Invest in smaller markets for your first rental purchase

As a millennial, it can be frustrating to watch your friends and peers struggle to purchase their first home in the competitive Canadian real estate market. From Coast to coast prices have made incredible, dare I say unprecedented, gains over the last decade. Even taking into account the recent 2023 slide. With sky-high prices and bidding wars being the norm, it can feel like the dream of homeownership is out of reach. But, for those who are pre-approved for a mortgage and willing to think outside the box, there is a solution: investing in a single-family or multifamily property for rental purposes, outside of your local market.

By looking further afield, outside of the expensive markets in Ontario for instance, it’s possible to find lower-cost properties that can provide both equity and cash flow through rental income. This strategy can be a first step on the property ladder, allowing investors to build a solid foundation for their real estate portfolio while also gaining a foothold in the market.

For our hypothetical millennial investor, who has been pre-approved for a $500,000 mortgage (at current 5.5-6.25% rates), there are options out there. They could purchase a duplex in a smaller city or town where prices are more affordable, or even look at a triplex or fourplex in a suburban area. The key is to find a property that is in good condition, with the potential for positive cash flow and a steady stream of tenants.

One of the biggest benefits of owning rental property is the ability to generate passive income. Unlike a traditional 9-5 job, rental properties can provide a steady stream of income without the need for the investor to be actively involved on a daily basis. This can free up time for other pursuits and provide a sense of financial security. Additionally, as the property increases in value over time, the investor can see a significant return on their investment.

Another benefit is the ability to build equity. As the investor pays down the mortgage on the property, they will own a greater percentage of the property. This can be a valuable asset in the future, as the equity can be used as collateral for future investments or as a down payment on a primary residence.

As a landlord, the investor can also take advantage of various tax benefits. For example, they can deduct expenses such as mortgage interest, property taxes, and repairs from their taxable income. This can lead to significant savings at tax time and help to offset the costs of owning the property.

In addition, owning a rental property can also provide a sense of pride and accomplishment. It’s a tangible asset that can be improved and managed to the investor’s specifications. It’s also a way for the investor to have a direct impact on the community and the lives of their tenants.

For our millennial investor who has done everything right; got the job, steady relationship, saved a downpayment, but who feels priced out of the competitive core Canadian real estate markets, investing in a single-family or multifamily property for rental purposes can be a smart and viable option. It can provide both equity and cash flow, as well as a sense of financial security and pride of ownership. While friends may be struggling to purchase in the big city, this investor is making moves and building a foundation for their future real estate portfolio.