Real estate investment trusts

Real estate investment trusts (REITs) are a popular real estate investment option since they give you access to commercial properties, shopping malls, multi-unit residential buildings, and other investments.

The REIT operator purchases properties and collects rental income. Once all the expenses are paid, the profit is distributed to its unitholders monthly, quarterly, or annually in the form of dividends.

Purchasing REITs is easy since many are publicly traded on the stock market. Investors are attracted to REITs as you can often buy a unit for less than $20 (plus any trading fees). That’s clearly appealing to anyone who wants to invest in real estate and doesn’t have a substantial down payment. Plus, you don’t need to worry about any closing costs or lawyer fees.

Besides the cost of the units you’re purchasing, the only other fee you would pay is a trading fee (if any). This fee is typically no more than $10 and applies whenever you buy or sell an investment product through your discount brokerage. It’s basically a commission your brokerage charges.

Since REITs are a fairly liquid asset, you can quickly sell off part of your investment if you need cash quickly. This is quite the contrast to traditional property ownership, where you can’t just sell off a room or a few bricks. Not only can it take a while to sell your home, but you’ll also have to pay substantial fees.

The other appealing aspect about REITs is that you can hold them within your Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA), where the tax implications are reduced or non-existent.

Good credit is important for your financial health, and Borrowell can help you take a turn for the better. Sign up for Borrowell to get your credit score and credit report for free!

Sign up

Investment properties

If you prefer to own something physical, purchasing an investment property might appeal to you since it can generate income. With an investment property, you’re not restricted to where you live. You could purchase one in a city where prices are lower and you can afford a down payment.

That said, you are the landlord, so you’re responsible for the cost of maintenance and repairs. If you’ve purchased the home in another city, you may need to hire a property manager to take care of things for you.

You also need to consider the down payment. When purchasing a property that’s not owner-occupied, in Canada the down payment must be at least 20%. You also wouldn’t be able to take advantage of some available benefits aimed at new homeowners. For example, rental properties don't qualify for the Home Buyers’ Plan, which allows you to withdraw up to $35,000 from your Registered Retirement Savings Plan (RRSP) for a down payment.

Also, think about your intentions. If you plan on using your rental property for short-term rentals, you need to check with the local municipality to see if there are any rules in place. You might learn that the red tape trouble may not be worth it.

Even though real estate prices and market rents have risen in parts of the country, an investment property is not a guarantee. If the monthly rent is more than your expenses, you have a cash flow positive property. However, if your costs exceed the income generated, you’re losing money every month. Banking on future appreciation to make your investment worthwhile is basically gambling.

Real estate crowdfunding

Real estate crowdfunding has been around for a few years now, but it’s become more popular as people seek to take advantage of skyrocketing prices with little money down.

Companies such as Addy, NexusCrowd, and RealtyShares purchase income-generating properties and then offer them back to the public. The number of units available for each property depends on the company. As an example, a $1 million property might have one million units available. That means you can purchase into the investment for as low as $1, plus any membership fees.

The appeal of crowdfunded real estate opportunities is clear. Not only do you not need much money to invest, but the properties are vetted by a group of experienced professionals. In addition, each available property has an estimated return and distribution schedule, so you’ll get an idea of what kind of return you can expect. That said, nothing is guaranteed, so you’ll want to do additional research.

Get a $50 bonus when you open and fund your first Wealthsimple Invest account* (min. $500 initial deposit). Trade and Cash accounts are not eligible. Sign up now to take advantage of this special offer.

Get started

Vacation properties

With the price of real estate in Canada being what it is, no one would blame you if you decided to look for a vacation property abroad instead of buying a home. Prices can be lower and the weather warmer in other parts of the world. However, before you start browsing online for that dream home, you need to decide if this vacation property is for pleasure or investing purposes. Of course, it can be both.

If you’re focusing more on it being an investment, you’ll want to make sure that it appeals to people on vacation. Things such as the location, amenities, and nearby restaurants will matter more to visitors than to someone who plans on living in it a few months a year.

Like a rental property, you need to factor in the maintenance costs and upkeep. For example, you might need to hire someone to manage your guests, or hire a maid to clean every time someone checks out.

The other consideration is funding your purchase. For those buying in the U.S., many Canadian banks offer cross-border mortgages. However, if you’re looking to buy in another country, you may need to fund your mortgage locally. That may be tricky if you don’t have a huge down payment or any ties to the country.

Consider all your options

With house prices so high in many places, the reality is that owning your primary residence may not be possible right now. Fortunately, other real estate options are available here and abroad that may help you build some wealth, even if you can't afford a house where you live.

You're 5 minutes away from the best mortgage

Searching for your perfect mortgage shouldn’t be hard.

Homewise is an online brokerage that will negotiate on your behalf with more than 30 big banks and other lenders, completely free, and it only takes five minutes to apply.

If you're in the market for a new mortgage, or if you're looking to refinance before interest rates rise again, go to Homewise now and answer a few simple questions to get started.

About the Author

Barry Choi

Barry Choi

MoneyWise.ca Contributor

Barry Choi is a Toronto-based personal finance and travel expert who makes frequent media appearances. When he's not educating people on how to be smarter with money, he's earning and burning miles and points for luxury travel.

What to Read Next

Disclaimer

The content provided on MoneyWise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.