds are usually only suitable for those with a high net worth and long-term horizon.
Overall, there is no one-size-fits-all solution to investing in real estate. Everyone possesses unique goals, personal circumstances, time horizons and risk tolerance levels that influence how real estate aligns with their investment strategy.
Also, given the complexities associated with some real estate investments, the guidance of an adviser can prove invaluable in both simplifying the due diligence process and helping you achieve your financial objectives.
The key to successfully incorporating real estate into your portfolio lies in conducting thorough due diligence, with special attention to liquidity constraints, and assessing how this asset class complements your individual circumstances.
Neil Kumar is a portfolio manager, investment adviser and founding partner of JSK Partners.
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.
VANCOUVER – Voters along the south coast of British Columbia who have not cast their ballots yet will have to contend with heavy rain and high winds from an incoming atmospheric river weather system on election day.
Environment Canada says the weather system will bring prolonged heavy rain to Metro Vancouver, the Sunshine Coast, Fraser Valley, Howe Sound, Whistler and Vancouver Island starting Friday.
The agency says strong winds with gusts up to 80 kilometres an hour will also develop on Saturday — the day thousands are expected to go to the polls across B.C. — in parts of Vancouver Island and Metro Vancouver.
Wednesday was the last day for advance voting, which started on Oct. 10.
More than 180,000 voters cast their votes Wednesday — the most ever on an advance voting day in B.C., beating the record set just days earlier on Oct. 10 of more than 170,000 votes.
Environment Canada says voters in the area of the atmospheric river can expect around 70 millimetres of precipitation generally and up to 100 millimetres along the coastal mountains, while parts of Vancouver Island could see as much as 200 millimetres of rainfall for the weekend.
An atmospheric river system in November 2021 created severe flooding and landslides that at one point severed most rail links between Vancouver’s port and the rest of Canada while inundating communities in the Fraser Valley and B.C. Interior.
This report by The Canadian Press was first published Oct. 17, 2024.
