Making Money in Real Estate

You’ve asked for more real estate posts, and here it is.  Rachelle makes a living in investment real estate and will share with you some trade secrets.

It is possible to make lots of money in real estate, but it can be difficult to get basic information. American information is abundant but much of it does not apply to Canada.

There are people who have outperformed the market time and time again. In many cases they’re not really sure how they’ve done it themselves.

Here is a list of 6 different strategies that you can apply to make money in real estate. You can apply a strategy to any real estate purchase you make and it will serve you well. Combining approaches will increase your chance of success.

1. Area Appreciation

Area appreciation is when you buy a piece of real estate in an area or neighborhood that outperforms the rest of the city. Implementing this strategy requires inferring which area is going to be the next hot place to buy.

Since I have been in Toronto I have seen many areas rise exponentially in value. I remember driving along Dundas St West a decade ago, almost every storefront was abandoned and the prices reflected that. During that time trying to sell a building would have been very difficult. A drive along that strip 10 years later and there is no vacancy, tons of franchises and established local businesses and the entire area has probably doubled in value.

Another example of that same phenomenon happening is Oshawa. A short commute from Toronto, you can buy a 3 bedroom bungalow from $100,000 and 3 bedroom townhouse for even less. In my opinion this is one area that will see very high appreciation. Buying in areas adjacent to a major city is an excellent strategy that provides higher returns.

2. Buying Opportunities

This scheme involves taking advantage of unfortunate circumstances happening to the seller of a property. Real estate is not very liquid. A desperate seller may have to reduce their price.

Homeowners may just want to dispose of a house. Why? Financial problems, divorce, out of town transfer, estate sales and illness can all present motivations to sell as quickly as possible. What used to be a treasured asset becomes a burden.

Patience is the key if you are looking for this type of deal. Spread the word far and wide that you are a buyer. You must be ready to buy and close quickly. A significant discount is available for these savvy buyers.

3. Adding Value

This method of real estate investing involves buying a property that is run down and fixing it up. This is easiest for the person who is handy or in the trades but if an opportunity presents itself, you can hire a contractor. Dirt, disgusting smells, bad paint choices are all easy fixes and money in your pocket. You pay dearly for polish, cleanliness and staging.

For intermediate projects you can install new kitchens, baths, flooring and more.

Then there are advanced level projects like houses with structural, mold, electrical, heat or water issues. At times you can find a property that is in the midst of a major renovation that has been interrupted.

Making money by adding value is not for the faint of heart. Anyone who has ever done renovations will tell you that once the walls are opened up there are likely to be expensive surprises. For the right person this can be a gold mine.

4. Time

This way of making money in real estate is so simple anyone can do it. Buy a house and wait. Real estate can be a hedge against inflation.

Buy a house and stay there for 50 years. As inflation affects the price of your house and your house stays at the same intrinsic value. The buying power of a dollar goes down continually so in the future you will get many more dollars than it cost you to buy the house. The elderly lady down the street paid $30,000 for her house in 1952 and now it’s worth $300,000, much of that increase is just due to time eroding the value of a dollar.

You benefit from the compounding effect of inflation on the dollar value of the house.

5. Cash buying

This method involves having a lot of liquid cash on hand. The pool of buyers able and willing to buy a property outright is small. Cash is king and you can get great deals just because there is no competition for the property.

Unfortunately the reason banks won’t lend is because of significant problems. You will have to address these problems to profit.

Some of the reasons the banks will not lend are vacancy, no well, no electricity, no septic and no insurance.

There is a condominium in Toronto that has been unable to insure the building. You can buy a unit there at an amazing price. In the future when they become insurable again your unit would triple in value.

An important point about this strategy is that when the obstacle to financing is removed the property can be appraised and you can get your capital out. An exit plan is vital otherwise all your money will be stuck in a substandard, illiquid investment.

This route is risky but success brings unbelievable profits.

6. Other Opportunities

This usually applies to more advanced buyers but you can find houses with large lots that can be divided, small houses that are double brick (put another floor on it), buildings can be converted to condominiums, and farmland to sever into lots. The permutations are almost endless and can net you a nest egg in the bargain.

Real estate can be a road to riches for the buyer with insight and vision. I urge you to think out of the box and search for opportunities that less informed buyers have overlooked.

In my experience it is difficult or impossible to convince others that you’re not insane when you see promise in a much abused unloved project so be prepared to go it alone psychologically. After all if everyone wanted these properties they wouldn’t be a good deal.

About the Author: Rachelle specializes in renting property on behalf of landlords. She also works with investors to find good investments in Toronto and surrounding areas. Her passion is bringing multi res properties back from the brink and maximizing profitability.

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Geoff
9 years ago

I don’t know, how much pot did you intend to grow there?

Kumar
9 years ago

What you all suggest to invest a money buying house in Oshawa near Harmony and Taunton Road???

cynthia
10 years ago

Can a seller get out of a contract due to severe illness and hospitalization. If so is there some blueprint in the Contract that an
agent could have used to get a seller out of the contract.

FT
10 years ago
Reply to  cynthia

Cynthia, if you have an issue with the contract, you should contact a lawyer.

Jules
10 years ago

Thanks Rachelle,

It also irritates me to see these money hungry so called Real Estate monsters here selling poor unsuspecting innocent hard working people these packages already knowing the techniques don’t work here. This is the reason I moved to the US in the first place. I tried to move US properties from here upon my return and lost credibility once found they found out I’m working from Canada.

Your absolutely correct when you say that Canadian home owners are a lot less open to handing over their properties regardless of the situation their facing. They will be quicker to have the bank take it back before handing it over to an investor.

Either way, I’ll find a way around it if it’s the last thing I do.

Thanks for the quick response and this post.

Rachelle
10 years ago

Well Jules,

I have bad news for you, American techniques don’t really work here at all. I get kind of irritated when I see our southern brother holding seminars here trying to hawk their cds and such when most of their techniques don’t work at all.

You cannot really buy a property without money or credit.

I have heard of people controlling an interest in a property but it’s not common at all. I imagine that sellers would have a lot of resistance to this.

If you live in the property for one year as your principal residence you don’t have to pay capital gains. In any case this is the link to all the capital gains questions.

http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-e.html#P317_34283

Yes there are discounted house but they are hard to find.

I’m not sure what you mean by builder sell off property. Not sure it exists here either.

Motivated sellers and pre power of sale properties are also hard to come across because our laws are so different. By law power of sales go to the retail market. Our banks have the obligation to sell for as much as possible. I do see people putting corrugated plastic signs up with their number but I’m not sure how effective this is.

If you have any more questions come over the Canadian Money Forum and post in Real Estate. The tab for that can be found at the top of this page. I’d sure like to hear about it if you find out anything different. I check in there every day.

Jules
10 years ago

Hello Rachelle,

I left Canada back in 2003 and moved to Atlanta Georgia. I made my money in Wholesale Real Estate…Assigning discounted contract properties to Investors. I moved back here in 2006 and find myself lost and not being able to come up with the capital or able to implement the same techniques I used to be successful in Real Estate. The market is so different here and the prices are way over rated here in Ontario. The ugliest houses are going for retail which always amazes me when they sell.

My questions to you are as follows:
-Do American techniques work here in Canada?
-Can you purchase a property without money or credit?
-Can you control property here in Ontario for a Rent 2 Own without purchasing the property?
-How much capital gains taxes do you have to pay on a flip?
-Are there any ways to avoid Capital gains taxes eg. owner occupying the property for a number of months (renovate) then sell?
-Are there really any discounted properties here in Ontario 65-80% LTV
-Where are the Hard Money Lenders?
-How can you get builder sell off properties?
-Where can you find Motivated Sellers/Pre-Power of Sale Properties with equity?

I can go on…and on, but I won’t until I see if you can at the very least give me more insight to my many questions pertaining to the Canadian market.

cannon_fodder
10 years ago

Rachelle,

I’ve never invested in real estate (not even a REIT) but I found your article very interesting and well written. I hope to see you here again soon.

Luke
11 years ago

Anyone on here have any idea on good area to invest in Scarborough.

Ive been doing research and thought about investing where the transportation improvements were being made but it seems there has been a halt to that whole program.

Any thoughts would be appreciated

Rachelle
11 years ago

@Real Estate Diva,

In the price range you mention there are basically two locations in Toronto where you can get a house.

East of Broadview, west of Victoria Park, South of Danforth, North of the Beaches is one area.

The other area clusters around the Oakwood/Eglinton area. if you go in this direction go for south-east border.

It’s easy enough to get an idea of what is available using Realtor.ca maps function. Plug in Toronto and your requirements and expand the search using the expand button. If your looking for a house in Toronto you have to add house as your desired type of housing otherwise the search returns condos and it may return more than 500 and it won’t show up at all.

Keep in mind that Realtor.ca can be a really crappy website. Most if not all the good stuff never even makes it on there before it’s sold. I find it really upsetting that it’s not even kept up to date. I have a few decent agents I work with periodically. One of them currently sends me every multires that enters the market in the GTA so I can keep on top of things.

Diane
11 years ago

Thanks for a great post. I’m looking forward to more insights through one of my favourite sites, MDJ.

The guest blogger description includes, “Rachelle makes a living in investment real estate…”, which prompts my request that I hope is not inappropriate. Rachelle, can you get in touch with me about your services?

Thanks in advance for reading.