The average price of homes sold in the first 10 months of 2017 in Kingston was $328,745, growing 7.6% from the year average of 2016. For decades, savvy investors have been reaping the rewards from investing in Real Estate, one of the strongest and most lucrative industries. With some patience, persistence, and a little bit of know-how, anyone can learn to turn a profit through the Canadian housing market by including Real Estate in their portfolios. Read on to equip yourself with the basics in Real Estate investing!
There are a few different categories of Real Estate investing: Residential, Commercial, and Industrial. For the sake of consistency, we are going to be focusing solely on investing in the Residential Market. The 3 ways to increase your capital in the Residential Real Estate Market are as follows:
As the value of the housing market in your location rises, so does the value of your home. Many investors will purchase a home at a lower price, and hold it for a few years until they can sell at an appreciated market price, cashing in the difference.
A property that is “cash-flowing” simply means that the income generated from tenants is greater than the operating costs. Renting units out to tenants is a great way to earn passive monthly income!
Another popular strategy to earn money via Residential Properties would be to purchase outdated houses and undergo several renovations it to sell the updated home for a profit. Flipping homes requires a lot of work, you need to choose a property with good potential, and be willing to put in a significant amount of time and energy to transform your property into an updated, market-ready home.
Popular property types include detached homes, apartment buildings, townhouses, and vacation homes. To figure out what type of property you will buy, you must know how much work, time, and money you are willing to personally invest. For example the student housing market is very lucrative in Kingston due to the laws of Supply & Demand, however, you will need to find a Multi-Unit property in close proximity to Queens University or St.Lawrence College, and you must be willing to deal with student tenants (who may have different values & requirements than a single family.) Whereas vacation homes (such as a water-front cottage) may be best suited for short-term rentals using services like Air BnB.
Once you have an idea of the kind of investment you might be hoping to make, you should be putting together a ‘gameplan’ with a top-performing Real Estate Agent to figure out how to get you into the property that is best suited for YOUR needs based on your lifestyle and financial standing. First and foremost, you will need to get a pre-approval for a mortgage to find out how much you can spend- this will tell you the price range you should be looking in. Once you have your price range and a basic list of preferences and personal criteria, have your Real Estate Agent find homes that are right for you.
(P.S: Top-performing Real Estate Agents will often have unlisted properties in their database that are likely interested in selling. If the market does not have the type of property that you are looking for, ask your Agent to go out and prospect current homeowners who do not currently have their homes listed for sale!)
It’s imperative that you and your Real Estate Agent carefully analyze the financials of each property of interest to ensure that your revenue potential clearly outweighs the costs of purchasing and operating the property. The key indicator of determining the value of a cash-flowing property would be to analyze it’s Cap Rate. This number is the rate of expected return calculated by calculating the yearly gross income of the property and subtracting the operating expenses to get your net income. Divide your net income by the property’s purchase price to end up with your property’s cap rate! Example:
$16,800 (gross income)
-$1800 (property management)
-$2,500 (property taxes)
$10,860 (Net Income) / $225,000 (Purchase Price)
(While calculating a property’s Cap Rate is a great start to quickly analyze the potential of an investment property, there are other factors you should be looking at as well, such as Market Predictions and external changes in property value.)
Like any investment, it’s best to do your research and get started as soon as posisble! Now that you should have a pretty good basic understanding about investing in Real Estate, click here to set up a free 30 minute buyer consultation with our expert Real Estate Sales Representative, Jordan McGregor to find out more about Real Estate Investing and how it can work for you! This can be done either online or over a cup of coffee. I look forward to hearing from you!