There are a few ways you can go about investing in real estate in Calgary. Two particular routes have been piquing investors’ interest now more than ever. Purchasing an undervalued property to flip and sell is hot right now. The profit you get from the sale can be significant when done well. Alternatively, buying a property and utilizing it as a rental is another great way to invest. This route will see you earning cash flow and building equity. Either is an investment because the money you put into it will, hopefully, come back around to you, plus some. Both options require you to have some financial cushion, although in different ways. Let’s explore the unique real estate investment strategies that renting or flipping in Calgary can offer.
Rental Homes
If you have the patience to interview, assist, and manage tenants, owning a rental property is a great investment opportunity. Typically at the beginning, you charge enough rent that it will cover your expenses. Meaning things like taxes, maintenance, utilities, etc. Because the Calgary market is constantly changing, your rental property will be susceptible to ups and downs as well. Owning a rental means you have to be aware of the trends in the market and changes in the economy. You want to charge tenants the right amount, ensuring that you’ll still see a profit from your property. The goal is always to have cash flow coming from your rental, but we’ll get to that later.
Another thing to keep in mind is that you will take on the mortgage and expense costs in-between tenants. Sometimes, it can take a while to find the right tenant to take over. You’ll spend time interviewing applicants, making reference calls, and ensuring they’re the right fit to live in your home. It’s ideal to find a long-term renter you trust with the property, but that isn’t always the case. Either way, the costs that incur between a tenant transition will fall on you. If you can afford to take that on, this may be the correct route for you.
Another bonus for having a rental property is the expenses related to the rental can be deducted from the rental income to decrease your tax liability. For example, the cost of replacing appliances or routine maintenance can be subtracted from your total rental income from the year so that you pay less tax on the income. A common myth is that your mortgage payments are deductible as well. However, it is only the interest you spend on the tax-deductible mortgage. It’s always great to check with an accountant to make sure you take advantage of tax deductions and credits.
Eventually, your mortgage is paid off thanks to renters. Afterwards, most of what you make from tenants is simply profit for you. Owning rental properties is favourable for real estate investors because the return potential is substantial. By building wealth while generating income, your investment property becomes equitable on its own. Talk about a win-win.
Fix-and-Flip
House flipping has become a lucrative way to invest and make a profit. Thanks to some crowd-favourite HGTV shows and DIY influencers, the appeal of flipping properties in Calgary has grown rapidly. But the capital it takes to renovate and repair can be a deterrent for some. Flipping a house takes a lot of time, money, and energy, even if you’re not the one doing it. That’s why passive investors tend to invest in real estate in other, less hands-on ways. But, if you are savvy in the real estate market, renovations, and design, this is a great way to go. And a fun one at that! The cost to makeover an undervalued property will vary depending on what renovations you’re planning to do. Having the financial leverage to maintain the upgrades you’ve started is critical.
One way for your investment to turn sour is to not finish what you started, in this case, renovations. The upgrades and fix-ups also need to be good enough to make the profit you set out to make. And preferably better than other comparable homes in the neighbourhood.
Some investors who are passionate about fixing and flipping homes are on the property daily. Being part of the physical renovations as much as possible is part of the joy. In contrast, other flippers might prefer to participate in the design side, hiring outside contractors to do the labour-intensive work. The whole idea with flipping is to not hold onto the property for too long. Meaning the faster you can renovate, the quicker you earn a profit with the sale. The goal is to sell the once-undervalued home for a favourable profit within about six months to a year. Of course, it depends on how long renovations take, but this is generally the rule. The good news is that there are lots of Calgary properties with plenty of potential just begging to be flipped!
The Gist
There’s a reason why real estate is popular amongst investors. There is a long-term appreciation of the housing market. One of the benefits of investing in real estate is generating cash flow. Your cash flow increases after mortgage payments and expenses are made. As you pay down a mortgage, you build your equity. When done right, it’s a great way to earn a profit, whichever way you choose to invest. Suppose you’re in the Calgary real estate market and leaning toward flipping a home or investing in a rental property. In that case, you can rest assured that when done correctly and with patience, you may see a valuable profit.
