Before we begin, I have to come clean. I’m not a real estate investment guru. I’ve invested in real estate for my own personal use, but not strictly for investment purposes. You may be wondering “How can that be? Don’t you believe in real estate as an investment?”

Yes, I believe real estate to be a good investment under the right circumstances, but you have to keep two key factors in mind. First, there are many different ways to invest your money (stocks, bonds, money markets, real estate, etc.). And second, there are many different investment styles and objectives (risky v. conservative, long term v. short term, etc.). Real estate isn’t always the best investment choice. It depends on the amount of risk you’re willing to assume and on your objectives.

Personally, I’m a fairly conservative investor. I focus on the long term and believe in diversification. My investments are partly in stocks and partly in real estate (the homes I’ve lived in).

I’ve always looked at real estate as a place to live. Professionally, I spend most of my time helping my clients buy and sell the places they call home. Do I feel like I’ve missed an opportunity because I haven’t used my expertise to invest more heavily in real estate? Sometimes. Especially when real estate prices are rising and stock prices are declining. But on the whole, I decided on a long term investment strategy a while back and try not to beat myself up too much about missed opportunities as long as I’m able to achieve my long term objectives. The jury’s still out on that.

In general, real estate in central Toronto has been a pretty good investment over the past twenty years because prices have been rising. If you watch real estate tv shows, you might think real estate is always a sure thing investment, but that’s not the case. Real estate isn’t always a good investment or the right investment.

It’s easy to get caught up in the hoopla of earning a fortune in real estate (and with nothing down, if you believe that’s possible in central Toronto). Since I get approached on a regular basis for my counsel regarding potential investments, I thought we’d take a look at a few of the ideas people ask me about and examine their merits.

• Our son will be going to university in Waterloo and will need a place to live for three years. We don’t want to waste money on rent so should we buy a place in Waterloo?

I’d say no to this one. A short term hold carries too many risks. Will the rent you save plus the rent you receive from potential roommates be sufficient to cover property taxes, utilities, maintenance and repairs? Are you planning on selling the place after he graduates? What if prices don’t increase enough to cover your selling expenses (commission, legal, etc.)? What happens if the market softens and prices go down? Or if it softens so much you can’t sell the place at all? Are you prepared to hold onto it and be a Toronto landlord with a Waterloo property? Note: my answer would be the same if the property was in Toronto and the parents lived in Toronto. Short term holds carry too much risk for me, but maybe not for you.

• Our daughter will be going to U of T and will need a place downtown for three years. We’re thinking of buying a condo for her to live in and holding onto it after she graduates to either rent out or use ourselves.

This makes sense to me. Real estate has proven itself to be a good long term investment. But before you buy, look at the revenues and expenses carefully to make sure the purchase makes sense from an investment point of view and be prepared to be a landlord.

• I’d like to buy fixer uppers in central Toronto, give them a quick facelift and resell them quickly for a profit. (These are referred to as quick reno flips.)

In most circumstances, there isn’t a lot of money to be made doing this because land value is such a large component of total value. If a fixer upper on a 25 x 150 foot lot in North Toronto sells for $1,250,000 and a renovated version of the same home sells for $1,350,000, there isn’t a lot of room to make money after you pay for the renovations, carrying costs, your time and the selling costs. (To gain a deeper understanding of values in central Toronto, you’ll want to read Where’s the Value?) Before you contemplate doing a quick reno flip, make sure to factor in the risk that your planned renovation might go over budget or way over budget. (Check out So You Want to Renovate? before you think about doing any kind of renovation.) On the other hand, some builders and renovators are able to add significant value to a home and can charge a premium for their work and make good money.

• I’m thinking of buying detached or semi-detached homes in good neighbourhoods and either building new homes right now or renting them out with a view to redeveloping or selling them at some point in the future.

Great idea! If there’s a short term opportunity for you to make a profit, you can take advantage of it or you can hold on for the long term. As a limited commodity, land is highly likely to appreciate in value over the long term.

• We live in a condo downtown, but now that we have a daughter we’re feeling pretty cramped for space and would like to buy a home in central Toronto. Do you think we should hold onto our condo as an investment and rent it out? Or should we sell it and use the funds to buy our new home?

There’s no clearcut answer here. It can go either way depending on the circumstances and we have clients who’ve gone both ways. Some of the things to think about: Do you have enough money to buy the home you want without selling your condo? Would you prefer to sell your condo and buy a more expensive home you’ll love even more because it’s larger, more renovated, in a better location, etc.? If you hold onto your condo, will the rent cover all your expenses? Do you prefer to be more highly leveraged and own two properties instead of having less debt and owing one more expensive property (which is on land)? Are you okay with being a landlord or are you really busy and prefer to spend your time with your family?

The options for investing in real estate are endless, but not all options will make sense for your particular situation. The trick is knowing what makes sense and having someone who can guide you to make the right decision.

If you know anyone who’s interested in learning how the market works and who’d like to receive the kind of help that involves honest answers, straightforward advice, no pressure and being treated like family, please let me know the best way for me to connect with them because I’d like to offer them this kind of help. And as always, don’t be shy if you have any questions or comments about this post! Thanks for reading.