If the prospect of channelling your funds into tangible assets—whether it's a solid brick structure or a stylishly adorned siding—thrills you, you're not alone.

Real estate investment has consistently ranked among Canadians' preferred methods of wealth accumulation. According to a CIBC poll, 15% of Canadian homeowners already generate rental income, with an additional 11% aspiring to do so. Furthermore, 37% of current homeowners express interest in seeking a property with income potential if they were in the market for a new home.¹

Presently, baby boomers aged 55 and above are notably active in owning income properties.² However, Statistics Canada reveals a growing trend among millennials in their 30s and 40s, who are increasingly participating in real estate investments.³ The Bank of Canada estimates that at least 20% of newly purchased homes are now owned by individual investors, marking an increase from 18% in 2015.⁴

Traditionally, Canadians have been drawn to real estate due to its substantial return on investment, particularly for those committed to holding onto a property over time. It also serves as a popular hedge against inflation, given that rental income and property values often rise in sync with overall prices.⁵

Nevertheless, determining if you're well-suited to seize real estate investment opportunities requires careful consideration. Here are three indicators that owning a rental property might be a suitable venture for you."

1. YOU'RE A PROSPECTIVE HOME BUYER SEEKING MORTGAGE ASSISTANCE

If you're in the market for an innovative approach to homeownership that doesn't strain your budget, consider embracing the concept of "house hacking." This strategy is gaining popularity among first-time homebuyers and those mindful of their financial investments. Essentially, house hacking involves purchasing a home to live in it while renting out a portion to one or more tenants.⁶

Beyond the potential for augmenting your monthly income, opting for a home with a self-contained income suite can simplify the mortgage qualification process. If the secondary dwelling is move-in ready, a lender may be amenable to incorporating half of the anticipated rental payments from future tenants into your qualifying income. This adjustment can enhance your ability to meet the requirements of the mortgage stress test.⁷

House hacking presents a more accessible entry point into real estate investing compared to traditional methods, primarily because it demands a smaller down payment for mortgage qualification. For instance, if you plan to buy a home solely for renting purposes, a minimum down payment of 20% is required, regardless of mortgage insurance. However, if you intend to reside in the property and rent out a part of it, you can make a down payment as low as 5%.7 Additionally, you can enjoy a lower mortgage rate, and there's a possibility of qualifying for a principal residence exemption for some or all of the home if you decide to sell it later.^{7 8}

When embarking on your search, we can assist you in identifying a property conducive to house hacking, such as a house featuring a walkout basement, a multifamily unit, or a home with sufficient outdoor space for constructing a laneway or garden suite.

2. YOU'RE AN INVESTOR SEEKING CONSISTENT AND RELIABLE INCOME

If the prospect of having a live-in tenant doesn't quite resonate with you, but you're still keen on an additional income stream, opting for a dedicated long-term rental property might be the ideal solution. Beyond the monthly returns, investing in a rental home can bring diversity and long-term stability to your investment portfolio, fostering wealth accumulation over time.⁹

Historical data from the Canadian Real Estate Association underscores the prosperity of real estate owners. In early 2020, for instance, the average home price had surged by 120% compared to just 15 years prior. Subsequently, during the real estate surge amid the pandemic, average home prices experienced an especially rapid ascent, increasing by over 60% in less than two years.¹⁰

Yet, the unpredictable nature of appreciation rates emphasizes the importance of investing in a property that ensures positive cash flow, wherein the rental income surpasses your expenses. This strategic approach guarantees a monthly profit, even if the property's value takes time to appreciate.

While the current higher mortgage rates pose a challenge for landlords aiming for profitability, a tighter rental market also offers the opportunity to command higher rents. Additionally, lower turnover on your rental unit may result, as many potential buyers find themselves priced out of the real estate market.⁹

Furthermore, research from Statistics Canada indicates a notable increase in landlords' earnings. In 2020, for instance, over 76% of independent landlords reported earning more rental income than they spent on maintenance, taxes, mortgage payments, and other annual expenses—a significant rise from the 63% reported in 2008.³

If you're interested in exploring residential rental opportunities that align with your financial goals and appeal to renters, we're here to assist you.

3. YOU'RE A SEASONED INVESTOR AIMING TO OPTIMIZE YOUR RETURNS

An increasingly popular avenue for generating income from an investment property involves transforming it into a short-term vacation rental. However, it's important to exercise caution, as some municipalities have tightened rental restrictions, and certain areas are grappling with an oversaturated market.¹¹

Nevertheless, if you're a seasoned investor comfortable with some level of uncertainty, venturing into short-term rentals could be a viable option for you.

For instance, if you identify the right property, you may earn considerably more by renting it out on a short-term basis through platforms like Airbnb compared to leasing it to a long-term tenant.¹²

The key lies in maximizing occupancy at a premium nightly rate. Achieving this requires a blend of marketing expertise, hospitality skills, and business acumen. Alternatively, you can enlist the services of a professional property manager, though it's essential to factor the associated costs into your budget.

The vacation rental market has experienced significant growth in recent years, and some less-experienced investors have discovered they took on more than they could handle.¹³ Consequently, there exists an opportunity to acquire such properties, but it necessitates having available funds and a willingness to familiarize yourself with the intricacies of the business.

Should you be interested in exploring opportunities in our local market, or if you're considering investments in another area, we can assist you directly or connect you with a knowledgeable agent for guidance.

BOTTOMLINE

Engaging in real estate investment presents a promising avenue for long-term wealth accumulation and additional income. However, to optimize your investment, strategic considerations are crucial.

Reach out to us for a consultation where we can delve into your goals and budget. We'll guide you in identifying neighbourhoods with optimal income potential, highlight homes best suited for renting, and collaborate with you to formulate the most effective investment strategy tailored to your needs.

Before you embark on this journey, ensure you can affirmatively answer these three crucial questions:

1. Are you prepared to take on the role of a landlord?

Owning a rental property demands a substantial investment of time and effort. Beyond merely acquiring passive income, you're also accruing sweat equity through the time spent on maintenance, marketing, and overall management. It's imperative to engage in introspection to ascertain not only your capability to thrive as a landlord but also whether you genuinely enjoy the prospect. If you're drawn to real estate investment but hesitant about the day-to-day commitment, we can connect you with a property management service for assistance.

2. Can you financially commit to real estate investment?

Avoid overextending yourself with your new venture into real estate. Beyond the property purchase cost, you must factor in additional expenses like property taxes, insurance, administrative costs, and maintenance and repair expenditures. Building a cash reserve for unexpected issues or potential vacancies is also essential. We can assist you in conducting a thorough financial analysis to determine if the rental income can sufficiently offset your expenditures.

3. Have you identified the right income property?

Even with financial readiness and emotional preparedness to invest, your success as a landlord hinges significantly on the property you choose. The criteria for a profitable rental home differ from those for a family residence, necessitating professional guidance. We can aid you in locating an optimal rental property, considering your budget, risk tolerance, and investment objectives. In the event you decide to invest in a different locale, we can connect you with an agent well-versed in that community. Reach out today to schedule a complimentary consultation.

The above references an opinion and is for informational purposes only.  It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.

Sources:

1. CIBC -
   https://www.cibc.com/content/dam/personal_banking/advice_centre/tax-savings/landlords-en.pdf 
2. Statistics Canada -
   https://www150.statcan.gc.ca/n1/pub/46-28-0001/2023001/article/00002-eng.htm
3. Statistics Canada -
   https://www150.statcan.gc.ca/n1/daily-quotidien/221102/dq221102b-eng.htm
4. Bank of Canada -
   https://www.bankofcanada.ca/2022/01/staff-analytical-note-2022-1/#chart4
5. Canadian Real Estate Magazine - https://www.canadianrealestatemagazine.ca/news/the-relationship-between-inflation-and-real-estate-335369.aspx
6. HGTV.ca -
   https://www.hgtv.ca/expert-tips-that-will-help-you-become-a-homeowner-before-40/
7. Wowa.ca -
   https://wowa.ca/rental-property-mortgage
8. CTV News - https://www.ctvnews.ca/business/selling-a-home-how-to-know-if-you-qualify-for-a-capital-gains-exemption-1.6249394
9. MPA Magazine - ​​https://www.mpamag.com/ca/mortgage-industry/guides/real-estate-investing-in-canada-where-to-put-your-money/447803
10. Canada Real Estate Association (CREA) -
    https://stats.crea.ca/en-CA/
11. The Canadian Press -
    https://ca.finance.yahoo.com/news/more-canadians-turn-short-term-151015862.html
12. TurboTax Canada - https://turbotax.intuit.ca/tips/the-ultimate-guide-to-the-tax-implications-of-renting-your-property-on-airbnb-14945

Statistics Canada -
https://www150.statcan.gc.ca/n1/pub/11-621-m/11-621-m2023008-eng.htm