How Canadians can invest in real estate without buying a home
Soaring real estate prices in many parts of the country have locked countless Canadians out of the housing market and the wealth gains that come with ownership.
Through passive fractional ownership, investors can cash in on returns without having to qualify for a big mortgage or come up with a huge downpayment, although it doesn't provide a roof over their heads. Investors can also skip the headaches that come with managing a property, yet get a share of rent and gains on the property when it's sold.
Canadian real estate has had a huge run spanning many years but there have been corrections along the way and prices don't always go up, so investing comes with risks.
Also See: The latest real estate news for housing prices, mortgage rates, markets, luxury properties and more at Yahoo Finance Canada.
With that said, investors can buy a piece of a property for as little as a dollar through a platform called addy. The maximum investment is $1,500. Investors pay a $25 fee and can pick and choose which institutional-grade commercial real estate properties they want to invest in.
Michael Stephenson, CEO and co-founder of addy, says he got into the business after talking to frustrated millennials who were either locked out of the market or financially overextended.
"At addy, our goal is to remove barriers to entry and enable Canadians to invest in real estate for an amount that fits their budget so that they can share in the joy of ownership with others," Stephenson told Yahoo Finance Canada.
"We believe everyone should have the opportunity to own property through access to real estate investing at any amount, regardless of income, age, or other conflicts."
Currently, addy is available to residents of B.C., Alberta, and Ontario but Stephenson says demand will dictate an expansion.
Larger real estate investments
Investors looking to make larger bets on Canadian real estate can do so through BuyProperly, which has a minimum investment of $2,500. There's no maximum but an investor can't own more than 49.9 per cent of a property.
The fee is 2.5 per cent of the initial investment value on an annual basis.
Khushboo Jha, founder and CEO of BuyProperly, says she struggled to invest in real estate despite being a big saver.
"Not only is it economically difficult, the process also is complex and intimidating, and it shouldn't be," Jha told Yahoo Finance Canada.
"This made me search for solutions, but I could not find options that allowed me to enter real estate the way you can invest in stocks, being able to enter small amounts of savings."
BuyProperly looks for all property types, including residential, commercial, warehouses and hospitality in various stages of completion.
It's available for investors in B.C., Alberta, Ontario, and Quebec, but BuyProperly says it is working to service all of Canada.
Investing in U.S. real estate
U.S. home prices have gone up over the years too, but not nearly as much as in Canada. Ava Benesocky was a realtor in Vancouver and saw first-hand how difficult it is to be cash-flow positive in such a high-priced market. So she started a company specializing in passive fractional investing in U.S. properties.
"The thing that blew my mind and made me fall in love, and it's not possible here in Canada, is from the rents you collect you're able to pay your mortgage payments, your taxes and fees, a third-party property manager and still have enough surplus left over to pay your investors' preferred return," said Benesocky, CEO and co-founder of CPI Capital.
"It's cash flow from day one and it's very difficult to get good cash flow and appreciation with the median home prices being a million to 1.3 million in the best cities here in Canada to buy real estate. You're really just banking on appreciation.
CPI Capital has two multi-family properties; one is in Orlando, Florida and the other is in Charleston, South Carolina. Each are currently sold out to investors, but CPI Capital has a waiting list for upcoming property purchases.
The minimum investment is $25,000 and the fee structure is a 70/30 split in favour of the LP.
Benesocky says investment is open only to accredited investors but hopes to open it up to everyone else in the future.
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.
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