Thinking of investing in real estate? Buying a property to earn income is a great way to diversify your portfolio and start building your wealth. You just have to know where to start! Here’s an overview of the options available to you as a prospective investor.
Real estate market analysis
What is the current state of the real estate market in Quebec?
After a tough year for the market in 2023, mainly due to the meteoric rise in interest rates, all eyes are now on the Bank of Canada, as experts anticipate a drop in its policy rate.
However, after a period of steady declines in activity since the beginning of the pandemic, the resale market is expected to stabilize in 2024, reports the Quebec Professional Association of Real Estate Brokers (QPAREB).
Canada Mortgage and Housing Corporation (CMHC) forecasts that 45% of all outstanding mortgages in Canada will be up for renewal in 2024 and 2025. Many homeowners who took out loans at rock-bottom rates a few years ago will be in for an unpleasant surprise, as interest rates have since skyrocketed. Some borrowers may be forced to sell their homes, which would increase the supply of housing on the real estate market.
Below are the median property prices in the first quarter of 2024, compared to the same quarter in 2023 (data compiled by the QPAREB):
- Single-family homes: $439,000 (+10%)
- Condominiums: $365,000 (+5%)
- Plexes with two to five units: $520,000 (+15%)
Rent prices have also surged due to the country’s exceptionally low rental vacancy rate, which can be attributed to both a drop in housing starts and population growth driven by high immigration rates.
Below are average rent prices for a two-bedroom apartment in May 2024, according to Rentals.ca, compared to the same period last year:
- Gatineau: $2,214 (+15.3%)
- Montreal: $2,337 (+7.7%)
- Laval: $2,043 (+0%)
- Quebec City: $1,679 (+10%)
Whether you’re looking to buy your own home or invest in a rental property, some areas are more promising than others.
Trois-Rivières
Located halfway between Quebec City and Montreal, Trois-Rivières is known for its strong economy and booming industrial sector, as well as its rich cultural heritage. It’s also a popular destination for outdoor enthusiasts.
Median property prices in April 2024, compared to the same quarter in 2023 (data compiled by the QPAREB):
- Single-family homes: $337,650 (+21%)
- Condominiums: $245,000 (+4%)
- Plexes with two to five units: $280,000 (+12%)
Quebec City
Popular with those who want to be close to nature while enjoying an urban lifestyle without the hustle and bustle of Montreal, the Quebec City metropolitan area offers a vast array of historic sites and cultural activities to discover.
Median real estate prices in April 2024, compared to the same quarter in 2023:
- Single-family homes: $365,000 (+8%)
- Condominiums: $259,900 (+11%)
- Plexes with two to five units: $391,900 (+1%)
Sherbrooke
Known for the quality of its educational institutions, Sherbrooke attracts both future professionals and innovative companies. The easy access to nature and abundance of cultural activities also make it a popular destination for outdoor enthusiasts.
Median property prices in April 2024, compared to the same quarter in 2023:
- Single-family homes: $401,000 (+15%)
- Condominiums: $307,500 (+11%)
- Plexes with two to five units: $440,000 (+13%)
Note that prices may vary depending on a number of factors, including the property’s location and size.
What factors influence the real estate market?
Inflation is a major factor the Bank of Canada considers when setting its policy rate, which institutional lenders use to set their own mortgage rates.
Population growth, driven by high immigration rates, is also having a major impact on housing availability, which is in turn putting pressure on property sale prices and rent prices.
Fortunately, a rise in housing starts should increase the housing supply and help stabilize prices.
The basics of real estate investment
Investing in real estate is an excellent way to build your wealth. Here are the different options available to you.
What are the different types of real estate investment?
Buying a property to live in
Of course, you won’t earn any income from your primary residence, but it will increase in value over time, which could be an asset for future real estate investments.
Investing in rental properties
Buying rental properties could be an ideal investment if you’re looking for long-term gains. While this will enable you to earn a regular income and profit, you’ll first need to spend a considerable amount of money to purchase the property, and you’ll also need to have enough of a financial cushion to deal with unexpected expenses. That’s not to mention the time and energy required to manage tenants and maintain the building. For plexes with fewer than four units, a 20% down payment is standard, which could be a deal-breaker for some investors. Managing your finances wisely from the outset is critical to making this type of investment worth your while.
Investing in a commercial building
Though many people believe only experienced investors can invest in commercial real estate, commercial properties offer a number of advantages, particularly in terms of management: stability of tenants, shorter opening hours, flexibility of commercial leases, etc. However, you may need to make a larger down payment than you would for a residential property.
Flipping a property
House flipping, which has been popularized by renovation TV shows, can be a great way to earn short-term profits. Flipping involves purchasing a property at a low price, renovating it, and selling it for a much higher price. Sounds great, right? Of course, there are certain risks to this strategy. For instance, you may run into unexpected issues while working on the home or earn less than you expected from the sale, due to the rising cost of construction materials and supply shortages. You should also be aware of the anti-flipping tax, which came into effect on January 1, 2023. Under the new rules, profits from the sale of a property held for less than 12 months are taxed as business income, rather than capital gains. That means you would have to pay taxes on 100% of your profits rather than on 50%.
Buying land
Last but not least, you could buy land to build your dream home on. Not only will this give you time to save up for your home, but you will also have the option of selling your land if another opportunity comes along. If you do decide to build on your land, you may qualify for a new housing tax rebate. Before investing in a plot of land, make sure that you can build on it and check the deed of sale for any restrictions that could throw a wrench into your plans.
Benefits and risks
Investing in real estate is a great way to grow your wealth and, in the case of rental property, potentially generate stable returns for years to come, protecting you from inflation. As an investor, you may enjoy enhanced financial security as a result.
Real estate investment is also a great way to diversify your portfolio while providing an additional source of income.
Another major advantage for investors is the fact that many rental property expenses are tax-deductible, such as mortgage interest, renovation costs, property taxes, and maintenance costs.
Of course, that also means you have to cover these expenses, along with various obligations and rental fees.
As with any other type of investment, there are risks: rising interest rates that could increase your mortgage payment, unreliable tenants, unexpected home repairs, etc.
How to prepare
Defining your investment strategy
Before taking the plunge, it’s essential to take stock of your financial situation and define your investment horizon. Investing in rental properties, for example, requires a long-term strategy, whereas house flipping requires a short-term strategy.
As well as putting in place a solid investment strategy, you need to assess how much time and money you can invest in your property. Managing four units is more demanding than dealing with a single tenant, and unexpected issues are commonplace.
Securing financing for your investment
As with any real estate purchase, you’ll need to put together a down payment and take out a mortgage. Fortunately, there are a number of government programs, subsidies, and tax credits that you may be able to take advantage of.
If you already own a home, you may be able to refinance it to fund your purchase.
Whatever your plans, you can count on a Multi-Prêts mortgage broker to offer valuable advice.
FAQ
Is this a good time to invest in real estate?
Key takeaways
- The resale market began stabilizing in early 2024.
- Depending on whether you’re looking for a new home or a rental property, some areas are better than others.
- Investing in real estate is an excellent way to build your wealth and diversify your investment portfolio.
- Buying a rental property could be an ideal real estate investment if you’re looking for long-term gains.
- Before taking the plunge, it’s essential to take stock of your financial situation and define your investment horizon.