Options for a real estate investor with only $ 100,000 of capital available

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The housing frenzy in Canada has saved homeowners a lot of money. But it has also made the cost of market entry much higher for new real estate investors.

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Ten years ago, an investment of $ 100,000 would have been enough to make a down payment on two condos in downtown Montreal. Five years ago that would have been more than enough to invest in a single family investment property in Hamilton or Ottawa.

But with historically low mortgage rates causing price explosions in virtually every Canadian city, $ 100,000 isn’t getting you as many homes as it once did, in part because investors are required to put at least 20 percent on a investment property.

So what can investors do with $ 100,000 at their disposal? Here are four suggestions.

1. Buying property in a smaller market

Having only $ 100,000 will not get you far in the most popular rental markets in Canada. While the average GTA condo sold for just over $ 688,000 in August, according to data from the Toronto Regional Real Estate Board, a 20% down payment exceeds $ 137,000.

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But real estate ownership remains the preferred vehicle for investing in real estate, says Brett Turner, a Calgary-based investor and owner of the Redline Real Estate Group.

“If you buy an income property, you will have the opportunity to take advantage of four ways to make money with your investment,” he says.

These include passive appreciation, increasing equity through renovations, mortgage payments that increase your equity, and positive cash flow.

You don’t need to own a property in a 24-hour city to generate solid returns. It’s about balancing the cost of your property with the rent it generates, its realistic potential to generate higher rents in the future, and the costs associated with having it managed by a local expert.

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A down payment of $ 100,000 should be enough for you to acquire an income-generating property in Calgary, Saskatoon, Regina, Winnipeg, Fredericton or Charlottetown. And there are plenty of other affordable cities in Canada that are teeming with students and healthcare and government workers not yet ready to buy their own homes.

Turner’s tip: Try to buy below the local average and make your first turn as a home owner easy.

“You don’t want to buy a property that will force you as an investor to solve a lot of problems,” he says. “The more recent a property you can buy, where you shouldn’t have to do a big renovation – that sort of thing is a great approach.”

2. Fill up on FPI

Maybe you want to take advantage of the long- and short-term potential of real estate, but don’t want the hassle of owning it. Instead, you can funnel some or all of your $ 100,000 into real estate investment trusts (REITs).

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“I think they’re very useful for income-oriented investors, especially in this environment where interest rates are low and dividend rates are stable,” says Ethan Astaneh, financial advisor at Nicola Wealth at Vancouver.

The shortage of properties to buy in Canada will continue to put pressure on the residential rental market – and the rents themselves – which is music to REIT investors.

But a diversified REIT game will also require you to gain some exposure to non-residential asset classes like industrial and office properties. Getting into these areas can be intimidating for new REIT investors.

“People who have professional advice will receive recommendations,” Astaneh said. “People who don’t have to put it together themselves. “

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When choosing a REIT, he says it’s critical to understand where each asset class currently fits in the market and research which REITs have performed well over the long term. In addition, you need to investigate the management team.

“A lot of the productivity of a REIT actually relies on the skills of the management team,” says Astaneh. “This is really what you are buying. “

3. Take a dip in a private swimming pool

Offers similar to REITs are called “private pools”. They allow investors to raise their funds through a limited partnership that directly owns property.

As the investor, you and the other owners are in charge of the property, but the management responsibilities are outsourced.

As with REITs, according to Astaneh, the level of liquidity of a private pool is higher than that of owning real property; although he adds that some pools require six months notice if an investor decides to opt out.

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But, while REIT stocks can be purchased for a few hundred dollars, the cost of accessing a private pool can be high. Your $ 100,000 may not be enough.

4. Put on your private lender hat

Another way to generate solid returns with $ 100,000 is to lend it to other real estate investors.

There is no shortage of homeowners in need of funds for six-month home improvement projects, homeowners seeking a second or third mortgage, or novice developers raising capital for larger-scale land deals.

Putting these loans together will require some help. Mark Yamada, President and CEO of PUR Investing in Toronto, says a good real estate lawyer is essential, not only to protect you as a lender, but also because they can expose you to a large network. clients who could become future borrowers.

A private money mortgage broker who has experience with these loans can also be an invaluable source of information, although you may need to cut them back.

“You can charge double-digit short-term loan rates,” Yamada explains. “If someone had $ 100,000 and wanted to participate in the market, this is definitely one way to do it.”

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.