How to start investing in real estate: top 5 strategies for beginners

When we think about investing in real estate, the first thing that often comes to mind is rental properties. Real estate investments, however, present far more opportunities to build wealth and earn passive income than just leasing out residences and commercial spaces.  

In this article, Wealth Professional gives newbie investors an overview of how to start investing in real estate. We will discuss how the process works. We will also provide a list of the best investment options for those wanting to diversify their portfolios with this asset class. 

If you’re new to investing and wondering whether real estate assets fit your budget and risk tolerance, then you’ve come to the right place. Find the answers to your most pressing questions in this beginner’s guide on how to start investing in real estate. 

But first, what constitutes real estate?    

The government of Canada defines real estate, also referred to as real property, as “land, mines, minerals, buildings, and fixtures on, above or below the surface, and any interest therein, both in Canada and abroad.” 

But if you’re the typical Canadian, you often use the term to describe land and anything that grows (e.g., crops on a farm) or is built on it (e.g., your house).  

The government also breaks down real estate into several categories, including:  

• vacant land 
• rental property, also called investment property, such as single-family dwellings, townhouses, apartments, condos, and vacation rentals 
• rural or farm property, which includes ranches and agricultural land  
• commercial property, like office buildings, shopping malls, and industrial spaces 

Real estate, however, can also refer to the entire housing market and the topic of this guide – investments – which we will discuss in more detail below.  

How does real estate investing work in Canada? 

The most popular way of investing in real estate is buying property and leasing or renting it out or selling it for profit. Another common method is purchasing a distressed home, flipping it, and selling it for more than the purchase price and renovation costs. 

But if you’re not really into hammering nails or installing tiles, you can take a more passive approach. This can involve investing in real estate investment trusts (REITs), which work like stocks, allowing you to capitalize on the real estate market. There are also real estate crowdfunding platforms that pool money together, giving you and other investors a chance to participate in huge real estate deals.  

Many seasoned investors find this asset class appealing as it gives them access to a steady cash flow, capital appreciation, and tax breaks. Real estate investments are also a great way to diversify their portfolios. Beginners can likewise reap the benefits of investing in real estate with the right knowledge and guidance.  

If you’re a newbie investor, this guide on how to start investing in Canada can serve as a valuable resource. Check it out to see how the process works and get practical tips and strategies to boost your chances of success.  

What are the best ways to start investing in real estate for beginners? 

So, how do you start investing in real estate? For newbie investors with limited experience and know-how, these are the top five ways: 

• purchasing an investment property 
• flipping houses 
• investing in REITs 
• participating in a crowdfunding platform 
• joining a mortgage investment corporation (MIC) 

Let’s delve deeper into these real estate investment approaches.  

1. Buying a rental property 

With a large renting population, especially in major cities like Toronto and Vancouver, rental properties can be a sound investment option for budding investors. By purchasing residential or commercial real estate, you can generate passive income through rental payments. The common types of properties you can invest in include: 

• single-family homes 
• condominiums 
• townhouses 
• apartments 
• multi-unit residential properties 
• commercial properties, such as retail spaces and office buildings 

If you’re more of a do-it-yourself (DIY) investor, you can choose to handle every aspect of property management to save costs. But if you prefer a more hands-off approach, you can hire a property manager to do most of the administrative heavy lifting.  

Investing in real property, however, requires a lot of funds. The deposit alone can cost you up to 20% of the property’s purchase price. This can reach up to hundreds of thousands of dollars, depending on the type of property and where it is located.  

If you don’t have enough funds, you may need to apply for a mortgage. You also need to have substantial cash on hand to cover maintenance costs, vacancy periods, or when your tenant is unable to pay rent.  

On the plus side, your property builds equity over time. You can use this equity to buy additional investment properties or save for your retirement. With the right approach, investing in real estate properties can provide you with multiple income streams to offset possible risks. 

You can find the answers to the most common questions about real estate investing in this guide.  

2. Flipping properties 

House flipping has become an attractive real estate investment strategy, thanks to HGTV. At first glance, flipping properties seems like a straightforward way to generate income:  

• you buy an underpriced home in need of a little TLC 
• you make the necessary renovations in the least costly way possible 
• you sell the property for a profit 

This strategy, however, is way harder than you see on TV. First, you need lots of money; more often than not, you will be paying for the property in cash. Then, you will need to cover the renovation expenses, along with the necessary administrative fees. There’s also the pressure of selling the property as soon as possible.  

Another strategy is purchasing a property, holding it for a while without doing any renovations, and selling it when the market is hot.   

House flipping requires a deep understanding of the housing market and significant experience in home renovations. If you have these skills, then using this strategy to start investing in real estate is a good option.    

3. Investing in REITs 

If you don’t have the time or patience to deal with the troubles of owning and maintaining real estate property, then investing in REITs may be a good alternative.  

REITs are a pool of real estate assets that you can find in major stock exchanges. They work a lot like mutual funds, but instead of buying and selling shares of stock, you trade shares of real estate properties. With a REIT, you don’t have to worry about collecting rent, constantly finding tenants, paying for utilities, and making repairs or renovations.  

REITs are also a sound investment option if you want exposure to the real estate market but don’t have sufficient capital to purchase property. You can choose to invest in a range of properties, including:  

• residential buildings and projects 
• office spaces 
• malls 
• healthcare facilities 
• storage units 
• retail spaces 
• lodging  
• resorts  
• industrial spaces 

Investing in REITs also offers a range of benefits that real property often lacks. These include: 

• Diversification: REITs don’t rely on one city or region and instead holds several properties across Canada. 

• Accessibility and liquidity: You can buy REIT shares at a relatively low price and sell them quickly if needed. 

• Inflation hedge: REITs tend to perform well when inflation is high as the value of the properties they hold also tend to rise during such periods. 

• Tax advantages: REIT investments are tax-sheltered as long as the funds remain within a registered account. These include a registered retirement savings plan (RRSP), tax-free savings account (TFSA), and registered retirement income fund (RRIF). 

You can learn more about this method of real estate investment in this guide on how to invest in REITs.   

4. Participating in real estate crowdfunding 

Real estate crowdfunding has been emerging as an investment option for those wanting to diversify their portfolios. This works like typical crowdfunding online campaigns, pooling together money to invest in large residential or commercial projects. In a way, this strategy democratizes access to real estate by allowing investors to pool resources to invest in high-value properties.  

Crowdfunding platforms must follow strict regulations imposed by the Canadian Securities Administrators (CSA). These rules are designed to protect investors and maintain the security and legitimacy of the investment market in the country. 

Some of the popular real estate crowdfunding platforms in Canada include: 

• Addy Invest: This Vancouver-based start-up works with both accredited and non-accredited investors, allowing investments as little as $1. It is also the largest crowdfunding platform in the country.  

• BuyProperly: This online platform specializes in real estate investments. It has operations in Canada and the US.  

Crowdfunding platforms, however, are relatively new in Canada, so if you plan to start investing in real estate via this route, it pays to practise due diligence. Make sure to carefully research a project before investing your hard-earned money.  

5. Joining an MIC 

Investing in MIC, also called mortgage investment fund, shares some similarities with investing in mutual funds. Just like in a mutual fund, MICs pool money from investors. But instead of using the funds to buy stocks or bonds, MICs pool mortgages.  

MICs work by giving out loans to borrowers, usually mortgage brokers. These brokers then loan the money out by issuing mortgages to residential, commercial, and industrial developers. They can also issue residential mortgages to aspiring homeowners.  

Once you invest in an MIC, you become one of its shareholders. The money you invest is issued as shares or units, representing your ownership in the corporation. As borrowers make regular interest payments on their mortgages, these are distributed to investors as interest income or dividends. 

Learn more about the benefits of joining a mortgage investment corporation, and if it suits your investment goals in this guide.  

What factors should you consider when investing in real estate? 

When starting to invest in real estate, there are several factors you need to consider to make sure that you’re getting the best deal. These include:

Location 

For real property, location is among the primary drivers of profitability. If you’re buying a residential property, consider how close it is to amenities, green space, and overall safety of the neighbourhood. For commercial properties, look for accessibility, distance to markets, and favourable tax rules within the area.  

Property valuation 

This will help you determine if the investment property fits your budget. Consider the listing price, insurance cost, and tax implications. Doing an investment analysis can also aid in your decision.  

Investment goals 

Why do you want to start investing in real estate? Is it to generate passive income? Do you want to build wealth? Setting clear goals gives you direction in your investment journey.  

Alternative investments 

As mentioned, not all real estate investments are residential and commercial establishments. Alternative investments, such as REITs, crowdfunding platforms, and MICs, allow you to invest in the real estate market without the headaches of owning a property. These investments also require less funding than when purchasing a property. 

Overall real estate market 

Real estate is prone to market fluctuations, that’s why it’s important to keep abreast of the trends. Some investments perform well when the market is hot, while others can be an effective hedge against inflation. 

Before starting to invest in real estate, it’s important to have a certain level of understanding of how the industry works. This will enable you to make smart investment decisions and maximize the value of your hard-earned money. If you lack real estate know-how but still want to dip your toes in investing, an experienced investment advisor can help.  

If you’re searching for one, our Best in Wealth Special Reports page is the place to go. In our special reports, we feature only companies and professionals who are nominated by their peers and vetted by our panel of experts as respected and reliable market leaders.  

By partnering with these industry experts, you can be sure that every investment advice aligns with your financial goals.  

Did you find this guide on how to start investing in real estate helpful? Let us know in the comments.