Most of our work is working with clients who purchase real estate for investment. In terms of where the market is headed, there is no one on this board anywhere NEAR qualified to answer that question. There are a number of predictors, some say everything is hunky-dory while there are other predictors that indicate doom. There are thousands of predictors in play and even the most advanced economists argue what is going to happen.
A few things to note as to why the general consensus points to why Canada will remain strong:
a) Our lending policies - special attention to the CMHC which protects our mortgages
b) Canadians (generally speaking) have more equity in our homes meaning we are less likely to walk away from our mortgages if the going gets tough
There are number of ways to invest in Residential Real Estate, however, the ones that you alluded to (and the most popular) are:
a) Buying Resale and Renting
b) Buying Pre-Construction and Flipping
c) Buying Pre-Construction and Renting
Out of the three, my clients in the past 5 years have been the most successful with b) Buying pre-construction and flipping. I am going to go through each of the three options below and give a little pro/con to each.
a) Buying Resale and Renting
Making money by purchasing a resale condo and renting it out would be twofold:
a) The monthly cashflow from the rental income
b) The appreciation rate of the condo year after year
These two kind of work against each other in that: (generally speaking) areas where you will see greater cashflow will generally indicate a low appreciation rate and vice versa. Areas of high appreciation rate (Downtown Toronto) generally yield negative cashflow. A condo that costs you $1600 to run per month (mortgage/tax/mt.fees) will generall fetch between $1500-$1650 per month. However, in Toronto where there are certain pockets of very high appreciation rate (think approx 10% per year) means that your Condo which was worth $300,000 last year is worth $330,000 today. So assuming you lose $100 per month on cash flow, you are still up approx $29,000 at the end of the year "on paper".
On the flipside, if you were to purchase somewhere like Mississauga - you can yield $200-$400 per month cash flow, but would only expect approx 5% appreciation. This means that your townhouse that was worth $300,000 last year is only worth $315,000 this year, but you've also made approx $4,000 in positive cashflow. You're up $19,000.
However, in terms of risk - in Toronto you would see a better return on most years, however, if the market were to turn sour you're left with negative cashflow on top of decreasing values. Whereas somewhere like Mississauga you know that you're not losing month-to-month.
b) Buying pre-construction and "Flipping"
This is my favourite way of playing the market if the market conditions allow you to (as they have in the last few years).
Providing you pick the right development that is priced correctly and in a high appreciation neighbourhood then you can make very good money playing this game. I have a number of clients who will purchase a condo that closes in 3-4 years time, put 15-20% down and then sell as soon as it is ready to sell.
Why do I like pre-construction so much?
Your deposit is HEAVILY leveraged. You're only putting down 15-20%, yet your property is appreciating at the full 100%. Suppose you purchase in an area that has shown appreciaton of 10% per year, and you purchase a property for $300,000 where it closes in 4 years time. Provided the $300,000 that you paid was of market value at that time, then your property stands to increase by approx $120,000. On top of that, you have only put down approximately $50,000 - meaning you can potentially get your $50,000 back and then an additional $120,000 in your pocket.
The most successful one of my clients has been with this was a 4 year turnaround project, with $30,000 deposit - they got their $30,000 back and a profit of $125,000. I don't know of ANY other investment vehicle on the planet that will allow this kind of return.
I invest in pre-construction very heavily myself - I currently own 6 pre-construction condos in high appreciation areas in Toronto. I used to own 3 rental properties in Mississauga before selling them and putting money into pre-con in Toronto.
There is a lot more to this than meets the eye, and I'm happy to go into more detail with you - including which projects right now are good and how many you should purchase etc.
c) Buying pre-construction and renting
This is an extention of B) - if you do not want to sell immediately, you can rent the condo out. The benefit is that you will close the gap a little on the negative cashflow I mentioned above - you are, in theory, paying 2010 prices for condos that are closing in 2013/2014 - and you will gain the advantage of the rent being higher in the future.
There is a lot of info above, hope you find it useful. Let me know if you would like anything clarified. I write a lot on my websites about which developments I like and go into a lot of analysis and you can find samples of how I analyze developments below:
amitandroy.com : Chaz on Charles - http://www.amitandroy.com/new-developments/chaz-on-charles
TalkCondo : Bisha - http://www.talkcondo.com/toronto/bisha
(Note: talkcondo is my new website and is still being populated, Bisha is the first development that I have written about)