Making Money in Real Estate
You’ve asked for more real estate posts, and here it is. Rachelle makes a living in investment real estate and will share with you some trade secrets.
It is possible to make lots of money in real estate, but it can be difficult to get basic information. American information is abundant but much of it does not apply to Canada.
There are people who have outperformed the market time and time again. In many cases they’re not really sure how they’ve done it themselves.
Here is a list of 6 different strategies that you can apply to make money in real estate. You can apply a strategy to any real estate purchase you make and it will serve you well. Combining approaches will increase your chance of success.
1. Area Appreciation
Area appreciation is when you buy a piece of real estate in an area or neighborhood that outperforms the rest of the city. Implementing this strategy requires inferring which area is going to be the next hot place to buy.
Since I have been in Toronto I have seen many areas rise exponentially in value. I remember driving along Dundas St West a decade ago, almost every storefront was abandoned and the prices reflected that. During that time trying to sell a building would have been very difficult. A drive along that strip 10 years later and there is no vacancy, tons of franchises and established local businesses and the entire area has probably doubled in value.
Another example of that same phenomenon happening is Oshawa. A short commute from Toronto, you can buy a 3 bedroom bungalow from $100,000 and 3 bedroom townhouse for even less. In my opinion this is one area that will see very high appreciation. Buying in areas adjacent to a major city is an excellent strategy that provides higher returns.
2. Buying Opportunities
This scheme involves taking advantage of unfortunate circumstances happening to the seller of a property. Real estate is not very liquid. A desperate seller may have to reduce their price.
Homeowners may just want to dispose of a house. Why? Financial problems, divorce, out of town transfer, estate sales and illness can all present motivations to sell as quickly as possible. What used to be a treasured asset becomes a burden.
Patience is the key if you are looking for this type of deal. Spread the word far and wide that you are a buyer. You must be ready to buy and close quickly. A significant discount is available for these savvy buyers.
3. Adding Value
This method of real estate investing involves buying a property that is run down and fixing it up. This is easiest for the person who is handy or in the trades but if an opportunity presents itself, you can hire a contractor. Dirt, disgusting smells, bad paint choices are all easy fixes and money in your pocket. You pay dearly for polish, cleanliness and staging.
For intermediate projects you can install new kitchens, baths, flooring and more.
Then there are advanced level projects like houses with structural, mold, electrical, heat or water issues. At times you can find a property that is in the midst of a major renovation that has been interrupted.
Making money by adding value is not for the faint of heart. Anyone who has ever done renovations will tell you that once the walls are opened up there are likely to be expensive surprises. For the right person this can be a gold mine.
This way of making money in real estate is so simple anyone can do it. Buy a house and wait. Real estate can be a hedge against inflation.
Buy a house and stay there for 50 years. As inflation affects the price of your house and your house stays at the same intrinsic value. The buying power of a dollar goes down continually so in the future you will get many more dollars than it cost you to buy the house. The elderly lady down the street paid $30,000 for her house in 1952 and now it’s worth $300,000, much of that increase is just due to time eroding the value of a dollar.
You benefit from the compounding effect of inflation on the dollar value of the house.
5. Cash buying
This method involves having a lot of liquid cash on hand. The pool of buyers able and willing to buy a property outright is small. Cash is king and you can get great deals just because there is no competition for the property.
Unfortunately the reason banks won’t lend is because of significant problems. You will have to address these problems to profit.
Some of the reasons the banks will not lend are vacancy, no well, no electricity, no septic and no insurance.
There is a condominium in Toronto that has been unable to insure the building. You can buy a unit there at an amazing price. In the future when they become insurable again your unit would triple in value.
An important point about this strategy is that when the obstacle to financing is removed the property can be appraised and you can get your capital out. An exit plan is vital otherwise all your money will be stuck in a substandard, illiquid investment.
This route is risky but success brings unbelievable profits.
6. Other Opportunities
This usually applies to more advanced buyers but you can find houses with large lots that can be divided, small houses that are double brick (put another floor on it), buildings can be converted to condominiums, and farmland to sever into lots. The permutations are almost endless and can net you a nest egg in the bargain.
Real estate can be a road to riches for the buyer with insight and vision. I urge you to think out of the box and search for opportunities that less informed buyers have overlooked.
In my experience it is difficult or impossible to convince others that you’re not insane when you see promise in a much abused unloved project so be prepared to go it alone psychologically. After all if everyone wanted these properties they wouldn’t be a good deal.
About the Author: Rachelle specializes in renting property on behalf of landlords. She also works with investors to find good investments in Toronto and surrounding areas. Her passion is bringing multi res properties back from the brink and maximizing profitability.