How to Become a Successful Real Estate Investor
Follow our step-by-step guide and learn from the pros about the habits of successful investors.
By Emily Southey | 10 minute read
Interested in becoming a successful real estate investor but aren’t sure where to start? We can help. From buying your first investment property and growing your portfolio to adopting the habits of successful real estate investors, we’ve got you covered. Keep reading for a step-by-step guide to becoming a real estate investor in Canada.
Real Estate Investing 101: Steps to Becoming a Real Estate Investor
If this is your first foray into the world of real estate investing, then be sure to carefully follow the steps below. With time, patience, and hard work, you will become a real estate investor in no time.
Step 1: Do your research
The first step to becoming a successful real estate investor is to educate yourself about the world of real estate. Like any industry, the real estate industry has unique jargon and terminology that it is important to understand before diving in. Once you understand the basic concepts and vocabulary, you will need to learn how to analyze the market. Understanding local market conditions will be crucial to ensuring you make a smart real estate investment. To learn about the world of real estate, we recommend reading books and articles, joining online real estate communities, and even attending local seminars or courses on real estate investing. The more you know, the better your chances of success.
Step 2: Set clear, realistic goals
Step 2 is to carefully consider your real estate investing goals. As you likely learned in step 1, there are many different types of real estate investors and various paths they can take. Some have short-term goals and are interested in commercial properties while others have long-term goals and are interested in residential properties. As you think about and determine your unique goals, we suggest breaking them down into one, five, and 10-year increments. It’s important to remember that real estate investing is a great way to generate cash flow in the short term, but it may also appreciate in value the longer you hold on to it. To help you determine your investing goals, ask yourself the following questions:
- Why do I want to become a real estate investor?
- Do I want to be an active or passive real estate investor?
- Do I want real estate investing to be my full-time profession?
- What are my investing goals for the next one, five, and 10 years?
- Do I have the patience and capital to adopt a “buy-and-hold” strategy with my real estate investments?
- Am I more interested in monthly cash flow or long-term appreciation?
“To be a successful real estate investor, you must keep up to date on local market conditions. Real estate markets are constantly changing. Keeping track of current trends, especially ones relating to mortgage rates, unemployment, and consumer spending habits, is of the utmost importance.”
Step 3: Choose a location and property type
Once you have determined that you want to be a real estate investor and what type you want to be, it’s time to choose a location and property type to invest in. This is one of the most exciting steps to becoming a real estate investor and requires careful consideration. As you probably know, location matters. And we’re not just talking about the city, we’re talking about the specific neighbourhood or even street of your future investment property. Ultimately, ample research is required to determine which location makes the most sense for your investment goals. You will first need to choose if you want to invest in a property in your local area or want to expand your radius to properties in other towns or cities. When considering areas to invest in, research nearby schools, cultural attractions, cost of living, unemployment rates, and facilities like parks, libraries, and community centres.
Step 4: Start networking
Networking is a key to success in most industries, and that includes real estate. In fact, you will likely find that many real estate investors attribute their success to the connections they have made along the way. So start networking early. Developing relationships with other investors, as well as local realtors, real estate brokers, and even attorneys can go a long way. People in these professions have extensive knowledge of the local real estate market, as well as knowledge about investing, the process of buying and selling property, and the taxes that come with investment properties.
Step 5: Learn how to scrutinize potential investment properties
You will want to carefully consider each investment property you come across. In fact, you may even scrutinize them more than a property you’re buying for yourself. Therefore, learning how to assess potential properties is vital. We recommend considering the following factors when considering whether to purchase a property for investment purposes:
- Income potential: Of course, one of the most important factors in real estate investing is the potential for income. When assessing a property, consider what the current rental revenue is and whether there are any obvious ways to increase it. You should also research average rents for the area to determine whether the current rent is below or above average.
- Location: As you know, location is everything. For this reason, it’s important to analyze the location of every potential investment property. Never assume that properties in the same neighbourhood or city will have the same rent. Properties one street over can have radically different average rents or appreciation trends.
- Property expenses: The expenses associated with a property are another factor to consider as they can eat into your profits. Ask yourself questions like, “What are the ongoing expenses for the property?” “How much are basic utilities like heat and electricity?” and “How much will insurance cost?”
- Necessary repairs: Take note of any significant repairs that need to be made. Depending on the severity of the repairs, they could be expensive. For example, if there are issues with the roof, foundation, or HVAC systems, you could be out thousands or tens of thousands of dollars. To assess whether a property is worth investing in, you must be aware of all necessary repairs.
- Management fees: Any time you want to purchase an investment property, you must think about how you plan to manage the property. For example, will you be managing it yourself or outsourcing it to another company? If it’s the latter, reach out to a few local property management companies to find out how much they charge for their services so you can factor this into your budget.
Step 6: Make it official and purchase a property
After settling on a property and location that makes sense for you, there’s nothing left but to make it official. This means submitting an offer and signing on the dotted line. Working with a realtor and an attorney can help ease you into this process, especially if this is your first time purchasing an investment property.
Seven Habits of a Successful Real Estate Investor
Adopt the habits below and get ready to become a successful real estate investor!
1. Come up with a plan
Real estate investing is complex and time-consuming, which means staying organized is crucial. One of the best ways to stay organized is to develop a plan. This plan should outline your short- and long-term investment goals and how you plan to achieve them. In addition, it should include a detailed breakdown of your budget, the estimated expenses and cash flow from all rentals, the number of units you own, any planned or past upgrades made to those units, local market research, and any other information that could impact the value of your investments over time.
2. Keep up to date on market conditions
To be a successful real estate investor, you must keep up to date on local market conditions. Real estate markets are constantly changing. Keeping track of current trends, especially ones relating to mortgage rates, unemployment, and consumer spending habits, is of the utmost importance. Doing so can help you plan for the future and make informed decisions about your current investments.
3. Choose a specific focus
Successful real estate investors do not specialize in all types of real estate. Rather, they tend to focus on specific niches within real estate investing. To enjoy success in this field, we recommend honing in on a particular area or market. Once you have experience and knowledge of a certain market, only then should you consider moving onto a new area. Examples of real estate niches include low-income, multi-unit properties, rural farm or fishing properties, or high-end residential properties.
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4. Educate yourself on local laws
Just as real estate markets are constantly changing, so too are local laws on real estate. Understanding the laws and regulations surrounding real estate investing, such as tax laws, real estate laws, and lending laws, is crucial to ensuring you are in compliance with them. Contact an attorney if you are confused about any of the legal aspects of real estate investing.
5. Consider the risks
All investments come with risk, whether you’re purchasing stock of a rental property. Successful real estate investors are aware of these risks and carefully weigh the pros and cons before jumping in. Understanding these risks is your best bet at avoiding them. At the very least, it will make you more prepared should something go wrong.
6. Hire an accountant
Any time you buy or sell an investment property, you will need to pay taxes. Paying taxes in Canada can be complicated, especially if this is your first investment property. Make it easier on yourself and ensure you comply with provincial and federal laws by hiring an accountant. A reputable accountant can manage your books and even file your taxes on your behalf, all while ensuring you never pay more taxes than necessary.
7. Ask for help
Entering the world of real estate investing can be challenging and overwhelming. Don’t be afraid to ask for help. Whether it be from a mentor, supportive friend, local realtor, or attorney, asking for help when you need it is always better than going it alone. Being stubborn will get you nowhere and can even lead to major mistakes that are hard to come back from. When you’re investing in assets as valuable as real estate, the stakes are too high not to ask for help. Prepare for there to be a learning curve and embrace it by leaning on others for support.
Frequently Asked Questions
Do investors need a real estate license?
No, you do not need a real estate license to be a real estate investor in Canada. Investors do not require any specific credentials, licenses, or degrees.
Do real estate investors pay taxes?
Yes, as a real estate investor in Canada, you are required to pay several kinds of taxes, including property tax, income tax, and capital gains tax. That said, there are ways to minimize how much tax you pay. For example, if you sell an investment property, the sale will be subject to capital gains, but you can offset these gains by applying capital losses, defer them by holding them in tax-advantaged savings accounts, or minimize them by tracking all expenses associated with the property.
Can I be a real estate agent and investor at the same time?
Yes, a person can be both a realtor and an investor at the same time. That said, do not assume that being a realtor makes you qualified to be an investor and vice versa. For example, while realtors often have invaluable knowledge of the local housing market, they may not possess investing knowledge.
What is a silent investor in real estate?
A silent investor in real estate is an individual who provides the capital needed to invest in a property but is not responsible for the daily management of the property. Silent investors may also be known as silent partners, and while they use their money to fund the purchase of the investment property, they do not play a role beyond this.
What career should I study to be a real estate investor?
Since you do not need a real estate license to be a real estate investor, there is no specific degree you must possess. That said, studying certain fields might make you more knowledgeable about real estate investing, which can have serious advantages. Earning a university degree in finance, computer science, mathematics, economics, statistics, or business administration can help you if you wish to become a real estate investor.
On the other hand, real estate crowdfunding is not without risk. The most obvious risk is that you could lose some or all of your money if the property does not perform well. The reason for this could be the market taking a turn and the property depreciating in value, or high vacancy rates making it difficult to find tenants. There is also a risk that the property you invest in could get foreclosed by the banks due to an unpaid mortgage. In this case, it would likely be sold at or below market value, which could translate to major losses for investors. Further, real estate crowdfunding platforms are not regulated by the government, which makes them a bit less safe or secure than other kinds of investments. In addition, since crowdfunding is a newer trend, many platforms haven’t been around that long and do not have proven track records. Finally, as with any real estate investment, these investments are not liquid and may take some time until you earn a profit.
What is the best real estate investment in Canada?
Generally speaking, the best type of real estate investment for beginners is condominiums. Condo units are low maintenance and if purchased in an up-and-coming or major urban area, can have a major return on investment.
Is it difficult to become a real estate investor?
There are no credentials, licenses, or degrees required to become a real estate investor. Therefore, becoming one is relatively easy — simply invest in real estate! That said, being a successful real estate investor is another story. Building a lucrative property portfolio is difficult. Therefore, beginners should not expect to make a killing overnight. But with time, patience, and hard work, you will likely see success and could even make real estate investing your full-time job.