Diversify, diversify, diversify! That’s the phrase that most investment gurus will encourage you to do with your savings. Most people think of that in terms of diversifying across asset classes but did you know that you can diversify within the real estate asset class? Here’s how:
Living in the first home you buy will give you a unique ownership experience that may make you a better landlord and investor when you do eventually grow your portfolio. You’ll see first-hand the kinds of problems that can arise from property ownership and how to solve them without the pressure of having to deal with tenants. There are also tax considerations when it comes to a principal residence. When you sell a property the government requires you to pay taxes on that increase in value BUT your principal residence is a special exception as you won’t have to pay taxes on your gains when you sell it.
Another way you can make money in real estate is to become a landlord of a rental property or flip a property (buy undervalued real estate, fix it up, and sell it for a profit). Like a principal residence, this type of investing requires a large sum of money as, unless you’re investing with friends or family, you need to anti up the cash to purchase the property and then cashflow it accordingly to cover your expenses. For many, this is cost-prohibitive and involves taking on too much risk.
Real Estate Investment Trusts (REITs)
REITs provide real estate exposure without the need to own, operate, or finance properties. There are many different types of REITs so you can invest in commercial, multi-family or industrial real estate. How does a REIT work? They take money from investors to buy a portfolio of properties but you don’t always know what the properties are or where they are located. Many REITs are publicly traded so shares can be bought and sold on the stock exchange.
Crowdfunded Real Estate
Instead of putting all of your eggs in one basket or letting someone else make the buying decisions for you, you can pool your money with other investors to buy a property that you love via crowdfunding. Crowdfunding allows multiple individuals to invest in property at a price point they are comfortable with and, at the same time, reduce the risk that comes with any investment since the risk is spread across the “crowd”. And the other best part? You often have the same financial goal. addy is a platform available to Canadians that enables investing in real estate via crowdfunding. Investments range from $1 - $1,500 across a variety of asset types. In fact, the company is launching commercial real estate offering in Calgary just in time for the holidays.
Protecting Your Investments
No matter the type of real estate investment that you have in your portfolio it’s very important to protect your assets with a will and power of attorney documents. Your will acts as a blueprint for your friends and family to follow for wrapping up your estate, including what happens to your assets, like property, in the event of your death. It’s also particularly important to create your power of attorney documents, which can allow a person of your choosing to manage your investments and financial affairs if you become incapacitated - including making mortgage payments on time. Estate planning is commonly overlooked, but one of the easiest ways to ensure your investments are protected in the event of an emergency
addy is an online investment platform that enables Canadians to invest in real estate for as little as $1. They believe everyone should have the opportunity to become a homeowner through access to real estate investing at any amount, regardless of income, age, or other conflicts. Learn more about addy here.
The information provided on in this post is for informational purposes only. It does not constitute or form any part of any offer or invitation or other solicitation or recommendation to purchase any securities. It should not be considered financial or professional advice. You should consult with a professional to determine what may be best for your individual needs.