Building Wealth Through Real Estate InvestingMarch 10, 2023
Building wealth through real estate is a profitable and satisfying investment strategy. It is one of the safest ways to build wealth and offers higher returns than investing in stocks.
As real estate appreciates over time, it protects you from inflation and high-interest rates. They are also a low-risk investment.
The Realty Bulls has hot investment opportunities in the Greater Toronto Area and Toronto neighbourhoods that you can buy and later sell.
Read on to learn how you can build your wealth through real estate.
Wealth building with real estate in Canada
You can build wealth through real estate by selling homes and earning commercial or residential rentals. Other options include REITs, assignments, Airbnb income, and real estate wholesaling.
- 1. Slow flipping: Purchase a primary residence
Buying a home is one of the best real estate investment decisions ever. As a first-time home buyer in Canada, you can use government incentives to pay less for your home. Read more about how to buy a home here.
The financial terms of your mortgage are favourable because you’re buying a primary residence.
After living in the home for two years or more, sell it and make a profit. This gain is called capital gain.
The Canada Revenue Agency (CRA) exempts all capital gains on the sale of a principal residence. Half the increase attracts a property tax for homes that aren’t your main residence.
- 2. Buy low and sell high (real estate flipping)
In real estate flipping, you buy distressed properties or properties that you can sell at a higher price after renovation or upgrading. You can also purchase undervalued properties, make them attractive and resell them for a profit.
A distressed property is a home from a desperate seller who needs quick cash. Divorced couples or owners who need to repay a loan can sell their home for a knockdown price.
Look for undervalued or affordable homes in an area where prices are likely to rise. You buy cheap, upgrade, hold and wait until the market is ripe. Then you sell and take advantage of the appreciation.
Selling homes is high risk because the property may have significant structural problems. A plumbing problem could cut your profits or make the home unattractive to buyers.
You can also sell off land, which yields much higher returns.
- 3. Buying a home before construction and selling the assignment
In an assignment sale, you, as a home buyer, sell your rights to an unfinished building to a new buyer and make a profit. Typically, the sale price is the home’s expected future value.
While this is a great way to build wealth, some builders will charge you a fee or a percentage of the capital gain. That could reduce your return on investment.
- 4. Rent property or land
Rental income from land comes from leasing land to farmers. As for rental income, you could buy an affordable home and rent out a part of it for more than your mortgage to pay off your mortgage and make some profit.
Invest in areas where the lifestyle is attractive, and future growth and development are likely.
Rental income in cities is steadily increasing and is a great way to increase monthly payments. However, you will need to maintain the property and deal with tenants.
Commercial rental income yields high returns but requires a large initial capital outlay. Buy commercial buildings and rent them to shopping centres, businesses, schools, hospitals, etc.
If you cannot buy commercial rental properties, you can invest in REIT shares and own commercial real estate, which we will discuss later.
Turn your home into a short-term holiday rental and earn additional income through Airbnb and similar websites. Rental properties will always be occupied in touristy areas like the Niagara region unless Covid happens again. The margins are high in this lucrative business.
- 5. Real estate wholesaling
Experienced property flippers can engage in real estate wholesaling, acting as an intermediary to find a buyer.
Find someone who wants to sell their home, see through the home appraisal, and sign a contract with the seller. The seller cannot make a similar agreement within 60 days or sell the house as it is in the contract.
Approach a willing buyer or realtor and bring the two together. Use an escrow account to protect all parties and get your profit margin from the sale.
- 6. Invest in REITs or EFT REITs
If you have little money and no time to manage a property, invest in REITs. They are a great way to own commercial real estate, and you’ll receive annual dividends. REITs are required by law to distribute 90% of their profits.
In REITs, investors pool their resources and buy a portfolio of properties, including commercial properties, under a limited liability company.
You can also invest in EFT REITs, which are more diversified.
- The takeaway
When building your wealth in real estate, you want to work with an experienced realtor who knows the ins and outs of the market.
One that can predict locations where the property is likely to appreciate.
A good realtor will also steer you away from bad choices.