Real Estate Investing in Canada

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Real estate investing can be as easy as buying a single share of a real estate investment trust (REIT) to as involved as investing hundreds of thousands of dollars to purchase rental property. Real estate has historically been a good hedge against inflation, with property values and rent increasing in line with inflation. Recently, the surge in Canada’s housing market has caused for investors and non-investors alike to clamour about real estate. This page will take a look at different ways that you can invest in real estate in Canada.

What You Should Know

  • You can start investing in real estate with as little as $1 through REITs and stocks
  • You can invest in REITs, purchase a home, rent out properties, flip houses, and buy pre-construction condos
  • Real estate investing offers a certain level of leverage since you are borrowing money and putting it to work
  • Investment properties usually require a higher down payment and have a higher mortgage rate when compared to a mortgage for a primary residence
  • Foreigners can invest and buy Canadian real estate, but there are significant hurdles

How to Invest in Real Estate

There are different ways that you can participate in Canada’s real estate market. Each type of real estate investment will have different requirements in terms of the cost of the investment or capital required, along with the time and effort that it will need. If you're a homeowner, you're already investing in real estate by owning a home. Your investment gains will be through any increases in the value of your home, which you will receive when you sell your home at a higher price. You can then go further by renting out a room or even renting out the whole home as a rental property, which will allow you to receive rental income.

If you don’t already own a home, then you can purchase a principal residence, purchase an investment property for rentals, or invest in other real estate investments, such as REITs and mutual funds. These real estate investments can also be mixed to further diversify your portfolio. For example, you can be a homeowner with a second home that you rent out, while still having a retirement savings plan that is invested in real estate mutual funds.

Here are some common ways to invest in real estate:

  • Owning a Principal Residence
  • Purchasing Investment Properties
  • Renting out Properties
  • REITs, ETFs, Mutual Funds, and Stocks
  • Flipping Homes
  • Pre-Construction Condos

Types of Real Estate Investments

Owning a Principal Residence

The majority of Canadians are homeowners, with Canada having a 67.8% homeownership rate in 2016. Owning a home, instead of renting, means that you are investing in real estate. Most Canadians purchasing a home will need to get a mortgage. This allows you to borrow money to purchase your home, with you owning and being able to benefit from any price appreciation.

For example, purchasing a home that costs less than $500,000 with an insured mortgage will allow you to make a down payment of as little as 5% of the home price. For a $500,000 home, your down payment can be as low as $25,000. If the value of your home increases 5%, then your home is now worth $525,000. On a $25,000 investment (your down payment), you have doubled your investment with a $25,000 profit, excluding real estate commissions and closing costs.

The main disadvantage of using your principal residence as an investment is the costs associated with getting in or out of your investment. Buying a home involves thousands of dollars in closing costs, such as land transfer tax, and selling a home has closing costs too. The largest cost would be real estate commissions, which are usually around 5% of the home’s sold price depending on your province and agent.

Buying and selling a home takes time. You also can’t just sell your home on a whim without having somewhere else to live. Along with the hassle of needing to move, your home is better suited as a long-term investment, rather than a short-term investment. It’s best to treat your home as a home, rather than as an investment.

Should I buy a home as an investment?

The answer to this comes down to your lifestyle and your local housing market. Buying a home is usually better than renting if you plan on staying in your home for more than a few years. Otherwise, the cost of real estate commissions will eat away at the value of your home. Renting a home would make more sense if you only plan on staying there for a short while, and if your monthly rent would be lower than what a monthly mortgage payment would be. You can then use the savings by renting instead of paying a larger mortgage to invest. However, homeowners are building their equity with each mortgage payment, while rental payments do not build equity for renters. To see which option would be better, use our rent vs. buy calculator.

An advantage of principal residences is that any capital gains from the sale of your principal residence are tax-exempt. You won’t need to pay any capital gains tax if you sell your primary home for more than you bought it for. This is one of the few ways that you can invest in real estate without having to pay any tax. The other options are with an RRSP or TFSA, which will be discussed later on this page.

Plenty of Canadians also rely on their home for retirement. Housing is the largest asset for most Canadians, and with a third of Canadians not having any retirement savings at all, owning a home can be a way for homeowners to force themselves to save for retirement.

Purchasing Investment Properties

You can purchase multiple properties in Canada in order to invest. If you won’t be living in a unit inside one of your investment properties, you will usually need to make a down payment of at least 20% in order to get an investment property mortgage. In some cases, you can even choose to use the equity in your principal residence to finance the purchase of an investment property.

For example, you can refinance your mortgage or take out a home equity line of credit (HELOC) for up to 80% of the value of your home. If your home value is $500,000 and you have a $100,000 mortgage remaining, then you can borrow up to an additional $300,000 to use as a down payment for an investment property mortgage. If an investment property costs $500,000, you can borrow $100,000 from your principal residence equity as a down payment. Now, you own two homes, with $200,000 remaining to invest in further investment properties.

Using the equity in your home to invest can be a way to quickly grow your assets, and you may even use the equity in your investment properties to further purchase additional properties. However, this type of leverage can be extremely risky and relies on housing prices increasing over time. Mortgage rates will also have a large impact on your returns and cash flow.

Renting out Properties

Once you own an investment property, you can then rent it out to generate rental income. This may even include short-term rentals, such as Airbnb. There are two ways to look at rental property income. One approach is aiming for rental income to completely cover the monthly costs of the property, such as the mortgage and costs of owning the home. Investors using this approach will want to have a positive monthly cash flow. For example, a rental property might have a $2,000 monthly mortgage payment. The owner will then aim to rent the property for more than $2,000 a month.

The second approach is to ignore the cash flows of an investment property, and instead look towards the value of the home. The intention is that the majority of the gains will be from increases in the value of the home, while rental income is a supplemental bonus. For example, an investor might project that the value of their $500,000 home will increase by 5% every year. That would equal to a $25,000 gain in the first year, or just over $2,000 a month. If the mortgage costs $2,000 a month, the unrealized gain in the value of the home covers the mortgage payments. The amount of the rental income would then be supplemental income.

However, the investor will need to cover for any shortfalls out-of-pocket if their regular rental income doesn’t cover their mortgage payments. For example, if their rental income is $1,500 a month and their mortgage payment is $2,000 a month, the investor will need to make up for the $500 a month shortfall every month. There’s no guarantee that prices will increase either, which means that they would be renting at a loss.

Being a landlord also involves a certain level of work. You will need to find tenants, deal with tenants, while also managing the property. You can use a property management company or hire a property manager, but that will cost money and eat into your income.

Can I rent out a room in my house?

You can rent out a room in your house if you are a homeowner. For example, you might have a spare room that you want to rent out. You will need to check to see if your local bylaws and building codes allow for certain units to be rented out, such as a basement or in-law suite. You may also need to check your mortgage agreement to see if there are any restrictions against renting out a portion of your home.

REITs, ETFs, Mutual Funds, and Stocks

If you don’t want to be involved in personally owning a home, then you can invest in real estate investment trusts (REITs), real estate company stocks, exchange-traded funds (ETFs), and mutual funds. This allows you to invest in real estate for as little as one dollar, with no upkeep of a physical property required.

Real Estate Investment Trust (REIT)

A real estate investment trust (REIT) is a real estate company that buys and manages properties using money from investors, with the REIT then distributing income back to investors. This could include residential properties, offices, shopping malls, industrial buildings, and healthcare buildings.

Many REITs in Canada are publicly traded on the Toronto Stock Exchange, which means that you can buy them just like you would buy a stock. REITs on the Toronto Stock Exchange are income trusts, which means that shares are called units, with the REIT required to distribute most of their income to unitholders. That's why most REITs traded on the TSX have a ticker symbol that includes .UN or -UN as you're buying a unit of the REIT. Since income goes directly to unitholders, REITs do not pay any corporate income tax themselves. Not all REITs are publicly traded. There are private real estate investment trusts that are only open to accredited investors or eligible investors.

The table is a list of 34 Canadian REITs traded on the Toronto Stock Exchange and one REIT on the TSX Venture Exchange. This list of REITs also shows their share price, market capitalization, dividend yield, and 5-year return as of August 23, 2021.

List of REITs in Canada

REIT
Symbol (TSX)
Type
Canadian Apartment Properties REIT (CAPREIT)CAR.UNResidential Apartments
RioCan REITREI.UNRetail
Granite Real EstateGRT.UNIndustrial
Allied Properties REITAP.UNOffice
Choice Properties REITCHP.UNCommercial / Residential
H&R REITHR.UNCommercial
SmartCentres REITSRU.UNRetail
First Capital RealtyFCR.UNCommercial
Summit Industrial Income REITSMU.UNIndustrial
NorthWest Health REITNWH.UNHealthcare
Chartwell Retirement ResidencesCSH.UNHealthcare
InterRent REITIIP.UNResidential
Killam Apartment REITKMP.UNResidential
WPT Industrial REITWIR.UNIndustrial
Boardwalk REITBEI.UNResidential
Cominar REITCUF.UNCommercial (excluding Residential)
Canadian Tire (CT) REITCRT.UNRetail
Crombie REITCRR.UNRetail
Artis REITAX.UNCommercial (excluding Residential)
Dream Office REITD.UNOffice
Minto Apartment REITMI.UNResidential Apartments
Morguard North American Residential REITMRG.UNResidential
True North CommercialTNT.UNCommercial
Slate Grocery REITSGR.UNRetail
Automotive Properties REITAPR.UNCommercial
European Residential REITERE.UNResidential
Nexus REITNXR.UNIndustrial
Morguard REITMRT.UNCommercial
Slate Office REITSOT.UNOffice
PRO REITPRV.UNCommercial
Dream Industrial REITDIR.UNIndustrial
American Hotel Income Properties REITHOT.UNHotels
Inovalis REITINO.UNOffice
BTB REITBTB.UNCommercial (excluding Residential)
Melcor REITMR.UNCommercial
Lanesborough REITLRT-UN.VResidential Apartments
Data as of August 23, 2021

Which REIT Should I Choose?

It’s always a good idea to diversify your portfolio, so it would be best to invest in more than one REIT. If you do have to choose just one REIT, you might want to consider characteristics such as their size, portfolio, dividends/distributions, and stock price appreciation. For example, there are 20 Canadian REITs that have a market capitalization of over $1 billion. Of these 20 REITs, 12 of them had a positive return over the past 5 years based on their stock price appreciation.

Something that REIT investors will also want to consider would be the dividends that the REIT pays, which is called their distributions. The distribution yield of a REIT can more than makeup for a stock price that has decreased. For example, SmartCentres (SRU.UN) saw its share price fall 18% over the past 5 years. However, they also had a large dividend yield, at 6.15%. When accounting for distributions from dividends, the total return over the past 5 years would be 4.83%. If these dividends were reinvested into more SmartCentres REIT shares, then the total return over the same 5-year period would be 10.17%.

For some REITs, the majority of an investor’s return might be through the REIT’s dividend distributions, rather than from stock price growth. Inovalis REIT (INO.UN) saw virtually no change in its stock price if you were to purchase exactly five years ago and to sell today. On August 19, 2016, the stock price of INO.UN was $9.58. Five years later on August 20, 2021, the stock price was $9.56. While there were large fluctuations in Inovalis' stock price between these two points, an investor that bought and held INO.UN shares would have had no gains based on price alone. Instead, Inovalis pays out a large dividend yield of 8.58% per year. When accounting for these dividend distributions, an investor would have a total return of 46.58% just on dividends alone. If these dividends were reinvested, the total return would have been 59.74% after five years, even though the stock price did not change.

Finally, the portfolio of a REIT is an important aspect that investors should look at carefully. REITs usually focus on a specific property type, such as retail or residential. Investing only in retail REITs can expose you to risks, such as the retail sector performing especially poorly, as was seen in 2020. Types of REITs include:

  • Residential REITs

    A portfolio for a Residential REIT might include high-rise, mid-rise, and low-rise apartment buildings, multi-unit rental properties, and single-family rental homes. Canadian Apartment Properties REIT (CAR.UN) is Canada’s largest REIT and owns more than 57,743 units in Canada, with an average monthly rent per unit of $1,282 in 2020.

  • Commercial REITs

    Commercial REITs are also known as Diversified REITs. Commercial REITs will include properties such as office buildings, industrial buildings, warehouses, hotels, multifamily residential, and retail. These are properties all have tenants that generate income and will usually have longer lease contracts compared to residential properties. H&R REIT (HR.UN) is one of the largest REITs in Canada and invests in commercial properties. 38% of H&R's portfolio is offices, 31% retail, 8% industrial, and 23% residential rentals.

  • Retail REITs

    Retail falls under commercial property, but some REITs focus exclusively on retail. Types of retail property that a retail REIT might own include shopping malls, strip malls, retail plazas, big box stores, and single-tenant properties. RioCan (REI.UN) is the second-largest REIT in Canada and has a significant retail portfolio. Some of RioCan’s retail tenants include Loblaws, Canadian Tire, Walmart, Shoppers Drug Mart, Tim Horton’s, TD, and BMO. Some REITs may even focus on specific tenants. For example, Slate Grocery REIT (SGR.UN) focuses on grocery-anchored real estate, while CT REIT (CRT.UN) leases mainly to Canadian Tire.

  • Office REITs

    Office REITs own office buildings that they then lease out to tenants. Allied Properties REIT (AP.UN) owns 200 office buildings in Canada. Dream Office REIT (D.UN) has a large collection of office space but also owns a few notable properties, such as the Distillery District and the Canary District in Toronto, and the upcoming Zibi development in Ottawa/Gatineau.

  • Industrial REITs

    Industrial REITs, such as Granite Real Estate (GRT.UN), have been among the best-performing REITs in Canada over the past 5 years. Industrial properties that an industrial REIT might own include factories, manufacturing, warehouses, logistics, and storage buildings. Granite REIT's portfolio includes 71% distribution and e-commerce, 17% special purpose buildings, 11% warehouses, and 1% flex/offices.

  • Healthcare REITs

    There are only two Healthcare REITs in Canada: NorthWest Health and Chartwell Retirement Residences. NorthWest Healthcare owns medical office buildings, medical clinics, health centres, and other spaces for health services. Chartwell owns retirement homes and long-term care homes.

How can I invest in REITs?

Investing in a publicly traded REIT is as simple as buying any publicly traded stock. Canada’s major banks all have online investing and trading platforms that allow you to buy and sell REITs, although they may charge a flat fee per trade. For example, RBC Direct Investing charges a $9.95 commission per trade, which means that buying would cost $9.95 and selling would cost $9.95. This means that it might not make much sense to use these platforms to invest in REITs if you’re only planning on investing a small amount. If you only have $50 to invest, and you choose to buy 1 share of Boardwalk REIT for $47, then you will also be paying a total commission of $19.90 for buying and selling for a round-trip trade.

There are discount online brokerages that offer low or zero commissions on trades. Wealthsimple Trade allows you to buy and sell Canadian stocks with no commission, which means that you can buy a $5 REIT, such as Slate Office REIT, with zero commissions. National Bank Direct Brokerage also offers $0 commissions on all trades. This can be a great way to regularly invest in REITs with a small investment, such as making a small purchase once a month.

REIT ETFs

Exchange-traded funds (ETFs) are just like mutual funds, where they have a portfolio of different stocks under a certain theme. For example, the SPDR S&P 500 Trust ETF is an ETF that follows the S&P 500 index. The main difference between ETFs and mutual funds is that ETFs are publicly traded on a stock exchange. This means that you can buy ETFs as easily as buying a stock.

REIT ETFs are ETFs that are composed of REITs. The main benefit of REITs is that you can diversify your investments without having to make multiple trades yourself. ETFs are also managed and can rebalance investment holdings. Instead of investing in a single REIT, a purchase of a REIT ETF allows you to be invested in multiple REITs at once. This diversifies your real estate investment portfolio, spreading out risk should one REIT fail.

There are plenty of REIT ETFs that are traded on the Toronto Stock Exchange. Some Canadian REIT ETFs include:

  • Invesco S&P/TSX REIT Income Index ETF (TSX: REIT)The Invesco REIT Income Index is an ETF that follows the S&P/TSX Capped REIT Income Index. This index tracks 19 Canadian REITs that pay dividends and rebalances twice a year in January and July. The index's holdings are based on the REIT's risk-adjusted dividend yield. The higher the REIT's dividend yield, the more weight is placed on that REIT.

    Over the past three years, Invesco REIT ETF had a return of 24%. The ETF’s dividend yield is 3.847%.

  • BMO Equal Weight REITs Index ETF (TSX: ZRE)

    BMO’s REIT ETF follows the Solactive Equal Weight Canada REIT Index. This index puts equal weight on 22 REITs. For example, WPT Industrial REIT (WIR.U) makes up 5.80% of the index, Boardwalk REIT (BEI.U) makes up 4.76% of the index, and Choice Properties (CHP.U) makes up 4.42% of the index.

    Over the past five years, BMO’s REIT ETF had a return of 36.5%, with a dividend yield of 3.716% annually. BMO charges a maximum annual management fee of 0.55%, for a management expense ratio (MER) of 0.61%

  • Vanguard FTSE Canadian Capped REIT Index ETF (TSX: VRE)

    Vanguard’s ETF follows the FTSE Canada All Cap Real Estate Capped 25% Index, which is mainly composed of REITs, with 25% being stocks of real estate companies. For example, FirstService Corporation makes up 13%, and Colliers International Group makes up 7.5%. This allows the index to follow small-cap, mid-cap, and large-cap real estate stocks and REITs.

    Over the past five years, VRE had a return of 45%, with a dividend yield of 2.89%. Vanguard charges an MER of 0.38%.

  • iShares S&P/TSX Capped REIT Index ETF (TSX: XRE)

    iShare’s ETF follows the iShares S&P/TSX Capped REIT Index ETF, which limits any individual REIT to a maximum of 25% of the ETF’s portfolio. The largest holding is Canadian Apartment Properties REIT, which makes up 15%, followed by RioCan at 10%.

    Over the past five years, XRE had a return of 23%, with a dividend yield of 2.775%. Including dividend distributions, the total 5-year return was 46%. iShares charges an MER of 0.61%.

  • CI Canadian REIT ETF (TSX: RIT)

    CI Global Asset Management's ETF is an actively managed ETF that invests in REITs, REOCs (real estate operating corporations), and real estate companies. For example, the ETF also invests 5% in shares of Tricon Residential, a rental housing company.

    Over the past five years, RIT had a return of 30%, with a dividend yield of 4.02%. CI charges an MER of 0.86%.

  • Harvest Global REIT Leaders Income ETF (TSX: HGR)

    For exposure outside of Canada, Harvest Global REIT ETF is made up of REITs and REOCs from around the world. The largest geographic allocation is the United States, with 65.6% weighting, followed by Australia at 10.6%, the United Kingdom at 5.5%, and Singapore at 5.4%. HGR invests in a variety of REITs, including hotel and resort REITs, mortgage REITs, and specialized REITs, such as telecommunications infrastructure.

    The ETF aims to also generate income by using a covered call strategy. The ETF will write covered call options to generate income, which helps to boost the ETF's dividend yield.

    Over the past five years, HGR had a return of just 0.3%, with a dividend yield of 5.61%. When accounting for dividend distributions, HGR’s total 5-year return was 22%. HGR charges an MER of 1.36%.

How can I invest in REIT ETFs?

Buying an ETF is just like buying a stock. Questrade, a discount brokerage, allows you to buy ETFs with zero commission. This allows you to regularly invest in REIT ETFs without having to worry about paying a flat commission on each trade. Questrade only charges a commission for ETFs when you sell them. Questrade’s Dividend Reinvestment Plan (DRIP) also allows you to automatically reinvest your dividends with no commissions. This can be useful for REITs that pay dividends, which will allow your investment to grow faster.

REIT Mutual Funds

There are a few mutual funds in Canada that are made up of only REITs or real estate companies. Some mutual funds require a minimum initial investment, which can range from $100 to $500. Mutual funds usually have a lower minimum investment requirement for subsequent investments. A significant disadvantage of mutual funds is their higher annual management fees. ETFs offer lower fees and are easier to enter and exit. Some examples of Canadian REIT mutual funds include:

  • CIBC Canadian Real Estate Fund

    CIBC’s Real Estate Mutual Fund invests primarily in Canadian REITs but also invests in some real estate companies, such as Sienna Senior Living and FirstService Corp. Over five years from 2016 to 2020, this mutual fund’s net asset value (NAV) per unit increased by 5%. CIBC's Class A mutual fund charges an annual management fee of 2%, while CIBC's low-fee Class F mutual fund charges an annual management fee of 1%.

  • Fidelity Global Real Estate Fund

    Fidelity's real estate mutual fund invests in REITs and real estate companies from around the world. The largest holding is Prologis at 8.12%, followed by Digital Realty Trust at 4.66% and Duke Realty at 3.72%.

    Over the past five years, the mutual fund had a return of 30.4%, with an MER of 2.02% to 2.31%. Along with trading expense fees, the annual fees for the mutual fund ranges from 2.12% to 2.41%.

  • Canada Life Global Real Estate Fund

    Canada Life's real estate mutual fund holds REITs from around the world, with roughly 25% in real estate companies. Canada Life charges an annual management fee ranging from 0.80% to 2.00% depending on your mutual fund series, with an administration fee ranging from 0.15% to 0.28% annually.

Flipping Homes

Flipping properties is a more risky way to invest in real estate. House flippers will buy a home with the intention of selling it quickly for a higher price. This could be from them making renovations to the home that increases its value.

Flipping homes is risky because there’s no guarantee that you’ll be able to sell the home for a higher price than you bought it at. You will need to have skills to fix up a home, or you will need to hire professionals such as plumbers and electricians which will add to the cost of repairing the home.

The 70% rule suggests that you shouldn’t pay more than 70% of what you think you will be able to sell the house for, after accounting for the cost of repairs. For example, a home might require about $100,000, but you think that it will be able to sell for $500,000 once it is renovated. To see how much is the maximum that you should purchase it for:

  1. Calculate 70% of the home’s selling price after repairs

    In this case, 70% of $500,000 is $350,000

  2. Subtract the cost of repairs

    $350,000 minus $100,000 in repairs will result in $250,000

To make a reasonable profit while still leaving room for error, you shouldn’t purchase this home for more than $250,000 if you think it will sell for $500,000 after making $100,000 in repairs.

Pre-Construction Condos

A pre-construction condo can be used as an investment for investors that want to purchase property, but want to purchase a new unit in the future. Pre-construction condos allow you to benefit from any price appreciation before even moving into the home. That’s because your purchase price is locked in when you buy the pre-construction condo. You can sell your pre-construction condo before occupancy through an assignment sale, however, your builder might charge a fee.

Pre-construction condos often have extended deposit schedules, which means that the down payment is spread out over a period of time. This makes it easier for you to save up for the down payment, as you won’t be required to make it all at once. This is in contrast to investing in a resale home, which will require a down payment and mortgage immediately. Pre-construction condos usually only require a mortgage pre-approval at the time of purchase, with mortgage payments only beginning once you get a mortgage closer to occupancy. You can benefit from price growth while making more spread-out down payments, which you can then rent out your preconstruction condo once it is finished.

How Much Money Do I Need to Invest in Real Estate?

Each real estate investment type will have a different minimum investment requirement. The investment required will also depend on where you plan to invest. Purchasing a home in Toronto or Vancouver can be much more expensive than a home in Calgary.

Here is a rough guideline of how much money you will need to invest in each real estate investment:

  • REITs: $1 or more

    You can invest in REITs and REIT ETFs for as little as $1. Some trading platforms, such as Interactive Brokers, allow for fractional shares for U.S. stocks to be purchased, with the minimum being $1. For Canadian REITs and real estate companies, Wealthsimple allows you to purchase as little as a single share with no commissions, and Questrade also allows you to purchase ETFs with no commissions.

  • REIT Mutual Funds: $100 or more

    Mutual funds require a minimum initial investment and a minimum investment amount for any subsequent investments. This minimum can be as low as $100, but some mutual funds can require $500 or more.

  • Purchasing Investment Properties: $100,000 or more

    Buying investment properties to rent out is a hands-on approach for investors that have more capital to invest. This can require you to make a down payment of 20% or more. If you’re purchasing a home to flip, you’ll also need to be able to cover or finance the cost of repairs and renovations.

Leverage in Real Estate Investing

Real estate investing often involves borrowing money to invest, which amplifies both your gains and your losses. You might not always want to take the maximum amount of leverage offered to you either. If you lose money on an investment that was made with borrowed money, you’ll still need to be able to find a way to pay that money back.

Most Canadians are leveraged through their mortgage. You only need to make a fraction of the home’s price as a down payment, but you’re able to benefit from any price appreciation for the whole home. If you’re looking to invest in shares of a real estate company or in REITs, trading brokerages allow you to leverage your investment through margin accounts.

Here are some common levels of leverage for real estate investments:

  • Principal Residence: Up to 20x

    If you make a down payment of 5% on an insured mortgage for a home that costs less than $500,000, you effectively are levered at 20x your initial investment (your down payment). A 5% increase in the value of the home will translate to a 100% increase when compared to your down payment. On the other hand, a 5% decrease is the same as losing your 5% down payment.

  • Investment Properties: Up to 5x

    Investment properties that aren’t owner-occupied may require a down payment of 20% or more. This is the same as having up to 5x leverage.

  • REITs and Stocks: Up to 3.33x

    If you having a margin account, you can purchase REITs and stocks on margin. This allows you to borrow money to purchase REITs and stocks with a minimum margin requirement. For example, most Canadian brokerages allow you to purchase eligible Canadian stocks with a margin requirement of 30% of the stock's value. You will need to pay interest on the amount borrowed. For example, RBC's margin interest rate is 4%, while Interactive Broker’s margin interest rate is 1.677%.

Mortgage for an Investment Property vs. Primary Residence

It’s much easier to get approved for a primary residence mortgage compared to an investment property mortgage. A mortgage for an investment property will have a higher down payment requirement than your principal residence, and the guidelines are also stricter. This includes the credit score requirement, your debt ratios, and your income.

For first-time homebuyers, and for those that currently don’t have a principal residence, it might be a tough decision to choose between buying a rental property first or buying a primary residence first. Generally, buying a primary residence first would be a better decision. Capital gains from your primary residence are tax-free, while you will need to pay tax on any capital gains from an investment property. Having a home can also let you start building equity which you can then borrow later for future investments, rather than spending it on rent. You can also always rent out your primary residence in the future.

A primary residence mortgage will also generally have a lower mortgage rate. This lets you save money on mortgage interest, which you can then use to build your home equity faster.

Can foreigners invest in Canadian real estate?

Yes, foreigners can invest in Canadian real estate, including purchasing homes in Canada. However, there are some hurdles for foreigners looking to buy real estate in Canada. Ontario and British Columbia both have a foreign buyers tax for foreign citizens purchasing a home in certain regions. Ontario charges a 15% non-resident speculation tax on homes in the Greater Golden Horseshoe, including Toronto. British Columbia charges a 20% additional property transfer tax on homes purchased in certain regions, such as Vancouver and Victoria.

In addition to significant foreign buyer taxes that foreigners will need to pay in certain housing markets, it can also be more difficult for foreigners to get a mortgage. This is especially true for foreigners without any Canadian credit history, employment history, or income. To make up for this, some banks and lenders offer specialized mortgage programs for newcomers to Canada. However, these programs are often limited to new Canadian citizens or permanent residents that are purchasing a home to live in.

Non-resident mortgages often require a large down payment, sometimes 35% or more, and will have higher mortgage rates. Foreigners may have to resort to getting a mortgage from a private mortgage lender or financing the whole purchase themselves in cash. Foreigners can invest in Canadian real estate, but it is particularly hard and expensive to do so.

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