Have you been wondering how to start investing in real estate? Before taking the plunge, like any good strategy, be sure to weigh the pros and cons. Especially since we hear so much back and forth about real estate investing these days.‍

“The market will crash, so hold onto your money.”
“Remember the 2008 recession?” 

Or even…

“Buy Ethereum instead!”

Now, we’re not hating on crypto — but real estate has and continues to be a trusted long game for financial freedom and wealth generation. But how do you enter the market when the average Toronto detached home price sits over $1.6 million? 

Here’s the thing: even the seasoned house flipper or multi-property landlord started as a first-time home buyer. 

But getting into real estate isn’t easy. Bidding wars, down payments, and picking the right location can get real gritty. You’ll need perseverance and capital, loads of capital — unless you get into real estate investing with Lotly (more on that later). 

Today, we’ll cover how to start investing in real estate, including Lotly’s stress-free approach. 

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1. Buy REITs

REIT stands for Real Estate Investment Trust. They’re like the mutual funds of the real estate world. Hundreds of people can invest in a company that invests in real estate, sharing the profits as dividends to every investor. 

If you’re just looking to dip your toes into real estate investing, a REIT is a great place to start. You have less skin in the game because it’s easy to invest with smaller amounts and sell whenever you need to. 

A REIT, however, doesn't offer nearly as much ROI in the short-term (1-5 years) as your own purchased property would. Plus, interest costs and trade fees might hinder your profits. Funny enough, Lotly’s real estate investing works similar to a REIT since it’s also hands-off, but you have way more return potential through Lotly vs a REIT.  

Pros:

• No property management
• Liquid i.e. can sell easily, at any time
• Diversifies your investment portfolio
• Easy to grasp if you have experience with stocks and securities

Cons:

• Limited returns compared to actual properties
• Not suitable for quick gains

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2. Invest in trade education (flipping)

Flipping is when you buy a fixer-upper home at a reasonable price and make home improvements to sell at a profit later. Ideally, the time from purchase to sale will also result in appreciation — on top of your home improvements’ added value.

But flipping can be tricky, especially if you rely on external contractors. A  Toronto kitchen renovation can set you back up to $50,000. Emphasis on ‘at least’ considering the rising costs of building materials, wages, and inflation. But Remax tells us it’s the most worthwhile renovation, with a potential ROI of 87%. 

Of course, plenty of real estate investors take a hands-off approach to flipping and still see profit. Most house flipping experts aim for a 10% appreciation after all is said and done. It’s a numbers game with careful calculations. 

But imagine how much cheaper the flipping game could be if you could do some of it yourself? And we’re not just talking about general contracting. Plumbing, electric, and HVAC knowledge can save you thousands in home improvement costs. 

Pros: 

• Potential for big returns, especially in Toronto/GTA
• No property management or dealing with tenants

Cons: 

• Requires a lot of capital
• Might lose money if appreciation doesn’t surpass renovation costs
• Trade education requires a lot of time and effort (and oftentimes money)

PRO TIP: Use Lotly’s GTA Real Estate Market Insight Tool to find areas that might be primed for flipping projects!

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3. Rent out a room or floor in your home

Did you and your beau splurge on a one-plus-den downtown? Consider adding a room divider and sublet your den at a discount. The extra few hundred dollars per month could help you save for a down payment and kickstart your real estate investing career.

Short-term rentals garner even more income potential. In 2021, the average Airbnb host made $13,800 — that’s nearly $70,000 in five years. 

So, what do you gain from renting out your space? On top of the money, you’ll learn about property management and tenant management. But remember, the Residential Tenancies Act (RTA) doesn’t cover most roommate situations. 

If you’re lucky enough to already own a detached home, you can create a separate apartment and rent it out. The RTA does cover separate units, so you’ll be forced to brush up on your responsibilities as a landlord. 

We know sharing your space might not sound appealing at first, but the extra income brings immense possibilities. More income qualifies you for bigger mortgages, and extra savings might bring you closer to a down payment for an investment property.

Pros:

• Minimal investment required for Airbnb rooms
• Regular income

Cons:

• Tenant management
• Sharing your space

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4. Leverage your home to buy another property

Nowadays, mortgages offer great tools for leveraging your property to buy another property or improve your existing one.

Refinancing:

Say you bought your condo a couple of years ago, and it appreciated by $100k. The bank can refinance your mortgage and give you close to that appreciation value in cash — they factor in the extra amount into your existing mortgage, with an interest rate much lower than your average personal or business loan. 

HELOC: 

Some mortgages offer a home equity line of credit (HELOC). For every dollar you put toward your mortgage, a dollar frees up on the HELOC. Functioning similarly to a regular line of credit, a HELOC gives you the capital potential to further your real estate goals. 

Pros:

• No upfront investment
• Favorable interest loan

Cons:

• Debt can accumulate quickly

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5. Get into real estate investing with Lotly

These are all great ways to jump into real estate, but they have two caveats.

• The options with the MOST return potential require a LOT of capital. 
• The options that don’t require much capital have LIMITED return potential. 

What if you wanted to invest $100k easily, without the fees and slow pace of a REIT? Imagine turning that $100k into $325k without mortgages, tenants, or flipping. 

The possibilities are endless when you invest in shared equity with Lotly. We’ll connect your investment with real people that have one goal in mind: to own a property. You help them with a down payment, and they reward you with appreciation on your investment. It’s the biggest win-win we’ve ever seen in real estate. 

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*Lotly GTA Fund I is closed as of December 2023. We will update you when the next fund opens.