For investors looking to realize the most value from their existing wealth, the world of real estate is an enticing value proposition. It’s evident to anyone—homeowners especially—that the residential housing market is lucrative. Nowadays, real estate investment is a vital piece of any investment portfolio.
Home prices have increased by 375% across Canada in the past two decades, with high-in-demand markets such as Toronto and Vancouver seeing increases over 450%. A recent Royal LePage survey showed aggregate housing prices in Canada rising by 21.4% in the space of a single year.
Seeing extraordinary numbers like this over such short timeframes, it’s tempting for those with available resources to consider purchasing and managing their own investment property, if they have the finances to take on a second mortgage. Those who have owned and maintained their own home for years or decades may fall victim to a specific, familiar mindset: I’ve done this before. How hard could it be?
Unfortunately, becoming a property manager comes with its own vast set of costs, considerations, and pitfalls which make purchasing a property meant to earn money an entirely different experience from purchasing a home of one’s own.
Finding The Right Property… For Someone Else
When searching for a family home, you may have a list in mind of everything you’re looking for. Is it structurally sound? Spacious yard? Two-car garage? Finished basement? You know best what kind of home you want to call your own.
Compare this to needs and considerations for an investment property. This list looks very different and may include:
- What is the livability of the neighbourhood?
- Are there amenities nearby (grocery stores, schools, bus routes)?
- Will major renovations or fixes be required in the near future?
- Is the home’s heating and energy use efficient and consistent?
- What types of tenants will I attract here (students, families, local workers)?
- If I get short-term or unreliable tenants, will I be able to fill vacancies?
- What is the average rental cost in this area?
- How will property taxes and homeowner’s insurance affect my bottom line?
- Does this property have appreciation potential?
These issues compound and become more complex with larger or multi-unit properties, raising additional questions:
- Will I qualify for a commercial mortgage loan (required for buildings with five units or more)?
- How many tenants can this property support? Will I be able to keep all of the units filled?
- How many rooms does each unit have? Are there major differences between the units?
- Does the building have any outstanding fines, violation notices, or unpaid taxes?
These are only some of the major factors worth considering, serving to show how difficult it can be to find a profitable opportunity. Ultimately, the search for a sensible investment property can quickly become a full-time job in itself.
Finding and purchasing the right investment property can be a lengthy and costly affair, but once you have the keys in hand, preparation becomes the word of the day. To prepare any new property for rental, you’ll need more than just a deep clean; the property will need a thorough inspection, fresh paint on the walls, efficient heating, air conditioning, and hot water, a full set of working appliances… the list goes on.
Due to the increased frequency of bidding wars and high demand in general, there is a growing trend of property buyers being forced to abandon a home inspection when making an offer. A property which looks perfect during an initial tour may be hiding serious problems which only a home inspection would find, ranging from mold and moisture problems to major foundation or structural issues. Problems like this cannot be ignored and must be fixed properly by professionals. This alone makes purchasing a property a risky endeavour, threatening to sabotage your investment before it’s even begun.
Once the property is fixed up, clean, and ready to rent, there’s the matter of finding tenants themselves. This involves research, creating and posting advertisements, screening tenants, collecting applications, providing frequent property viewings, conducting background checks, and signing a legal agreement. After all that, you hope your chosen renters are trustworthy and reliable. When they choose to move, or if you need to evict, the entire process begins again.
The Responsibilities Of A Landlord
Owning property is one matter, but becoming a landlord is its own beast entirely. The legal, moral, and financial responsibilities can be overwhelming and time consuming, leading to unexpected headaches that cannot be ignored.
According to Ontario’s Residential Tenancies Act, at minimum, a landlord is responsible for ongoing property maintenance and repair (including complying with healthy, safety, housing, and maintenance standards), ensuring a supply of fuel, electricity, and utility services, and issuing rent receipts to tenants.
A landlord is also responsible for keeping common areas clean, replacing appliances, removing snow from walkways and driveways, and disposing of garbage regularly, which means making frequent trips back to the property (whether you live close by or not). To complicate matters, landlords are required to issue a 24-hour written notice before entering a rental unit, so appropriate scheduling is vital.
Finally, these legal requirements do not account for the personal aspect of landlord/tenant relations. You’re providing a service, so when your tenants have questions or concerns, it requires your attention and is done on your own time. With all these factors in mind, the question becomes: what is your time worth to you?
An Easier Way
Thankfully, the considerations mentioned above don’t need to be a barrier to real estate investment. Privately held real estate investment trusts (REITs) like those offered by Equiton allow investors to passively earn income, benefitting from real estate growth without taking on the risks and responsibilities. Funds at this scale are far more profitable and sustainable, thanks to a carefully selected, diverse range of investment properties.
To learn more about our funds or real estate investment generally, talk to an Equiton team member by emailing firstname.lastname@example.org.