Real estate as an investment offers predictability in ways that traditional investments cannot.
“You can certainly use real estate as a compliment to stocks, bonds, mutual funds, ETFs, and because real estate is a good source of passive income, there’s predictability that you don’t typically get with traditional stocks,” said Cliff Fraser, chief business development officer of Burlington, Ontario-based Equiton Inc. “Real estate during the pandemic has been extremely resilient. People thought the sky was falling and that there would be rent anarchy, but prices are going up, people are paying their rent and all the good things that were happening prior to the pandemic are still happening.”
Additionally, real estate investors aren’t required to pour all of their money into investment properties, which could mean securing an insured mortgage or leveraging debt to buy additional properties. Fraser noted that investment horizons are particularly positive for multifamily apartments and industrial properties.
“Depending on the asset class, you can be a lender if you want to get into direct loans or private mortgages, or you can get into commercial real estate or apartments, and you can put up some equity while borrowing the rest,” said Fraser. “There are some tax advantages to this, too.
“Traditionally, apartments have been extremely resilient as an investment and COVID bore that out. We didn’t see the kind of pandemonium that the press predicted. Apartment values have gone up, rent is still going up, and there are no vacancy issues if you have a well-run building in a really good city or town. Commercial real estate will resurge at least in the medium term as we open from lockdown. There is a lot of pent up demand in that sector.”
Traditional investments not only have potential for volatility, they sometimes contain built-in redundancies that, during slides in the market, can result in twice the losses. Many Canadians have a propensity to purchase multiple ETFs without realizing that the same stock is bundled into more than one, and those inefficiencies can be costly. However, investing in real estate is a surefire way to avert such investment inefficacies.
Of course, there’s supply and demand disequilibrium in the rental market that’s slated to grow. Last year, Canada announced that it would welcome 1.2 million immigrants over the next three years, which, in combination with permit workers, international students and hefty domestic demand, will yield promising returns on investments.
“Becoming an active landlord is a great idea for many people who don’t get a lot of satisfaction out of traditional investing,” said Fraser, although he advised caution in choosing condominiums over traditional multifamily dwellings like triplexes and fourplexes. “Be cognizant of the fact that if you have one or two condo rental properties, your tenant can leave and hurt your cash flow. The other thing to be cognizant of is creeping maintenance costs as the building ages because they become punitive. You might have low condo fees in the beginning but by year five they can ramp up.”