What’s the best way to invest in real estate?
By SCOTT MOORE, REALTOROCTOBER 5, 2022The best way to invest in real estate is the way that suits your goals and skill set, that you become knowledgeable about, and that’s profitable for you. Here are a number of options that we have seen work in Winnipeg:
Flipping a home. This is where you purchase a home, make repairs or upgrades to it, and then sell it for a higher price.
BRRRR (Buy, Renovate, Rent, Refinance, Repeat). In this situation, the first three steps are pretty simple: purchase a home, renovate it, and rent it out. The magic happens on the fourth step. By renovating and renting the home, you have increased its value, which means that you can refinance the home to turn the equity that you have created into a cash, which you then use to finance the down payment on your next project (that’s the 5th step).
Rentals. This one keeps it pretty simple: buy a home, and rent it out. Often investors prefer duplexes or triplexes; the purchase price is usually higher, but the increased rent from multiple units is usually be disproportionally higher than the purchase price. For example, a $400k single family home would rent for $2200/month, but a $800k triplex would rent three units at $1200 + $2200 + $1800 each, resulting in $5200/month. So your $800k investment nets you an extra $1000/month compared with two $400k investments.
Building a spec home. Either purchase a lot in a new development or purchase a tear-down in a mature area, then contract a builder to build a home on spec, that you sell once completed.
VRBO. This is where you purchase and furnish a home, and then rent it out in short-term blocks (ie: a couple days or a week or two). People do this as a way to profit on a cottage purchase (you don’t rent it on the weeks you want to enjoy the cottage yourself, and then you rent it when you’re not there). Others do it strictly as a business, as it’s an awesome side hustle.
Student rentals. This must be handled correctly as there are regulations about the number of people (and cars!) in a single home, but it can be very profitable to rent out a home per room, though it often takes a lot of leg work.
Secondary Suites. Either purchase a home with a self-contained rental suite (usually in the basement) or renovate a home to add a secondary suite, and rent out the suite. Usually this is while you live in the upper levels of the home (which is why this model is often called a ‘mortgage helper’) but it’s also possible to rent both suites, in which case you effectively have a duplex.
My best advice as a real estate investor myself, and having worked with clients on every one of the models above: stay in your lane. There are so many exciting ways to make money in real estate that it’s easy to get confused. Make a plan, and stick to it.
How do beginners make money in real estate?
If you own your home then you are already making money in real estate! Appreciation has been very steady in Winnipeg, so chances are your house is worth more than it used to be, so you’ve already made some money.
The first step is to generate some cash, as you usually need a 20% down payment. Some people save, or use an inheritance, but most people refinance their personal homes to get started with real estate investing. If you refinance your home, you can withdraw anything over 20%. So if your home is valued at $500k, and you owe $300k, then you can withdraw $100k. Your monthly payments will go up, but it’s a very affordable way to generate cash flow that’s going to create more cash flow.
The second step is choose the model you want to use. It’s best to read up on all of them until one stands out as the most appealing. Trust your gut. Something you’re excited about is definitely going to be the best bet.
The third step is to select a realtor and start shopping. This is not the scenario when you want to use a your co-worker’s best friend who you like but just became a realtor three months ago— you need a trusted and knowledgeable advisor who will help you build your business model. Find a knowledgeable and experienced realtor who specializes in investments.
Is real estate a good investment in 2022?
Real estate is the best investment in 2022! The market has recovered from the post-pandemic highs, buyers are now back in the driver’s seat, and prices have returned to normal.
The average interest rate over the last 30 years in Canada has been 5.79%. Right now the Bank of Canada rate is sitting at 3.25%, which seems high relative to the exceptionally low interest rates we saw during the pandemic (0.25% earlier this very year!), but still well under average.
The combination of a buyer’s market, and historically low interest rates, means that this is a fantastic time to invest in real estate in Winnipeg.
How do I get started in real estate investing?
For more information about investing in real estate in Winnipeg, please contact us! We have decades of personal and professional experience with real estate investments in Winnipeg and we’d love to share our expertise, excitement and knowledge with you.