What is the best way to invest in real estate?

By Nate Rempel | Partner, Alair Red Deer

This article will cover some of the basics of real estate investing and what to look for when exploring different options. Keep in mind that the real estate market is unpredictable and ever-changing, so following trends closely is important to making the right investment decisions.

Investment Strategies 

There are a few key rules to remember when investing in real estate, no matter what type of property you’re considering. Keep these in mind when evaluating any deal.

  1. Location is important when considering a property. If you find a property that is undervalued, look at its location first. Is it in a decaying area of town? Is it near amenities that draw the wrong kind of traffic? Is there new development across the street that will devalue your spot? A quick drive around the neighbourhood can reveal these potential issues before you purchase the property. Another approach is to speak with a REALTOR, or other owners in the area to get more information.
  2. Many people get into real estate investing without understanding what the goal of the investment actually is. Read below for different tactics for both long term and short term investment mindsets.
  3. It’s important to understand your investment goals and numbers before getting started in real estate investing. Subscribe to Investopedia’s Term of the Day to learn the basics of financial literacy, and watch YouTube videos and learn from others who have gone through real life examples of exactly what your goals and plans are. Make sure you understand key concepts like return on investment (ROI), cash flow, profit (net and gross), equity or leverage.

Investment Decisions

Let’s get started with examples of a property and some viable approaches to them. 

SINGLE FAMILY HOME 

One of the most common types of real estate investment is buying a single-family home. This can be a great way to get into the market and roll your personal residence into any of the following. The more you research and experience, the more creative you can get. Here are a couple of my favourite approaches:

  1. House hacking is a great way to offset your housing costs. Essentially, you rent out rooms or spaces in your home to individuals. For example, if your mortgage is $1200, you could realistically rent out a couple of rooms for $400 plus utilities. This would bring your housing costs down to $400 a month. You can then use the money you save to invest in real estate. The key to making this work is to carefully vet potential renters to make sure they will be a good fit to live together. Read this vetting definition from Investopedia. 
  2. Building a basement suite is a popular option for investors, but it is often underestimated how much work is involved. There are code requirements that can be costly to meet, such as fire ratings, separate heating and cooling systems, and a secondary entrance. Usually, the local permitting office will have this information on their website. If not, you can try calling and connecting with the local building inspector. Generally, renovating a basement in a single family home to meet all the code requirements is a big job that should be approached professionally. Hiring a certified contractor for this one might be a good idea… as long as your numbers work. You can offset your monthly costs by subsidizing the basement if you live on the main floor.
  3. The BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat) is a great way to scale your real estate investments. This approach requires a few more moving pieces and demands an efficient and methodical plan of attack, but the rewards can be great. You can find more information on the BiggerPockets website and their YouTube channel. I will say, this is a personal favourite and is one of the best approaches to scale that I have seen.
  4. AirBnB is the pioneer of modern short term rentals (STR). This link will take you to a podcast on the inception and scaling of AirBNB. There is also a lot of content on YouTube around building your own STR business. Over the years, we have started to see people use short term rentals in a variety of ways, including offsetting their own expenses. You might be surprised who would rent your house for a weekend or a business trip. Short term rentals generally demand a much higher rate per night than a long term rental. The golden rule of location applies here – if you’re near a popular destination, you can charge a premium. Do your research on AirBnb to see what’s possible for your situation.

Some Advice for a First Time Real Estate Investor

As I mentioned before, nobody has a crystal ball. Real estate can be the biggest investment you make, so it’s important to be careful. That’s why it can be a good idea to start with your primary residence for the beginner investor. 

Do your research on real estate investing. You can learn a lot from YouTube videos and books on the subject. You may even find people in your area to connect with. There are many groups who meet regularly to discuss investing, and you’ll quickly learn that there are plenty of opportunities to go around.

Make sure you have fun! Stressful moments are inevitable, but enjoying the process is key. There are many different approaches you can take, so find the one that excites you the most and fine tune it. Happy investing.