The merits to buying a second property as an investment

Thanks to Canada’s weak performing dollar, the last 12 months have seen an increase in the number of foreign real estate buyers. Spurred on by the impact of their currency in the Canadian marketplace, Chinese buyers have been fueling the condo markets in Toronto and Vancouver, in addition to propping up the housing bubble.

These international investors know that Canadian real estate, especially now, is a smart investment that may offer high ROI. Data released in early April by the Canada Mortgage and Housing Corp. points toward continued growth in the country’s largest real estate markets, thanks in part to offshore money.

“This study suggests that the flow of money has become significant and it is definitely not slowing down. I wouldn’t be surprised if 2016 is a record year when it comes to foreign investment in the condo market,” said Benjamin Tal, deputy chief economist for CIBC World Markets.

According to the CMCH findings, 10 percent of condos built in the last five years have been purchased by foreign buyers. You may be thinking, if the dollar is so low and oil is performing poorly why are foreigners flocking to Canadian real estate?

That answer is complicated, but one of the factors is that on average Canadian real estate performs well and is a sound long-term investment choice.

With the dollar finally regaining some ground and reaching similar levels to the summer of 2015, now is perhaps a perfect time for Canadians who are looking to invest in real estate to take the step forward.  International investors interested in Canadian real estate are also well-aware that the window to take advantage of the currency exchange is finite.

“Real estate investments are very popular today,” notes Jerry Cukier, a Partner with Soberman LLP in Toronto. “Growth in real estate has been faster than the growth of many other investments.”

That fact is promising to those looking to increase their retirement income or portfolio. Real estate investment is unlike investing in say, for example, stocks, partially because the investor has an actual tangible resource to manage. Those who choose to invest in real estate tend to also have more control over their investments. “You know the quality of the building, you know the surrounding market and what the demand is.” To quote Cukier again.

However, purchasing a second home or investing in real estate is a major undertaking that needs to be carefully vetted and inspected before purchase. As a tangible investment, the upkeep and maintenance of whatever property you invest in is dependent on you. 

While some people buy investment real estate for an immediate flip, I find the most potential comes from the ‘Buy and Hold’ strategy. As the name indicates, Buy and Hold simply means: buying a rental property that is slightly under market value and holding it for the long term. The goal is to have tenants gradually pay off the mortgage so that in the end you have a property that is mortgage-free and where rental income is being paid to you indefinitely.

Buy and Hold is a popular strategy because it is one of the most straightforward real estate investment strategies. As long as the property’s income covers the expenses (note that each lender has slightly different ways of calculating this), and as long as you have a minimum 20 percent down payment, it is also the easiest real estate investment to finance.

As the Canadian economy undergoes an upswing, the time to bolster your investment portfolio is ripe. From tech to real estate, a savvy investor can find opportunity for profits as the country regains its economic stability.