Last Updated on May 10, 2024 by CREW Editorial
Investing in revenue properties has long been a favoured avenue for generating income and building wealth. With good planning and careful execution, revenue property strategies offer a range of benefits which justify their popularity with investors.
Steady Income Stream
The most obvious and biggest advantage is the income from a revenue property. With proper tenant screening and lease management, property owners can enjoy cash flows to supplement their income.
However, according to Royal LePage Associate Broker, Angie Peters, “The true benefit of a rental income is not just as simple as its monthly dollar value; its true value lies in its stability, growth potential, and ability to compound wealth.” Angie, once a single parent at the poverty line, leveraged home ownership to transform her family’s future. She now dedicates herself to guiding others towards owning revenue properties, asserting it’s never too late to start.
The reliability of this source of income is excellent. Regardless of economic conditions, people need housing, making rental properties relatively recession-resistant, and people will prioritize paying rent. Angie Peters also adds, “While many people are nervous about the risks of bad tenants, the majority of them are good, and a good tenant screening process further reduces these risks. Furthermore, cultivating positive tenant relationships further reduces the risks of issues, and helps ensure longer tenant retention.” As a result, with a little proactive care, owners can enjoy a reliable income source, even during economic downturns for consistent cash flow.
Moreover, rental income offers flexibility and opportunities for growth. You can use it to supplement your income, fund retirement, invest in other areas, or reinvest in more properties. Reinvesting income can compound your results, accelerating wealth accumulation. Additionally, strategic reinvestments that diversify into other types of investments, or which prioritize properties that vary by type, location, and other factors, reduce risks and shield against market changes. John Krol of Royal LePage stresses, however, “Revenue income properties are a long-game effort; you need to be prepared to allow some time for them to become profitable, and you need to put in time, effort, and money to attract tenants, or get a management company to help.”
Over time, revenue properties offer a solid financial foundation. They provide stable income, growth opportunities, and a hedge against market volatility. By reinvesting income and diversifying, investors can build a resilient portfolio for long-term wealth.
Asset Appreciation
Real estate historically appreciates in value over time, providing revenue property owners with the potential for capital gains, in addition to the income they provide. Demand for rental properties, coupled with limited housing supply in many markets, can drive property values higher. You can also strategically enhance your property to drive value up, prioritizing certain renovations, such as updating kitchens or bathrooms, which tend to have a higher return on investment, boosting property value more than some other upgrades.
Tax Benefits
Revenue property owners benefit from various tax deductions and incentives, reducing their overall tax liability. These deductible expenses in Canada include advertising, management and administration fees, mortgage interest, repairs and maintenance, and more, and can be deducted from rental income, lowering taxable income. You should be aware you cannot deduct the cost of your own labour or mortgage principal payments, however, and you should familiarize yourself with what you can and cannot deduct. Capital cost allowances and loss and carry forward tax rules can also allow for tax strategies; consulting with an accountant or tax professional is recommended to ensure an optimal strategy and compliance with tax legislation.
Portfolio Diversification
Revenue properties offer diversification benefits to investors by adding a tangible asset class to their investment portfolio. Rental property ownership stands out in portfolio diversification due to its resilience during market downturns. Unlike stocks, property values tend to hold steady or even appreciate during economic recessions, providing a reliable hedge against market volatility. This unique characteristic allows investors to maintain stable returns and mitigate risks associated with traditional investment avenues. Diversification across different property types and geographic locations further spreads risk and increases resilience to market fluctuations.
Control and Flexibility
Property ownership allows investors to strategically manage their assets by optimizing rental income and property value through decisions like setting rental rates and selecting tenants. They can adjust rental rates and refinance properties to leverage equity for further investment or improved cash flow. Flexibility extends to exploring ownership restructuring for enhanced returns and risk mitigation. This adaptability enables investors to respond to market dynamics, leverage opportunities, and manage portfolios for growth. Potential exit strategies, including outright sale or restructuring, offer additional options for owners when needed or desired.
Diversity of Revenue Properties
Revenue property investments offer a wide range of options, making it easier for potential owner investors to find a fit for their budget, risk tolerance, and financial goals. From residential homes to commercial spaces or mixed-use spaces, each type of property has its advantages and considerations.
This diversity allows investors to tailor their investments and craft portfolios to suit their individual needs, whether they seek stable income, capital growth, or a blend. With various options available, investors can create portfolios that align with their objectives, fostering financial success in real estate investing.
You can also choose the level of involvement you are comfortable with, so you are more active in management, or take a passive, hands-off approach.
“Many people are interested in the idea of an extra income stream from real estate, but they’re intimidated by the idea, envisioning major financial commitments and responsibilities that put it out of reach. They’re not aware that there are several ways to get involved and build upwards,” says Angie Peters.
She adds, “You can start small, by choosing a home that has a separate legal suite that you can rent out, or buy a small, affordable unit that won’t stretch your budget too much. Over time, you can expand, diversify, and grow sustainably.”
Types of Properties
Residential rental properties encompass single-family homes, apartments, condos, townhouses, and legal suites within or near an owner’s residence. They offer consistent income and the chance for capital growth, especially in high-demand, low-supply areas.
Multi-family units allow for economies of scale, simplifying property management. They help diversify more, and an owner is not as heavily impacted if a tenant moves out, as there are others.
Commercial rental properties typically yield higher rental incomes than residential ones, but are more complex. Nevertheless, they can be lucrative, especially in prime locations with robust economic activity.
Vacation rentals are typically furnished and rented nightly or weekly, often generating higher incomes than long-term rentals, especially in tourist hotspots or peak seasons. However, they demand careful management and may face regulatory limitations in certain regions. Stay informed about Canadian policies and laws, including bans in certain municipalities and provinces, and proposals for federal tax rules impacting tax benefits.
Additional property revenue streams can involve investing in storage spaces or repurposing unused areas of your home for storage rentals. Likewise, renting out parking spaces can be an option in some areas. These avenues offer limited income potential but are easier and less expensive.
John Krol notes that, “When looking for a revenue property, be very clear about your goals and your limitations, to make it easier to find a suitable property. However, be open to options you hadn’t previously considered. If you are open and honest, and have clear goals, your realtor may be able to find something different, outside of what you were expecting, that actually meets your needs better.”
Passive Income
Investing in a revenue property offers another key benefit – the potential for more passive income. While rental properties require effort in tenant management and property upkeep, savvy investors can mitigate these tasks. A skilled realtor can identify properties needing less hands-on attention, streamlining the process. Moreover, employing a reputable property management service can efficiently handle tenant interactions and property maintenance, reducing owner involvement. Though not entirely hands-off, this approach allows investors to enjoy income streams with less direct involvement, offering the allure of increased financial stability and freedom.
John Krol’s realty team and Angie Peters’ property management team have helped many investors find profitable properties and manage them. Angie Peters comments, “We have been able to help several clients who don’t live in Grande Prairie, screening their tenants, taking care of their properties, and providing reports, so they don’t have to be local or hands-on.”
