It’s 2023, and real estate investment has become one of the bucket list items for a whole generation. Investing in real estate can be a great way to create lasting wealth and financial security. However, before taking the plunge, it’s essential to understand the risks involved. Market conditions can shift quickly, making it hard for new investors to anticipate when prices will go up or down. Starting Jan 2023, the Canadian housing market is cooling down for the better, creating several investment opportunities for beginners to dip their toes into this market.
The Current Market Scenario for Canadian Real Estate
Many millennials have invested in Canadian Real Estate in the past two years. More than 4 million young millennials are expected to own a home between 2023 to 2027. That number is not surprising given that one in every six millennials believes that they will own a home in Canada at some point in their life. But owning a home is not the only form of investing in a property in Canada, and people are inclined towards investment properties equally.
One of them is rental property; it is a highly involved investment that may require significant time and effort. While hiring a property manager can ease the workload, many landlords choose to take on the responsibility themselves. It’s essential to carefully consider the property and tenants to reduce the risk of potential issues. Collecting rent is one of the ways landlords generate income.
However, determining the optimal rental amount can be challenging, depending on the property’s location. Overcharging can turn away potential tenants, while undercharging can result in lost income. Many landlords opt to set the rent at a level that covers expenses, and as the mortgage is paid off, the rental income becomes mostly profit.
For a beginner, there is more to understand than just the profits, and thus let’s dive deeper into the benefits and risks of Real Estate Investment in Canada.
The primary benefit of real estate investing is that it can generate a steady stream of income from rental payments or appreciation in property values. Long-term investments often come with more stability than other investment types. Plus, you may have access to tax benefits depending on your location.
Unlike any other industry, the benefits of investing in Real Estate in Canada weigh more than the disadvantages. For first-time buyers, it is one of the best decisions to invest in Canadian Real Estate, as it will allow them to build stronger equity given the current market scenario. Here are a few of the best benefits of investing in this sector as a first-timer.
Strong and Stable Market
The Canadian Real Estate market has been solid and stable for the last few months. Post the pandemic; the market has been booming, although slowly, it has picked up the pace. The prices of properties have been hitting lows, and the number of sales has started to increase. It would be a wise choice to invest in a rental property or a home for a beginner right now and witness money grow from money.
Forecasts and predictions suggest Canada might achieve a ‘soft landing’ in 2023, benefiting the economy. It will continue to record positive growth for the entire year, even with minor roadblocks and a few quarters of near-zero growth. The outlook for 2023 seems promising and rewarding for investors.
Potential for Long-Term Appreciation
The primary benefit of investing in Real Estate is wealth creation. When done correctly, property investments have the potential to generate both capital gains and regular income through rents or other such sources over time. By owning an asset like Real Estate, you have the opportunity to earn money not only through rental income but also capitalise on appreciation when times are good, as it has already been noticed since house prices tend to rise faster than inflation during periods of economic prosperity.
The current market in Canada is likely to boost your overall return on investment (ROI) if you plan to invest in the right property. If you are confused as a beginner because you are unsure which you should invest in which type of property, then new and trending Real Estate Apps like The Canadian Home can prove to be of great advantage, as they have over 6 million properties to choose from and live expert guidance over chat to help you in the process.
Rental Income
Creating a second source of income minus the hustle of a side hustle is a dream for many millennials. Rental homes do not have to be of one type, as a beginner can choose to be a landlord of a single-family home or an owner of a BnB that lists out on various booking sites. The only monthly expenditure for a BnB would be the property management cost. But if planned strategically and the home is bought in a touristy area while being decorated to match the aesthetics of today’s tourists. In that case, the property management costs will turn out to be only a fraction of the income. Similarly, being the landlord of a family home will get you stable and fixed monthly rent from your tenants with the possibility of increasing rent as per the market demands.
Tax Advantages
The Canadian Tax System is a friend to people who own investment properties in the country. Canada is a significant supporter of investments within the country and creating resources for the people of the country. Rental units are one such resource that helps the country accommodate more people with a good standard of living. There are many ways to be exempted from heavy taxes, such as showing the cost of maintenance and capital gains exemptions upon short-term rentals or sales. Not just this, but many provinces also provide different incentives like grants and credits that help defer the carrying costs associated with buying a property.
Just like the advantages of investing in Canadian Real Estate, a few risks are also associated with it.
The pandemic has led to economic uncertainty, even though the market has cooled down now with a firm hold on Real Estate and inflation coming down. It is still being determined what impact this will have on homeowners seeking mortgage relief and the construction industry.
The lack of construction workers in the economy has also increased construction prices and, thus, the selling price. It is crucial to thoroughly understand an individual’s circumstances and consider macroeconomic trends before investing in Canadian Real Estate. Failing to do so may result in drastic decreases in housing prices and investor portfolio losses.
One needs to be careful of the market and the foreign exchange rate before diving into the market as an investor. Investing in leveraged investments can be advantageous during bullish cycles, but fluctuations in foreign exchange rates can negatively affect portfolios. It is essential to be mindful of international considerations when analysing new ventures. It is recommended to consult with industry professionals to safely navigate deeper investment areas in Real Estate, which requires much studying and research beforehand.
Market conditions can change quickly, making it difficult for inexperienced investors to predict when prices will increase or decrease. You could also face unexpected costs related to maintenance and repairs. Additionally, carrying debt on investment properties can cause financial strain if rental payments cover only some expenses.
Conclusion
As it is crucial to consider the ultimate picture and the future of a decision to map out a fruitful goal-setting process. When investing in Real Estate, even though it’s less risky than stocks or any other form of investment, it is still crucial to weigh your choices and your foundation.
Success involves balancing out the advantages and disadvantages of the chosen stratagem, doing adequate research and preparation, and creating a system to protect against downside risks while maximising potential rewards. Real Estate is rewarding and is an excellent option for beginners, but what will set one apart from the crowd depends on their strategic planning and decision-making skills.
Seeking expert help such as the one provided by The Canadian Home in such situations will prove to be necessary for a successful investor. Beginners need to understand the potential rewards as well as the potential pitfalls of entering the real estate market. Knowing what to expect ahead of time can help you achieve success in the long run.
