The latest Real Estate Report shared by Engel & Völkers shows that sales of luxury property in Montreal rose to 134 percent from January to June, according to the Montreal Gazette. Patrice Groleau, a representative of Engel & Völkers, said, “Competition for homes in the outer suburbs seems to be reducing as more properties come into the market. However, the demand for luxury ones keeps surging because of limited supply.” Groleau adds that buying a home in the city will be trendy again due to an increase in vaccination rates and reopening of the city underway.
Engel & Völkers mid-year report also predicts there will be increased interest from foreign investors to buy property in Canada’s metropolitan regions when international travel resumes. Given that property costs in Montreal are lower than in Toronto and Vancouver, the city is expected to be Canada’s favorite spot for real estate property investment. If you’ve been planning to invest in property or use property co-investing platform such as RealVantage, this might be a good time. However, to break into Canada’s property market, you’ll need to do more than finding a reliable real estate agent. Here are tips to help you through the real estate investment process.
Decide whether to invest in residential or commercial property
Before getting started in real estate property investment, you need to decide whether you’ll be investing in commercial or residential properties. There are several differences between residential and commercial investment that will help you decide which option is suitable. Typically, a residential real estate investor purchases or develops small apartments and family-unit homes and rents out or resales to potential homeowners. If you choose to become a commercial real estate investor, you’ll build or buy and rent properties for business. Note that both investment options offer appealing benefits and have several drawbacks. For example, commercial properties have creative leasing options that guarantee high returns.
When you choose to invest in commercial property, you can create a triple net lease agreement that passes operating costs, property repairs and maintenance to your tenants. Since these agreements are long-term, you can be sure of collecting high profits after a certain period, based on the terms of your lease. On the other hand, residential real estate offers low tenant turnover, and the investment standards are less stressful than those of commercial property. These aspects make the residential property a suitable option for investors with a modest budget and looking to earn an income within a short duration. If you’re investing in real estate for the first time, purchasing a duplex or single-family home is more affordable than an office unit or retail store. So, when evaluating your property investment options, consider costs, return on investment, tenant turnover, and entry barriers.
Understand property taxes
Property tax is something you shouldn’t overlook when investing in real estate. Failure to account for taxes makes you think that a real estate investment opportunity is more profitable. But the truth is, your development project might not offer a high return on investment. With this understanding, take time to learn about property taxes. Whether you’re a local or international investor, familiarize yourself with terms like withholding tax, sales and land transfer tax, personal income tax, and speculation taxes.
It’s worth noting that real estate tax laws in Canada allow investors to deduct capital and operating expenses from their annual property rental income. If you’re a foreign investor selling property in the country, the law requires you to give fifty percent of the sale to the federal government. Not to mention, the tax act imposes a 25 percent penalty on the gross property rental income every year. Unless you’re a tax expert, understanding these taxes can be challenging. Therefore, look for a tax attorney or professional accountant to provide an in-depth explanation of how property taxes impact your real estate investment.
Learn about property financing
To invest in real estate without hassle, it’s important to know how much you can afford and how you’ll finance your purchase. If you’re like most investors, chances are, you’ll need to take a mortgage to finance your rental property investment. Remember, getting a home loan isn’t a straightforward process, and it takes time. That’s because banks and other formal lending institutions are conservative when approving mortgages for real estate property investment. According to thehomeloanexpert.com, getting your property loan application approved is the first step in the mortgage process. So, you’ll want to think of property financing early, research what lenders want from borrowers, and choose the right mortgage plan.
In most cases, potential lenders want assurance that you can make mortgage payments for your investment property without surpassing the standard 36 percent debt-to-income ratio. Not to mention, they expect you to pay your loan in full even without income from your property. You’ll also need good credit history to qualify for a property investment loan. The truth is, many property investors don’t meet these stringent requirements. To increase the chances of getting funds to finance your property investment, you might want to save a substantial amount of cash for the down payment and apply for a home equity loan. These loans are easier to get than an investment property mortgage.
Consider investing in REITs
Real estate investment trusts or REITs are perfect options if you’re not ready to buy and own properties. These funds give investors access to a portfolio of income-generating real estate assets. Ideally, investing in REITs reduces the burden of managing properties yourself. REITs also distribute a large portion of their taxable income to shareholders. Other benefits of real estate investment trusts are low volatility, low correlation, portfolio diversification, and returns through appreciation.
Despite the impact of COVID-19, Canada’s real estate market is booming, especially in major cities like Toronto, Montreal, and Vancouver. If you’ve been planning to invest in real estate property, now is the time. However, to become a successful property investor, you need to factor in some aspects aside from paying a down payment for a home. Start by determining whether to invest in commercial or residential property. Then understand property taxes, financing, and create an exit strategy. Alternatively, you may want to invest in REITs if you’re unsure about purchasing and owning properties or don’t want the burden of management.