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Real Estate Investing - Essential tips


Real estate investors have a lot to think about before making a purchase. The Canadian real estate market as a whole is heating up and has been much stronger than anticipated as we work through the Coronavirus Pandemic.

However, smart investing involves more than shelling out a down payment on a house or a condominium. It requires industry know-how, investing prowess, patience and initial capital. 

Here are eight essential tips for real estate investors:

#1. Ask Yourself These Questions

Real estate investing requires a heavy commitment. It is not something you can decide overnight. From upfront capital costs to taxes to various expenses associated with owning a property, real estate investors are forced to take on a lot of responsibility.

Therefore, before you initiate the process of investing in the housing market, ask yourself these questions:

  • How much money are you planning to invest in real estate?

  • Do you have good credit?

  • What is your personal financial situation like?

  • What funds will you use for a down payment (retirement, savings, investments)?

  • How much debt do you plan to take on (if any) in order to finance your investment?

  • Do you have any experience in real estate investing?

Real estate investing is not easy, and it will occupy some time. Make sure you’ve thought through the hard questions before you begin, to ensure that you’re starting your journey with enough foresight and the necessary resources at hand.

#2. Know How You’ll Be Generating Your Income

When you are investing in real estate, there are several different ways of generating an income. Here are the four primary methods:

  • Appreciation: A property increases in value amid changing real estate conditions.

  • Ancillary: This is when you have a mini business within a larger real estate investment, such as a vending machine in a laundry room in the apartment building.

  • Cash Flow: You collect a stream of cash from a tenant.

When selecting a market to purchase in, or a property to buy, consider the amount of income that you’ll potentially receive through each of these streams. Is it worth the initial investment?

#3 Make a Home Inspection Part of Your Offer

Home inspections are a critical component of buying a property. In hot real estate markets, a growing number of potential homebuyers are foregoing this essential step so they can own the property almost immediately. This could be bad news.


Home inspections are crucial because they raise any red flags, such as repairs and renovations, that could cost you a lot of money once you receive the deed to the property.

#4 Make an Appraisal Part of Your Financing Condition

Property appraisals are just as important as home inspections because they inform you what the home is worth, using analysis from past, current and predicted future valuations. Moreover, if you are renting out the property, an appraisal can provide you with a ballpark figure of how much to charge per month.

#5 Focus on One Property

In the world of investing, it is recommended that diversification is the key to success. But while this is sound advice, it does not apply to real estate investing typically.


Allocating your time and energy to more than one house or unit may prove challenging, ensure you have each investment property is in good condition and rented, focusing on multiple properties at one time can increase the risk of making costly mistakes.

#6 Consider Exit Strategies

Like shares in a stock or units in a mutual fund, you need to have an exit point. Once an investment reaches a certain point, you can hit the ‘sell’ button and enjoy the profits.


What is your exit strategy with your real estate investment? This is a pertinent question to put forward because you do not want to risk losing when you are on top. From a market crash to a new tax, there are many different ways an investment property can be affected both positively or negatively.


Most savvy real estate investors will define their exit strategy before they purchase a property. Some of the most common real estate investment exit strategies include:

  • Fix & Flip

  • Buy & Hold

  • Wholesaling

  • Seller Financing

  • Rent to Own

Learn about your options and based on your timeline and resources, consider which strategy will bring you to your financial goal.

#7 Know Your Tax Laws

Taxes on real estate investing are complicated. Hiring a tax attorney, real estate lawyer, or accountant for your property is an investment that will pay dividends in the future.


Should you choose to go solo, it would be prudent to have a fundamental understanding of the tax laws in place regarding real estate investments.


Here are some basic elements of real estate tax law in Canada. This should not be taken as legal advice, and it is always recommended that investors consult a lawyer, but this list should give you some things to think about:

  • When you purchase a property, you pay a provincial transfer tax, which varies from province to province.

  • New home acquisitions are subject to the GST.

  • The Canadian Income Tax Act slaps a 25 percent penalty on the gross property rental income per year.

  • Investors can usually deduct two kinds of incurred expenses: capital expenses and operating expenses.

  • Non-residents selling a Canadian property are mandated to give the federal government 50 percent of the sale.

#8 Have Six Months of Money Reserves

One of the best pieces of advice anyone will ever give you when it comes to real estate investing is to have a minimum of six months of money reserves per property.


Even if the housing market is soaring or your investment has been reliable for the last 18 months, it is always fiscally responsible to have reserves at hand. The market could slump at any time, it could take time to find a tenant or an emergency repair may crop up. With an adequate reserve fund, you’ll have enough cash to ride it out through any of these scenarios.


This cash, which could also be placed in a yield-bearing account, will prevent you from accessing credit markets, too.

Real estate investing has become a popular method of making money in a zero-interest-rate economy.


Because the cost of borrowing is so affordable and the Canadian real estate market is strong, there is a great deal of interest in buying and selling properties. It can be a challenging experience, but it can also be highly rewarding and profitable.


For more information on real estate investing contact us today to discuss your unique situation.


www.vianigroup.com


Article courtesy - RE/MAX Canada


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Housing Market Ends 2020 On A High Note

City of Calgary, January 4, 2020

With December sales of 1,199, this is the highest December total since 2007.


“Housing demand over the second-half of 2020 was far stronger than anticipated and nearly offset the initial impact caused by the shutdowns in spring. Even with the further restrictions imposed in December, it did not have the same negative impact on housing activity like we saw in the earlier part of the year,” said CREB® chief economist Ann-Marie Lurie.


Attractive interest rates along with prices that remain lower than several years ago have likely supported some of the recovery in the second half of the year. However, it is important to note that annual sales activity declined by one per cent compared to last year and remain well below long-term averages.


New listings in December increased by 11 per cent. However, the number of sales exceeded the number of new listings in December contributing to further declines in inventory. Reductions in supply and improving demand in the second half of the year have contributed to some of the recent price improvements in the market. However, the recent gain in the benchmark price was not enough to offset earlier pullbacks as the annual residential benchmark price in Calgary declined by one per cent over last year.


The pandemic has resulted in a significant shift in economic conditions, yet the housing market is entering 2021 in far more balanced conditions than we have seen in over five years. This will help provide some cushion for the market moving into 2021, but conditions will continue to vary depending on price range, location, and product type. More information about the 2021 housing market forecast for Calgary will be available at the CREB® Forecast on Tuesday, January 26, 2021.


For more event details, please visit crebforecast.com.


HOUSING MARKET FACTS

Detached

Stronger sales in the second half of the year were enough to offset earlier pullbacks as detached sales totalled 9,950, just slightly higher

than last years' levels. Despite the modest gain, detached sales activity remains at the lower levels recorded since the more stringent stress te

st was introduced in 2018.


Supply adjustments is causing sellers' market conditions for detached homes across all districts except the West and City Centre. This has helped support some price recovery in the market over the past several months.


Annual city-wide price remains relatively flat compared to last year, but there were notable annual gains in both the South and South East districts which both recorded price gains of nearly two per cent. Despite some of the annual shifts seen, prices remain well below previous highs in all districts of the city.


Semi-Detached

Sales growth in the North East, North, West and South East district were offset by declines in the City Centre, North West, South and East districts. Sales this year of 1,663 were similar to levels recorded last year.


While sales did not improve across each district, there were reductions in supply across all districts and is helping to reduce the months of supply.

These reductions are starting to impact prices, but it was not enough to offset earlier pullbacks.


City wide semi-detached prices eased by over one per cent in 2020, with the largest declines occurring in the City Centre, North West and West areas.


Row

Slower sales in the west district were not enough to offset the gains recorded in the rest of the city. Row sales totalled 2,145 in 2020, nearly two per cent higher than last years' levels. Despite the gains, levels continue to remain below long-term averages for the city.


Rising sales were generally met with a reduction in supply. This is causing the months of supply to trend down, especially over the second half of the year.


The decline in the months of supply was enough to help support some stability in prices. However, the adjustment did not occur soon enough and annual prices eased by nearly two per cent compared to the previous year and remain nearly 14 per cent below previous highs.


Price adjustments did vary depending on location. The steepest decline occurred in the North East with a year-over-year decline of five per cent. The strongest gain occurred in the West district with a two per cent rise.


Apartment Condominium

Sales this month were the best December since 2014. However, it was not enough to offset earlier pullbacks as apartment condominium sales eased by ten per cent in 2020. This is the slowest year for apartment condo sales since 2001 and the only property type to record a significant annual decline in sales.


Unlike other property types, supply levels have not adjusted in the same way and this segment remains oversupplied. Prices have trended down over the past two months due to excess supply. On an annual basis, the benchmark price declined by over two per cent this year and is over 16 per cent below the highs set in 2015.


REGIONAL MARKET FACTS

Airdrie

December sales reached a new record high for the month. Improving sales throughout the second half of the year contributed to the annual sales of 1,407, a year-over-year gain of 18 per cent.


New listings also rose in December and is likely contributing to some of the monthly gains in sales. Overall, new listings have remained well below last year. Along with improving sales, this is causing inventories to decline.

Months of supply has remained below three months since June and prices have trended up. By December, the benchmark price had risen by nearly five per cent compared to last year.


On an annual basis, the gains in price were enough to offset the earlier pullbacks and is creating stability in prices. However, this was not the case for all product types. Detached prices rose by nearly two per cent on an annual basis. Benchmark prices for row and apartment style product eased by a respective seven and one per cent compared to last year.

Cochrane

Record sales in December contributed to the annual gain of 16 per cent, making it the best year of sales compared to the past five years. New listings in 2020 also eased compared to last year. Rising sales and less new listings on the market caused inventories to ease to the lowest levels recorded since 2014.


With months of supply of only two months, prices continued to trend up. December benchmark price was $419,900 and is a 5 per cent gain over last year. Prices have trended up over that past six months but remain relatively stable compared to last year. This is due to easing prices for higher density products offsetting gains in the detached sector.


Okotoks

Despite further declines in new listings, December sales improved. Year-to-date sales increased by nearly eight per cent. The lack of new listings and stronger sales caused inventories to drop to 63 homes in December, the lowest level for any month seen since 2006.


The lack of inventory and high demand has supported increasing prices for the second half of the year. As of December, the benchmark price was $434,700, nearly two per cent above last years' levels. Despite the recent gains, 2020 benchmark prices remain over one per cent below last years' levels.


However, this could be due to steeper price declines for semi, row and apartment style product.


Click here to view the full City of Calgary monthly stats package.

Click here to view the full Calgary region monthly stats package.


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Data is supplied by Pillar 9™ MLS® System. Pillar 9™ is the owner of the copyright in its MLS®System. Data is deemed reliable but is not guaranteed accurate by Pillar 9™.
The trademarks MLS®, Multiple Listing Service® and the associated logos are owned by The Canadian Real Estate Association (CREA) and identify the quality of services provided by real estate professionals who are members of CREA. Used under license.