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November Contemplation

Why Invest in Real Estate?

We often look at November as preparation time; for the upcoming holidays, as well as [pending Covid-19 case counts] time with family, and planning for a new year with new personal and financial goals. When considering these financial goals for 2022, it’s more important than ever to think of how you can make your money work for you, instead of grinding to make it, and there are lots of interesting ways to play with your dollars to help secure your future.

Real Estate is a great investment in Ontario whether you look into owning a commercial property, short or long term rental, working with a team of investors for a larger development plan, or simply looking to redirect your rental dollars toward growing your personal equity via home ownership.

Ok, I’m sure you’re thinking; “aren’t interest rates crazy? Prices are higher than ever, and Covid-19 is still happening, is there any security in my future?” Though these things may be somewhat true; it’s actually a good time to invest in real estate! Interest rates are higher than they were due a rebound effect from the pandemic lockdown, and a therefore suffering economy which had to leapfrog to catch up. Sure, prices may seem high for property all over Ontario, but if British Columbia Real Estate tells us anything - they can go a lot higher! As for securing your financial future; investing in Real Estate is a very smart play in a time when the economy is rebounding, borders are wide open to immigration, and people are excited to live, work, and travel in Ontario.

This month’s newsletter will dive into a few ways to help you think about Real Estate Investing, and understand your options. You also have the eXp Ossington team at your fingertips anytime you need our advice; we love to help our clients grow!

-EXP Ossington Team


Market Snapshot - October 2021


Avenues for Real Estate Investment

There are a number of ways to invest in Real Estate in Ontario, so we’ve rounded up some of our favourite ways to do just that:

1. Principal Residence

The most standard way most people invest their money - some without even realizing it’s an investment! Equity builds over time, and you’re investing in yourself long-term instead of paying into someone else’s future.

2. Short or Long Term Rental

Perhaps a more risky investment, but the potential to get a much larger return on your investment if you do well. There are a number of legal considerations involved, and it’s recommended you speak to a lawyer if this is what you’re interested in pursuing.

3. Commercial Rental

If an opportunity arises to invest in an up-and-coming neighbourhood, this can be a great long term investment strategy, but don’t expect income on your investment for the first few years, so ensure there’s cash to get you through.

4. Flipping Houses

If you’re a designer, contractor (or both!) and have a large sum of money to invest from the start, this can be an attractive investment opportunity. This can also be one of the riskiest investments if you end up holding property for longer than anticipated, or you have to sell under your initial investment amount.

5. Vacant Land

A less known style of property investment, but has the potential for high profit in farm, industrial, event, or rental income. Depending on the type of use, this can also cause long-term negative effects from pollution, erosion, or deforestation. In addition, it can be more difficult to secure a traditional mortgage for vacant land.

6. REIT Stocks

If you’re interested in a more hands-off investment approach, this could be the property investment for you. This option is not recommended for the faint of heart as you can incur losses and gains at a high level, often. This is generally a long-term investment option so you can see the gains over time.

*See article below outlining REIT's

7. Other Options

There are many ways to hybridize the above options; consider joint ventures, rent to own, or buy-and-hold. In addition, ancillary income can be extremely lucrative; from laundry or vending machines, storage, parking, even rooftop antennas, billboards and much more!


Three Things to Consider When Looking to

Invest in Real Estate

1. Are you ready to be a landlord? Sounds easy, but it is not always so glamorous. It requires a broad array of skills, from understanding basic tenant law to fixing a leaky faucet. Not to mention, dealing with tenants who aren’t always as they seem after your first brief introduction!

2. Investment properties generally require a larger down payment than owner-occupied properties do; they have more stringent approval requirements.

3. Location, location, location!! Look for a location with low property taxes, a decent school district, and plenty of amenities, such as restaurants, coffee shops, shopping, trails, and parks. In addition, a neighbourhood with a low crime rate, easy access to public transportation, and a growing job market may mean a larger pool of potential renters.


Looking to Invest without Buying Property?

Maybe a REIT is Right for You.

A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate. Like a mutual fund, REITs pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investments—without having to buy, manage, or finance any properties themselves.

In general, REITs specialize in a specific real estate sector. Different kinds include:

  • Equity REITs - own and manage income-producing real estate. Revenues are generated primarily through rents (not by reselling properties).

  • Mortgage REITs - end money to real estate owners and operators either directly through mortgages and loans, or indirectly through the acquisition of mortgage-backed securities.

  • Hybrid REITs - use the investment strategies of both equity and mortgage REITs.


To Flip or Not to Flip?

All of those fun real estate shows make it look so easy! But you really do need to know what you are doing. Instead of a buy-and-hold strategy, you complete the transaction as quickly as possible to limit the amount of time your capital is at risk. Speed is key in order to not accumulate more cost (mortgage, utilities, property tax etc.).

Things to remember:

  • Playing in real estate is expensive make sure you have the capital to put into the project.

  • Make the time. Because time is literally money when it comes to a house being on the market, you will need to ensure you can invest enough time into finding the right property and renovating it.

  • You need the skills to either be able to fix it up yourself, which is most ideal, or you will need to find the right professional to fix it up for you.

  • Knowledge. Once you get that property you will need to know what should be done and what you can skip to ensure the project does not become a money pit.

  • Patience. Waiting for the right property is key to minimizing cost and increasing the profit margin.


Laneway Housing As An Investment

Major Canadian cities such as Toronto, Vancouver, Calgary, and Edmonton are facing housing market supply crises and need to start changing regulations for land use planning and finding more unique and creative solutions, including laneway housing. Those that want to investigate the changes in regulations for laneway houses, like property owners, real estate developers and investors have the opportunity to unlock otherwise unavailable residential real estate assets. In Ontario, cities are facing pressure from the Provincial Government about the growing housing crisis. For the cities that are looking for solutions to a growing housing demand and housing crisis laneway housing look like a solution.

Laneway houses or suites can be used as a rental property for additional income or as apartments for in-laws or children. In 2017, Toronto found in a survey that 53% of respondents from the public wanted to build a laneway suite for rental income versus 40% were going to save a future laneway suite for use by extended family members.


Impact of Changing Interest Rates

"Canada’s pandemic housing boom has attracted a larger-than-usual share of speculators, many of whom took advantage of falling variable mortgage rates to take out multiple loans, but the central bank’s surprise warning this week about an early interest rate lift-off could douse a rally fuelled by cheap debt.”

Earlier and faster rate spikes from the Bank of Canada could trigger higher costs for many buyers and investors with multiple properties could respond by selling some into a market with a reducing demand. The housing market has started to cool as fixed rate mortgages rose 0.6% on average this year, according to The Bank of Canada said it could increase its benchmark interest rate from the current 0.25 per cent as soon as April, three months sooner than previously forecast.

“Once interest rates rise and/or falling house prices makes it unprofitable to speculate on housing as an investment, the source of demand from investors can disappear quite rapidly.” Investors were a 1/4 of all August home purchases in Ontario, which is the highest in at least a decade, according to Teranet, underscoring the heightened risk in the current housing cycle.

Variable-rate mortgages overall accounted for 54% of new home loans in August 2021 compared to 26% last year. They will see that an increase in rates is going to cut into the cash flow, which could cause investors to sell off their properties.


Carl's Corner Office

There are actually many ways to calculate investment returns and not all of them are tied directly to mathematics. Don't get me wrong: As part of our services we create bespoke analysis tools to our investor clients that they can use to do whatever math they prefer. Favourite rules of thumb? You want an after tax or pre-tax analysis, or you want to measure a prospective real estate investment opportunity’s internal rate of return against the bond market? We got you covered.

But case-in-point: I received new retrofitted windows over the summer for my ol’ Victorian. When windows are retrofitted into a house that’s over 120 years old, the interior trim is an issue. So the installers only see to the mounting and finishes 'outside' and only basic interior work. The homeowner will likely want to see to the interior trim handling. In my case, I’m doing that work, and some insulating along the way. It’s not costly on money, but to do it well requires time.

So I can spend money or time or a mix of the two. But, there’s another dimension to this that isn’t covered yet. Sanity. And for me, it helps my sanity to do finicky manual work. It just so happens that my job can sometimes be quite stressful and having closed a number of challenging files, I need to regroup, rest, clear my mind, and invest some time in my house and myself. That’s an investment too—owning a house that you can improve over time when there’s nothing better to do than regroup and focus on something different.

This way, when you have investments in real estate for us to handle we will be fresh and sharp to serve your interests. In fact, we invest in ourselves so you can invest with confidence. So much investment!"

-Carl Laudan, REALTOR®, EXP Ossington Office Manager


Work with Us

Who are we? We're a tight-knit, high-producing, professional Real Estate team. Our mission is to help our clients achieve their real estate and future-planning goals by empowering them with team-oriented work, sharing of knowledge, and building on our collective successes. We work hard, we set high goals and standards, and we play hard!


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