Real estate is something that many people want to get their hands on. My thought is that the investment is tangible. You can see your house, which I think gives a lot of investors peace of mind. There is definitely money to be made in real estate but you also need to be careful that you don’t invest at the wrong time. Currently, I’m renting a condo in a high rise that is right outside of downtown Calgary. It was thrown up during the boom years 2006(ish) and now, a few years later you can really see that the quality of the place isn’t there. We are paying what feels like an arm and a leg for the place, but that’s what happens when someone takes out a huge mortgage on an overvalued place. Likely, our landlord hasn’t even broke even on this place and that sucks for him but he has also had to shell out a decent amount of cash to fix many of the major appliances in the place.
So how can you make money in real estate?
Well first, we need to identify that your primary home is not an investment, regardless of what people will tell you. It is a home, a place to live and call your own but it is by no means an investment. If you sell it where will you live? But that’s probably a post of its own. If you are looking at investing in real estate then you need to be purchasing a second property.
Tip #1: Don’t buy when the market is high
Likely you will need to save up a fair chunk of change to buy your rental property and as such you will need to try and time the market a little. If you have the money to invest but the market is extremely over-valued, it may not be the time to buy. Be patient. Your time will come. While you’re waiting keep this money in a low risk investment while you wait.
Tip #2: Find out the history of the investment and if it’s a condo, read the board minutes
I think too many people buy properties without doing their homework first. You need to make sure that the place you are buying is in good shape so you don’t end up like my landlord! Read over the board meeting minutes to check out the reserve fund if you are buying a condo. The worst thing that could happen is that you buy a new place and then have to shell out a ton of cash in the future.
Tip #3: Don’t keep your entire investment portfolio in real estate
A good investment portfolio is well diversified, throwing all your eggs in one basket is very risky. If you have the money to buy a second property but you would be wiping out your entire portfolio to do so that probably isn’t wise. Wait until you have more money socked away to make sure a big purchase.
So what if you don’t have the money to buy a second property but you still want to invest in real estate?
Well fear not dear readers, their are these magical things called REITs (Real Estate Investment Trusts) and they are traded on the stock exchange. The basis is that you buy units (like a mutual fund) of their REITs and they are invested in real estate properties all over the world. This is the most economical way to get into the real estate market as a unit of a REIT can sell for about $20!