Canadians are notoriously overweight. Financially overweight in real estate that is. When it comes to buying houses we are even more gluttonous than our American pals. The Canadian median household net worth may be one of the highest in the world, but strip away the equities in our homes and many of us would feel financially emasculated.
Foreign ownership, low interest rates, and a growing population in major cities all contribute to our strong real estate market, which many say is in a bubble. But whether properties in Canada are overvalued by 10% or 30% it really doesn’t matter for investors who keep the following points in mind.
- Diversification – Invest in more than one type of asset class
- Time – If we have a long term outlook then our risk of losing money is greatly reduced, especially if we combine this knowledge with diversification.
If we’re properly diversified and hold our investment long enough then we’re bound to make money in stocks, real estate, bonds, or any other market. Over 70% of Canadians are real estate investors. Fortunately most of these investors understand the benefits of a long term investment and forced savings. But it’s the first factor, diversification, that many seem to struggle with.
Having one’s net worth tied up in multiple condo units is not the best way to allocate assets. There are other types of properties out there like office space, restaurants, parking lots, etc. that are all available for anyone to purchase and rent out. With the recent lowering of interest rates and the falling Canadian loonie I’ve decided to take another look at real estate. Since I already have a residential property and farmland, I think it would a good idea for me to diversify my real estate portfolio and buy some commercial properties.
Here is what I’m looking for in an investment property:
Type: Industrial – usage would include manufacturing, warehouse, garage, etc
Location: Greater Vancouver Area – includes Burnaby, New West, Richmond, Surrey, and the Tri-Cities
Price range: $250,000 to $500,000
Zoning: I, M, C – Each municipality will have its own naming convention. For example M-1 in Vancouver is a flexible designation for a range of business types like animal clinic, catering, laundry/cleaning, work shop, cold storage plant, etc. And C-2 can be used as a barber shop or beauty salon. These zoning bylaws can be found on the local government’s city website.
Capitalization rate: 4% to 5% – Similar to the ROI (return on investment.) This kind of return would be comparable to a high-yield bond fund, but with less risk.