Important real estate investment advice about REITs, timeshares, second homes, rental homes, bargain homes, and the advantages of owning your own home
For the most part, real estate investment advice can be applied in two ways: buying a principal residence for you and your family to live in; or owning real estate beyond that as part of your investment portfolio.
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Residential real estate investment advice: 6 tips for buying a home
Tax pluses. Homeowners get a tax-free, rent-free benefit of having a place to live. Profits on home sales are also tax-free.
Watch for the quality of nearby schools, even if you don’t have children. Properties near good schools tend to have higher values, and attract a wider range of buyers when it’s time to sell.
Growth in nearby job and leisure opportunities raises land demand. That pushes up land values. But land supply can increase too, from rezoning of industrial or agricultural land to residential use, or from cuts in minimum lot sizes.
For maximum capital gains, it’s best to buy a small house on a big lot in an improving area. You may be able to get it for little more than land value. Years later, you may be able to demolish the house and divide the land into several building lots.
For maximum investment safety, buy the most common house in your area—a two-story four-bedroom, say, or a three-bedroom bungalow. Usually, it will be easier to sell.
For maximum enjoyment, buy a home that’s a little bigger and nicer than your family will need in the next, say, 10 years. Chances are you won’t regret it.
Real estate investment advice: Real Estate Investment Trusts (REITs) are a good addition to most investment portfolios
A REIT is also known as real estate investment trust. Investing in REITs lets you hold income-producing real estate such as office buildings, shopping malls, hotels and so on.
REITs can save you the cost, work and risk of owning investment property yourself. REITs can add to your portfolio in a number of other ways. For example, they can provide a hedge against inflation.
If you want to add to your real estate holdings, one good way to do it is through REITs. The best real estate investment trusts have good management and balance sheets strong enough to weather an economic downturn. They also have high-quality tenants, and they carefully match their debt obligations with income from their leases.
Real estate investment advice:Bargain-priced rental homes can lead to problems
Many people start out by buying one house as an investment. Some are surprised by how much work is involved. A few give up and sell after a few years, especially if they have rented to a series of bad tenants. If you do that in a period when house prices are weak or merely sluggish, you could lose a lot of money.
You should be especially wary of buying (or holding on to) bargain-priced rental homes. They can turn out like stocks that seem too good to be true. Well-informed homeowners may be eager to sell due to subtle changes going on nearby. Before you buy a house, walk through the neighbourhood and take a critical look at potential neighbours—that could have a big effect on the rent you can charge.
Real estate investment advice: A second home in the U.S. Sunbelt is not necessarily a good investment
You can still find attractive investment opportunities in, say, Florida’s real estate market, but not in the kind of properties that most Canadian buyers are seeking. If you’re investing in real estate primarily for profit, you should look at multiple-unit rental housing or commercial properties, especially those with big parking lots or extra land. Investments like these can give you current income, plus long-term development possibilities. That’s a potent combination for patient investors.
Real estate investment advice: Timeshares don’t offer much growth potential
Before putting money into any timeshare, you should check the Internet for resales of comparable timeshares. You’ll find they often sell well below the initial timeshare sales price.
Even if you find what looks like a great deal on a timeshare resale, we see no point in committing yourself to any one resort operator, much less one resort. It’s unlikely you’ll be there often enough to develop any rapport with your neighbours or the staff. New resorts open up all the time. Management can get sloppy at existing resorts, especially after the timeshares are sold out. For that matter, your interests or tastes may change, or you may be unable to travel for health or other reasons.
You can always resell your timeshare — many buyers do. But transaction costs are high and resale prices are likely to be below your cost.
Do you believe we are in the midst of another housing bubble? Why or why not?
What mistakes have you made with real estate investments?
Comments
Hannah
My husband and I have 3 investment properties we’ve purchased over the last 10 years. For the most part, they have been a sound investement. I did quite a bit of research initially – areas in our region to consider (schools, up and coming areas, future transit, etc). I also researched who our ‘target renter’ would be. We purchased single-family homes that were homes we would consider living in. They were nicer and warrented higher rent than typical rental homes in the area. We’ve had a ‘smaller pool’ of tenants, but could rent for a premium. We were looking for people who were in transition and who had maybe owned a home before – divorced and were moving in with a new partner, but not ready to commit to buying together; families moving into the area for work and who would end up buying a home but wanted to get to know the area first, etc.
I’ve personally paid a great deal of attention to the house as the landlord to ensure it doesn’t look like the ‘derrelict rental property on the street’. My attention to detail and always making improvements even when not essential (new furnace, adding central AC), I think, has helped instill a simliar level of care from my tenants.
Hi, Hannah, and thanks for sharing this. It should help anyone looking to get into the landlord business. It also speaks to the level of attention required of any would-be investor looking to make a success of it.
Great tip on considering the schools that are nearby when purchasing a rental property. I am sure this can help in attracting more tenants and is definitely a plus.
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My husband and I have 3 investment properties we’ve purchased over the last 10 years. For the most part, they have been a sound investement. I did quite a bit of research initially – areas in our region to consider (schools, up and coming areas, future transit, etc). I also researched who our ‘target renter’ would be. We purchased single-family homes that were homes we would consider living in. They were nicer and warrented higher rent than typical rental homes in the area. We’ve had a ‘smaller pool’ of tenants, but could rent for a premium. We were looking for people who were in transition and who had maybe owned a home before – divorced and were moving in with a new partner, but not ready to commit to buying together; families moving into the area for work and who would end up buying a home but wanted to get to know the area first, etc.
I’ve personally paid a great deal of attention to the house as the landlord to ensure it doesn’t look like the ‘derrelict rental property on the street’. My attention to detail and always making improvements even when not essential (new furnace, adding central AC), I think, has helped instill a simliar level of care from my tenants.
Hi, Hannah, and thanks for sharing this. It should help anyone looking to get into the landlord business. It also speaks to the level of attention required of any would-be investor looking to make a success of it.
Great tip on considering the schools that are nearby when purchasing a rental property. I am sure this can help in attracting more tenants and is definitely a plus.
Thanks, Eric. This post often encourages investors to think a little more before jumping in. Thanks.