{"id":723,"date":"2022-05-19T00:00:00","date_gmt":"2022-05-19T00:00:00","guid":{"rendered":"https:\/\/wp.springfinancial.ca\/?p=723"},"modified":"2025-12-12T22:27:36","modified_gmt":"2025-12-12T22:27:36","slug":"real-estate-investing-in-canada","status":"publish","type":"post","link":"https:\/\/springfinancial.ca\/fr\/blog\/homeowner-finances\/real-estate-investing-in-canada\/","title":{"rendered":"How to Win at Real Estate Investing in Canada"},"content":{"rendered":"\r\n

Relentless price growth across the country is driving the discussion. Just recently, the Canadian Mortgage and Housing Corporation (CMHC), which is Canada\u2019s federal housing agency, predicts<\/a> the annual average home price in Canada could peak at $782,400 this year. That would mark a nearly 14% increase from the previous year\u2019s average of $687,910.<\/p>\r\n\r\n\r\n\r\n

A 14% year-over-year increase is impressive on its own, but it doesn\u2019t tell the whole story. To put in perspective just how red-hot prices have been in Canadian real estate, consider the average home price in Canada was hovering around $400,000 back in 2015. Prices have nearly doubled in 7 years!<\/p>\r\n\r\n\r\n\r\n

With that kind of unprecedented price growth, it\u2019s no surprise the Canadian real estate market has become a growing target for investment. Let\u2019s look at how to get off the sidelines and into real estate investing.<\/p>\r\n\r\n\r\n\r\n

How to Start Investing in Real Estate<\/h2>\r\n\r\n\r\n\r\n

First off, we have an important distinction to make about investing in Canadian real estate. Buying a home to live in should not necessarily be considered \u201cinvesting.\u201d You are buying a necessity to live, called shelter, and while many will view it as a long-term investment, it is not primarily the kind of investing we are discussing.<\/p>\r\n\r\n\r\n\r\n

Your home should appreciate over time, but it\u2019s not to be considered a financial product that you want immediate returns from, unless you are planning a quick flip (more on that later).<\/p>\r\n\r\n\r\n\r\n

Here\u2019s a look at the kind of real estate investments we are going to discuss:<\/p>\r\n\r\n\r\n\r\n

Rental properties<\/strong> \u2013 Buying a property for the intention of renting it out to a tenant, long-term or short-term. This can be a section of your home, like a basement, or a completely different residence.<\/p>\r\n\r\n\r\n\r\n

REIT<\/strong> \u2013 Real estate investment trusts (REITs) are investment vehicles that you can buy and sell like a stock and financially benefit without having to buy expensive real estate.<\/p>\r\n\r\n\r\n\r\n

REIT ETFs<\/strong>\u2013 Exchange-traded funds (ETFs) are baskets of stocks that you can also buy and sell on a stock exchange. Some ETFs compile various REITs, creating an affordable way to invest in real estate for beginners.<\/p>\r\n\r\n\r\n\r\n

Speculation\/flipping\u00a0<\/strong>\u2013 This is when you buy real estate with the sole intention of selling it for more than what you paid in a short timeframe. The sale will be subject to a capital gains tax<\/a>.<\/p>\r\n\r\n\r\n\r\n

Principal residence<\/strong> \u2013 This is when you buy a home as your primary residence and sell it many years later at a profit without paying capital gains tax.<\/p>\r\n\r\n\r\n\r\n

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How to Invest in Canadian Real Estate<\/h2>\r\n\r\n\r\n\r\n

One of the most common methods of real estate investing in Canada is to buy a property for the purpose of drawing a rental income. It\u2019s a growing trend in Canada\u2019s urban centres. A report from Royal LePage<\/a> pegged the number of Canadians who own a second home at more than 10%.<\/p>\r\n\r\n\r\n\r\n

Some of those could be recreational properties, like cottages and cabins, but the majority is for rental purposes. In fact, more than two thirds of the survey respondents from Greater Vancouver and Greater Toronto said they were collecting rental income. The survey also found that young homeowners were capitalizing on rental incomes, with 18% of homeowners between the age of 18 and 35 owning more than one property.<\/p>\r\n\r\n\r\n\r\n

Buying a rental property is much easier when you already own a property. You can use the existing equity in your principal residence to finance the purchase of a rental. As an example, someone who owns in the Greater Toronto Area might use their home\u2019s equity to buy a more affordable condo in a small town like Guelph or London (Ontario), where this is a high percentage of students who need rentals.<\/p>\r\n\r\n\r\n\r\n

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If you don\u2019t already own a property, and you are renting, then investing in a rental property where you live is inadvisable. You should secure a home for yourself first and foremost. However, if real estate prices in your region are cost prohibitive, then it\u2019s worth looking into a rental property in a smaller, less expensive market where you don\u2019t necessarily plan to live in the near term.<\/p>\r\n\r\n\r\n\r\n

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Here\u2019s another example: if you live in Vancouver, where the average cost<\/a> of a condo was $802,591 in 2021, buying real estate might be unaffordable, to put it mildly. However, perhaps you can invest in a rental property in a smaller BC city like nearby Nanaimo, where the average price<\/a> for all residential properties was $470,738 in 2021.<\/p>\r\n\r\n\r\n\r\n

Good Canadian Real Estate Investments<\/h2>\r\n\r\n\r\n\r\n

Ask a real estate agent what they consider a good Canadian real estate investment, and they will tell you there\u2019s no wrong answer. Yes, it\u2019s true if you look at the price trajectory of real estate in Canada since the financial crash in 2008, it\u2019s been a mostly uninterrupted upward trend. Even the calamitous subprime mortgage disaster in the United States, which sent global economies reeling, only affected Canada\u2019s real estate market moderately. It\u2019s why Canada\u2019s real estate market is so often characterized as stable.<\/p>\r\n\r\n\r\n\r\n

That being said, there\u2019s always a risk factor when investing in real estate in Canada, or anywhere else. The real estate market is subject to volatility, just like the stock market, and home values can plunge quickly if something shocks the market.<\/p>\r\n\r\n\r\n\r\n

Real Estate Investing for Beginners in Canada<\/h2>\r\n\r\n\r\n\r\n

Beginners who want to invest in real estate should understand the risk in trying to time the market perfectly. Because Canada has been on an upswing for many years, and sent into overdrive during the pandemic, there are many who believe the domestic real estate market is due for a correction, or worse, a crash.<\/p>\r\n\r\n\r\n\r\n

How severe that will be, or if it happens at all, remains to be seen. The point is: what goes up must eventually come down, and a good real estate investment should be able to weather any storms that come to pass.<\/p>\r\n\r\n\r\n\r\n

Another consideration for burgeoning real estate investors is the political climate around housing in Canada. Governments at every level are being pushed to address the growing affordability issue with real estate in Canada. The skyrocketing prices have been a boon for established homeowners and real estate investors, but younger first-time buyers are being priced out of the market.<\/p>\r\n\r\n\r\n\r\n

Governments are increasingly likely to get involved in the housing market, which could impact the kind of price growth we\u2019ve seen in recent years. However, most government intervention so far has been to create more housing supply, which has yet to negatively affect the market.<\/p>\r\n\r\n\r\n\r\n

Lastly, interest rates are no small piece of the real estate investing puzzle. The Bank of Canada sets what\u2019s called an overnight rate. That rate guides banks, credit unions, and other financial organizations in what mortgage rates they offer. We\u2019ve seen record low mortgage rates during the previous two years, but the Bank of Canada has recently signalled<\/a> big rate hikes could be in the cards this year and next.<\/p>\r\n\r\n\r\n\r\n

Higher mortgage rates could significantly cool buyer demand in real estate. Those considering an investment property should take pause and consider the impact interest rate hikes might have in the near future.<\/p>\r\n\r\n\r\n\r\n

Best Way to Invest in Real Estate<\/h2>\r\n\r\n\r\n\r\n

One of the best ways to invest in real estate without having to save for a massive down payment is a REIT \u2013 real estate investment trusts. It\u2019s one of the easiest ways to test the waters of real estate investing. REITs do the investing for you, purchasing large swathes of commercial real estate and residential real estate, then renting it out to tenants.<\/p>\r\n\r\n\r\n\r\n

It\u2019s not uncommon for REITs to own malls, large apartment buildings, and big industrial sites you typically see on the outskirts of the city. So how do you make money? Here\u2019s how it works:<\/p>\r\n\r\n\r\n\r\n

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  1. You can purchase a REIT on the Toronto Stock Exchange like any other stock. REITs have share prices and you will need an investment account to buy them through either a bank or online broker.<\/li>\r\n\r\n\r\n\r\n
  2. REITs buy and manage commercial property and residential property, then collect income from their tenants.<\/li>\r\n\r\n\r\n\r\n
  3. REITs do not pay any corporate income tax because they distribute all income to shareholders, or \u201cunitholders\u201d in the case of REIT, via dividends. You will need to pay capital gains tax on your REIT income unless you keep it in a registered account like a TFSA or RRSP<\/a>.<\/li>\r\n\r\n\r\n\r\n
  4. You make money in two ways. Through quarterly dividends<\/a> and the increased share price of the REIT. The amount of the dividend will depend on the number of units you hold in the REIT. More units equal bigger dividends.<\/li>\r\n<\/ol>\r\n\r\n\r\n\r\n

    Here are some top REITs in Canada:<\/p>\r\n\r\n\r\n\r\n