Three Uncommon but Highly Effective Real Estate Investing Strategies

Most real estate investing content focuses on the well known strategies like buy and hold, fix and flip, and BRRRR. While these are all excellent approaches, there are several less commonly discussed strategies that can be incredibly effective, particularly in the Canadian market. These strategies tend to require more expertise and creativity, but they can deliver exceptional returns for investors who take the time to learn them.

1. Rent to Own (Lease Option)

A rent to own arrangement, also known as a lease option, is a hybrid strategy where you lease a property to a tenant who has the option to purchase the property at a predetermined price at the end of the lease term. The tenant typically pays an upfront option fee and a monthly rent that is higher than market rate, with a portion of the excess rent credited towards the eventual purchase.

This strategy is particularly effective in the Canadian market because there are many prospective home buyers who have been priced out of homeownership due to tight lending standards, insufficient credit history, or a lack of down payment funds. A rent to own arrangement gives these individuals a path to homeownership while providing the investor with above market cash flow and a guaranteed exit strategy.

The benefits for the investor are significant. You receive a non-refundable option fee upfront, you earn above market monthly rent, and you have a tenant who is highly motivated to maintain the property well because they intend to purchase it. If the tenant decides not to exercise their purchase option, you keep the option fee and the excess rent credits and can either renew the arrangement or find a new tenant.

The risks include the possibility that the tenant cannot secure financing at the end of the lease term, which means you need to start the process over. You also need to ensure that the arrangement is properly structured and legally compliant. Provincial legislation around rent to own agreements varies, so working with an experienced lawyer is essential.

2. House Hacking

House hacking is a strategy where you purchase a multi-unit property, live in one unit, and rent out the remaining units. The rental income from the other units covers a significant portion, or sometimes all, of your mortgage payment and other housing costs. This effectively allows you to live for free or close to it while building equity in a property.

In the Canadian context, this strategy is particularly powerful because you can purchase a property with as few as two units, such as a duplex, using a standard residential mortgage with as little as 5% down. The rental income from the second unit is factored into your mortgage qualification, allowing you to purchase a more expensive property than you could afford based on your employment income alone.

House hacking is one of the best strategies for newer investors because it reduces your personal housing costs, builds your experience as a landlord, and starts building your investment portfolio all at the same time. The proximity of living on site also makes it easy to self-manage the rental unit and respond quickly to any issues.

The main drawback is that you need to be comfortable living in close proximity to your tenants. This is not for everyone, but for those who are willing, it is one of the most financially efficient ways to get started in real estate investing.

3. Land Banking and Zoning Plays

Land banking is the strategy of purchasing undeveloped or underdeveloped land in an area that is expected to experience significant growth or development. The investor holds the land until its value has appreciated substantially due to population growth, infrastructure development, or zoning changes, and then sells it for a profit or develops it.

A more active version of this strategy involves purchasing properties where a zoning change or rezoning application could significantly increase the property’s value. For example, purchasing a single family home on a lot that is eligible for rezoning to allow multi-family development. If the rezoning is approved, the value of the land can increase dramatically, often by multiples of the original purchase price.

This strategy requires a deep understanding of municipal planning processes, zoning bylaws, and growth patterns. It also requires patience, as zoning changes and development approvals can take years to materialize. The returns can be exceptional for investors who identify the right opportunities, but the holding costs and uncertainty during the waiting period can be significant.

Land banking and zoning plays are more speculative than traditional rental investing, and they should be approached with careful analysis and conservative financial planning. However, for investors who understand the development process and the local political landscape, these strategies can create substantial wealth.

Final Thoughts

These three strategies are less commonly discussed in mainstream real estate investing circles, but they are all legitimate and proven approaches that have generated significant returns for Canadian investors. The common thread is that they each require specialized knowledge and a willingness to operate outside the most conventional approaches.

If any of these strategies interest you and you would like to discuss how they might fit into your overall investment plan, feel free to reach out to Dwell Logic. We are always happy to share our knowledge and explore creative investment approaches with our partners.