The frenzied run-up in Canada’s big city residential property markets since the last recession certainly pushed a lot of wannabe investors to the sidelines. More recently, the downturns now being experienced in Toronto, Vancouver and other big cities will likely keep many prospective investors dubious about sinking their nest eggs into the housing market.
But Chris Catliff, the president and CEO of North Vancouver-based Blueshore Financial, says there are other ways for middle-class investors to get into the property market.
He recently shared five tips to those considering building up their retirement portfolio in commercial real estate :
1. Start small with a REIT
You don’t need to be wealthy to own commercial real estate, Catliff said. “In fact, my son is already invested in a Tax-Free Savings Account with a Real Estate Investment Trust (REIT).”
A REIT is a company that owns, operates and pays dividends on a variety of real estate assets on behalf of a pool of investors who purchased shares or stocks.
“They have relatively high yields compared to the broader market, or bonds or Guaranteed Investment Certificates (GICs),” he said. They’re typically riskier than government bonds or GICs but much less risky than tech stocks.
Buying shares in a REIT is basically buying into a collection of assets across the country. Some REITs are focused on the office market, others on apartment buildings or industrial or retail.
“That diversifies your risk,” he said, adding that most REITs can be purchased through a stock broker, financial advisor or online through your direct investing platform.
2. Invest in a strata unit
For bolder middle-class investors — and ones who don’t mind a bit more work — you could buy your own strata unit in a commercial development, Catliff said.
Like with condo residential buildings, many developers build strata commercial buildings in various asset classes including office, retail and industrial.
These are often small units that can be purchased for under a million dollars in urban or suburban areas.
Tenant demand in urban cores is generally steady and strong. “And you’re buying the space with a fraction of the land cost.”
3. Buy in a place you can visit
Catliff said he likes to own units in buildings he’s familiar with and can visit. “I’ve purchased commercial units that were on my drive to work just so I could see them twice a day.”
That’s so you can see what kind of development is taking place around your building and stay familiar with the market and the other tenants, he said.
4. Think urban
More than three-fifths of immigrants to Canada are settling in Toronto, Vancouver or Montreal, Catliff said. That means demand for homes, jobs and work space will continue to grow along with the population in those areas.
More demand for your space means less cash flow risk.
Catliff said it’s important to understand the supply and demand elements of your local market. In places like Vancouver and Toronto, demand for small industrial warehouse space or small light-manufacturing units has never been stronger.
Demand is also high for small street-front retail spaces in urban cores. There will always be people trying to buy themselves a job with a business like a sandwich shop or small restaurant, Catliff said. “There is just a lineup of people waiting for that kind of space.”
5. Do your homework
“You really have to consider location,” he said. “You’re looking for high traffic. How easy is it to rent out to somebody else? Anything downtown pretty much has a lineup of people. If it’s in Toronto, Montreal, Vancouver, Kelowna, you can always rent something out, it’s just a matter of what return you get.”
In the suburbs, anything you purchase should be considered for its future redevelopment potential, he added. “In the burbs… you’re (often) holding land until development comes to you.”
Copyright Postmedia Network Inc., 2019