Buying and selling real estate is an investment method that can be both satisfying and profitable. Dissimilar to stock and bond investors, prospective real estate owners can use leverage to buy a property by paying a certain percentage of the total cost upfront, then paying off the outstanding balance, plus interest, for a specific term.
While a traditional mortgage generally requires a 10% to 25% down payment, in some cases a 5% down payment is the initial requirement to purchase an entire property. This ability to have control over the asset at the moment papers are signed emboldens both real estate flippers and landlords, who can, on the other aspect, take out second mortgages on their homes in order to make down payments on additional properties.
Here are several ways in which investors can make money on Montreal Real Estate ()
Be a Landlord
Best for: People with their own creativity and renovation skills, who have the patience and ability to manage tenants.
What are the things needed: Substantial capital needed to finance the initial maintenance costs and cover months that are vacant.
Pros: Rental properties can have a regular flow of income while maximizing available capital through leverage. Moreover, many related expenses are tax-deductible, and any losses can offset gains in other investments.
Cons: Unless you chose to hire a property management company, rental properties tend to be a factor of constant headaches. In the worst scenarios, inconsiderate tenants can somehow damage property. On the flip side, once the mortgage has been paid off completely, the majority of the rent becomes all profit.
Real Estate Investment Groups (REITs)
Best for: People who want to have their own rental real estate without the hassles of running it.
What are the things needed: A capital cushion and credible access to financing.
Pros: This is a much more hands-off approach to real estate that still provides a reliable source of income and appreciation.
Cons: The vacancy risk is certain with real estate investment groups (REITs), whether it’s spread across the group, or whether it’s owner specific. While these groups are theoretically safe ways to invest in real estate, they are prone to the same fees that haunt the mutual fund industry.
House Flipping or known as Real Estate Trading
Best for: People with relevant experience in real estate valuation and marketing, and skillful renovation.
What are the things needed: Capital and the ability to do or monitor repairs and maintenance as needed.
Pros: Flipping has a shorter time period during which capital and effort are bonded in a property. But depending on the real estate market conditions, there can be significant returns, even in shorter time frames.
Cons: Real estate trading requires more market knowledge paired with luck. Hot markets can cool unexpectedly, leaving short-term traders with expectedly unexpected losses or long-term headaches.
Real Estate Investment Trusts (REITs)
Best for: Investors who want a good portfolio exposure to real estate without a traditional real estate transaction.
What are the things needed: Sufficient investment capital.
Pros: REITs are essentially dividend-paying stocks whose core holdings comprise commercial real estate properties with long-term, cash-producing leases.
Cons: REITs are just stocks, so the leverage associated with traditional rental real estate won’t matter.
Whether you are a real estate investor that uses your properties to generate rental income, or you just bide your time until the perfect selling opportunity arises, it’s feasible to build out a long-term investment program. One of them is to try to explore the possibilities in the real estate industry.