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As investors, there are several different types of real estate offering that you could choose from. The possibilities range from raw land to multiplexes and commercial properties. Here is a brief guide to help you pick the best option for your particular investment portfolio.
Raw land is simply basic square footage with nothing built on it. It can be acquired for several reasons: to build on and add value to, to lease and create cash flow, or to hold on to until the neighbourhood land value appreciates. Land can also be subdivided and sold for profit. Buying land requires a significant amount of research into the city and commercial plans for the area.
Commitment level: high if you choose to build, low if you choose to hold and resell.
Returns: high provided your research is thorough.
Single Family Homes
Perhaps the most common investment for most first time investors is the single family home. The reason for this is because they are easy to rent out and resell: there will always be new families looking for a large two bedroom home with a yard. The tenants attracted by SFH’s also tend to be reliable, financially secure, and looking for long term leases. Appreciation is high compared to other residential assets. On the downside, they require a lot of maintenance and in some neighbourhoods will not being a positive cash flow for a good number of years.
Commitment level: medium-high.
Returns: medium. (high appreciation offset by high maintenance costs)
Homes are repossessed by the government when homeowners don’t pay their fees and taxes. These homes can be bought directly from the government for the amount of taxes owed, often meaning that the property is incredibly cheap. On the downside, it’s extremely hard to find a traditional lender who will finance a repossessed home. This niche lends itself well to investors with private money or those willing to put down a huge downpayment.
Commitment level: high. Prepare to do your due diligence as these acquisitions require a great deal of research, knowledge and experience.
Condominiums are the second most common investment choice in Montreal. On the plus side, they are relatively safe and extremely low maintenance. This makes it a perfect choice for investors who plan to travel or work outside of the country. On the down side, this low maintenance comes at a cost: condo fees tend to be high and will eat into your cash flow, making the returns on a condominium relatively low.
Commitment level: low
Small Apartment Buildings
Small apartment buildings are made up of between 5 and 50 units. These properties are typically hard to finance,, as they rely on commercial lending standards instead of residential ones. However, they often provide significant cash flow for the investor who can deal with the more management-intense nature of the properties. Competition also tends to be much lower as they are too expensive for the average investor and too cheap for large real estate companies.
Commitment level: high
Large Apartment Buildings
Large apartment buildings are complexes made up of more than 50 units. They take a significant amount of cash investment and are usually bought as pooled acquisitions between a group of different investors or by large companies. Since these buildings are run by a full team of staff, marketed by an advertising agency and rented by management teams or brokers, personal time and commitment from the investors is quite low.
Commitment level: medium-low (providing you’re working with a team).
Duplexes and triplexes are ideal investment options because you can use part of the building as your private residence and part of the building as an income property. On the down side, prepare to be in constant interaction with your tenants. Like single family homes, maintenance fees and risks caused by damages are quite high. Make sure you have an excellent home insurance plan if you choose to buy a duplex!
Commitment level: medium-high.
Commercial Real Estate
Commercial investments are properties that are leased to businesses. While they provide good cash flow and consistent payments, they also may carry with them much longer holding periods during times of vacancies. They also require much more capital for their financing and initial renovation work. Unless you are starting from a very solid financial position, investing in commercial real estate is not recommended for inexperienced investors.
Commitment level: medium-high