While the term real estate is familiar to most people, understanding the intricacies of what the term encompasses might be a different matter. Real estate is a type of property that can include different land, buildings, or both. It is a tangible asset that is owned or leased and depending on the nature of your lease or ownership, you’ll have certain rights to use and enjoy the land and its buildings.
People purchase or lease real estate for different purposes including as a principal place of residence, a vacation home, an investment, commercial purposes and a rental property. Here we dive a little deeper into what real estate is, the different types of real estate and the benefits it offers.
Types of Real Estate
In general, there are three categories of real estate:
- Residential real estate can be single-family or multi-family dwellings that are owned or rented by individuals and include undeveloped land, houses, condominiums, and townhouses. Their sole intent is providing a home.
- Commercial real estate includes nonresidential structures intended for business use which can be a single-use property such as a small shop, restaurant or doctor’s office, or a multi-purpose structure such as shopping centers or office towers. Properties include office buildings, warehouses, and retail buildings.
- Industrial real estate includes factories, business parks, mines, and farms.
So basically, the type of real estate is based on the purpose it serves whether that is a home, to generate revenue or to produce a product.
Residential Real Estate Ownership
Residential property provides the opportunity for homeownership. When buying a home to live in, your property is considered to be owner-occupied. Residential properties allow you to build equity and gain wealth. That’s always a good thing. Most homeowners acquire their homes through a mortgage, a loan specific to real estate. Residential properties can also be purchased as rental properties to earn income.
Commercial Real Estate Ownership
Commercial real estate is used for business purposes from shopping malls to skyscrapers and freestanding shops to houses converted for business use. The difference between commercial and industrial properties is that it is intended for “commerce” while industrial space is used for manufacturing products. Although multifamily buildings such as high-rise apartments do generate money for their owners, they aren’t considered commercial properties.
Real Estate Investment
Investing in real estate can prove to be very lucrative, as almost all properties tend to appreciate over time. As well when purchasing properties for lease you can often not only regain the money you pay for the property from rent but also continue to generate gains as the property appreciates in value. There are several ways you can invest in real estate including:
- Buying tracts of land
- Buying structures
- Buying shares in real estate through publicly traded real estate investment trusts (REITs)
- Buying mortgage-backed securities (MBS)
The benefit of real estate investment is that it takes severe market issues such as a major recession, for properties to depreciate. There can also be other unexpected factors such as investing in “swamp” land, which would greatly reduce your odds of reselling the land for profit.
Land is not likely to make any gains if it is lacking purpose or is not located in an area where demand is likely to increase. Both at the time of buying and the time of selling, investment value is dictated by a number of factors including the local economy, employment rates, local transportation, the availability and quality of municipal services, property taxes and even the quality of schools if investing in residential properties.
Benefits of Owning Property
The main benefit of owning property is the fact that in most cases, if you buy at the right price, your property will tend to appreciate. The trick is to ensure you never pay more for a property than the fair market value, the average price properties are selling for in the area. This price can vary greatly, even for neighbourhoods a few kilometers away. So, working with a real estate agent who understands property values in a specific area is very important as they will guide you on true values and negotiate a price that makes sense.
For example, if you had purchased a home in Toronto or Vancouver around 2015 in a high demand downtown neighbourhood, chances are you overpaid for your home at the time.
Pros and Cons of Real Estate Investment
The pros of owning investment properties include:
- If you find and maintain steady tenants, it will generate steady income
- In most cases, you enjoy capital appreciation
- It is an excellent way to diversify your portfolio
- It can be bought with leverage
- Can pay for itself and then become strictly profit generating
- If rented, your tenants pay for the property, eventually making the property strictly an income generator
- There are also cons to property investment including:
- It is not liquid
- There can be influences that will greatly reduce value making it difficult to sell
- It does require larger upfront capital unless you choose REITs or MBSs
- Requires management of some type even if just basic maintenance unless REITs or MBSs
Of course, the type of real estate you buy impacts the pros and cons.
Understanding Real Estate Appreciation
Appreciation in real estate builds over time, starting from the time of your purchase. For example, if you buy a home in Toronto for up to $500,000 (very unlikely, but this is for simple math purposes) in value all you need for a down payment is 5%. So, your down payment amount for your personal property is considered equity because you own that part of the property out and out. The average increase in home prices in Toronto rose 12.3% from January 2019 to January 2020. So, in a year, if you sold your home, you would have gained $150,000, which includes the $25,000 for your down payment, plus the $125,000 roughly gained in appreciation. Factors such as interest rates determine how quickly equity builds.
The best way to see gains in real estate is to find a neighbourhood in the “gentrification” stage where homes are still selling at lower prices in a less trendy or developed area. As people catch on the neighbourhood has potential, they begin to buy homes in the area that attracts trendier cafés, restaurants, shops and services. This increases the value of your property.
For commercial properties such as vacant land, prices can skyrocket if a natural resource is discovered such as oil. Office space can rise in price as a city begins to attract a certain industry such as tech companies that increases the demand for office space.
Regardless of the type of real estate, appreciation also rises based on basic rules of supply and demand, so the lower the inventory available in the real estate market, the higher the prices.
If you are shopping for real estate whether it is commercial or residential, the experts at RE/Max can help.
Canadian Real Estate Correction Is Becoming The Deepest In Half A Century: RBC – Better Dwelling – Better Dwelling
Real estate prices continue to fall in Waterloo region – CTV News Kitchener
The average sale price for all residential property types in Waterloo region continues to fall. The newly formed Waterloo Region Association of Realtors (WRAR) says the average price across all property types in July was $752,301.
This represents a 4.9 per cent decrease compared to June 2022, and a 1.2 per cent decrease from prices seen in July 2021.
“In the wake of July’s interest rate hike, home sales in Waterloo region continued to slow,” says Megan Bell, president of WRAR, in a media release. “We’re seeing a clear shift in the market and what people can afford to purchase or are willing to pay. On the bright side for buyers, it’s not the extreme sellers’ market it was.”
- In July, the average sale price for all residential properties in Waterloo Region was $752,301. This represents a 1.2 per cent decrease compared to July 2021 and a 4.9 per cent decrease compared to June 2022, according to WRAR.
- The average price of a detached home was $842,241, representing a decrease of 7.0 per cent compared to June 2022 and a 6.0 per cent decrease from July 2021.
- A townhouse’s average price is $642,750, representing a decrease of 3.3 per cent compared to June 2022, but a 3.6 per cent increase from July 2021.
- The average sale price for an apartment-style condominium was $521,731. This represents an increase of 4.1 per cent compared to June 2022 and an increase of 20.4 per cent from July 2021.
- The average sale price for a semi was $661,087. A decrease of 5.4 per cent compared to June 2022, but an increase of 1 per cent compared to July 2021.
Real estate sales in Waterloo region also saw a major decline in some property types.
Leading the way was semi-detached homes with a drop of 41 per cent in sales and only 36 sold, followed by a 39.3 per cent drop in condominium units with 65 sold. Townhouse sales dropped 32.9 per cent with 112 sold. Detached home sales dropped 30.4 per cent with 337 sales.
In total, 550 residential homes were sold through the Multiple Listing Service System of the WRAW.
LOCAL REALTOR ASSOCIATIONS MERGE
WRAR is an amalgamation of the Cambridge Association of Realtors (CAOR) and the Kitchener-Waterloo Association of Realtors (KWAR). The groups announced their amalgamation on Wednesday.
The amalgamation of the two means housing prices from Cambridge will now be included in the average monthly sales and prices of properties. Prior, KWAR only included the sales and prices of homes in Kitchener and Waterloo.
Bill Duce, who has served as KWAR’s Executive Officer since 2008, is the Chief Executive Officer of the new regional association.
“Bringing these two associations together just makes sense,” says Duce in a media release. “As one board, we can better serve the needs of our Realtor members and stakeholders and give a voice to the region’s real estate market.”
The board of directors of WRAR appointed Megan Bell as president, Christal Moura as president-elect, and Val Brooks as immediate past president as officers of the new entity.
GTA home sales tumble nearly 50% from last year, real estate board says – CBC.ca
The moderation of the Greater Toronto Area’s housing market intensified last month as the region’s real estate board found July sales fell 47 per cent from the same time last year and 24 per cent from this past June.
The Toronto Regional Real Estate Board revealed Thursday that last month’s 4,912 sales were almost half of the 9,339 homes that changed hands the July before and are an indication that the market is easing from the frenzied pace seen in the first half of the year and at the end of 2021.
The board and real estate agents have attributed much of the moderation to the increased cost of carrying a mortgage after Canada’s key interest rate was increased by one percentage point in mid-July, making it the largest hike the country has seen in 24 years.
The hike has encouraged people to rethink their housing intentions. Prospective buyers are holding out for further drops they and brokers anticipate could materialize in the fall, while sellers are debating making what they can from their home now or waiting for the market to turn in their favour again.
Some sellers are even terminating their listings to take advantage of the hot rental market, where vacancies are dropping and prices are up.
While January’s hot market saw 380 terminated condo listings in the GTA, real estate company Strata said June brought 2,822 — a 643 per cent increase.
The moderation taking shape within sales is taking longer to appear in home prices.
TRREB found the average home price was $1,074,754 last month, a one per cent hike from $1,061,724 in July 2021, but a six per cent drop from $1,145,994 in June 2022.
The composite benchmark price was more than $1.1 million, up by 12.9 per cent year-over-year.
Detached home prices were down three per cent on a year-over-year basis to $1,362,598 last month, while their sales dropped by 46 per cent to 2,203.
Prices of semi-detached homes were up by nearly five per cent from last July to $1,077,750, while sales fell 45 per cent to 474.
Townhouse prices crept up by six per cent to $903,899 as their sales fell by 52 per cent to 816, and condo apartment prices saw a seven per cent leap to $719,273 and a 48 per cent fall in sales to 1,365.
The market also saw a drop in new listings, which amounted to 12,046 last month, down four per cent from a year ago.
TRREB felt the numbers necessitate government intervention, including boosting housing supply and reviewing mortgage policies.
Data firm Urbanation Inc. said Tuesday that it expects almost 10,000 GTA condo units to be delayed this year as increasing mortgage rates weigh on home sales.
“Many GTA households intend on purchasing a home in the future, but there is currently uncertainty about where the market is headed,” said TRREB CEO John DiMichele, in a release.
“Policymakers could help allay some of this uncertainty.”
He recommended the government review the Office of the Superintendent of Financial Institutions’ stress test. The mandatory test set the qualifying rate on uninsured mortgages at either two percentage points above the contract rate, or 5.25 per cent, whichever is greater.
Kevin Crigger, TRREB’s president, echoed DiMichele’s plea, saying longer mortgage amortization periods of up to 40 years on renewals and switches should be explored.
“With significant increases to lending rates in a short period, there has been a shift in consumer sentiment, not market fundamentals,” he said, in a release.
“The federal government has a responsibility to not only maintain confidence in the financial system, but to instill confidence in homeowners that they will be able to stay in their homes despite rising mortgage costs.”
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