Didn’t mean that literally, guys.

Real estate investing has never been sexier.

Whether its the rock bottom American home prices creating opportunities, the volatile stock market, or the bargain basement interest rates available to home buyers, real estate has become an investment haven for more and more people. It also doesn’t hurt that the media has promoted real estate investment through a wider array of programming featuring home flips, renovations and other ways to maximize a home’s utility.

If you’re considering investing in real estate, you have a few options at hand. If you’re a hands-on type investor, you can control your own destiny with an income property. If you like sitting back and watching your money work for you, something like a REIT could be right up your alley.

The growth of REITs (Real Estate Investment Trusts) is a clear indication of investors’ urges to profit from a strong Canadian real estate market. REITs are a great option for those looking to earn dividends on their stocks, as by law, REITs are required to pay back 90% of their taxable income to investors. They are as liquid as stocks; have preferential taxation rules; and have been on an absolute tear lately, soaring in value. Canadian REITs have recently been generating dividend yields (dividends per share/share price) in the area of 9-12% annually, due to growth and that required payout.

EDIT: REIT’s have slowed as of late, but from 2010 to year-end 2012, the S&P/TSX Capped REIT Index produced annual returns from the sector of 19.7%. Annually.

Even with those statistics, income properties have become a hot topic too. You’ve likely watched a contractor’s show where they convert a basement or run-down duplex into a cash cow. If it made you want to get in on the action, you’re not alone. Instances of second-property ownership are on the rise, and the federal government has recently taken action to make sure that this influx of investors is under control; in that people aren’t buying multiple properties and getting themselves into high-risk, low-equity scenarios. Owning another property is different from investing into a third-party, in that ultimately you control where your dollars go and how they’re used. It’s more direct, hands-on and you control your own destiny.

When looking to purchase a second property, there are a number of considerations that need to be made. Essentially, you’re becoming an entrepreneur. You’ll soon be generating revenues and paying expenses just like any other company. REITs do well when they have tenants, and lose with vacancies. When owning a second place yourself, full occupancy should boost your income potential beyond that of the average REIT, but extended vacancies can cripple your finances. Fortunately, the needs of tenants are easy to predict, with little changing on a year to year basis. Basically, if you’re able to find a place that works for tenants, you can milk that cash cow for an extended period of time.

In a “university town” like Guelph, many people enter the market looking to purchase student rental property. Here, those properties span from London Road to Clair, from Victoria to Imperial, and with each location offering unique amenities to their potential tenants, they’ve proven successful in a variety of neighbourhoods. Which location you buy in will determine the ease of finding tenants; and just like homeowners, renters can have different opinions of value and different criteria for an ideal place. Common “wants” within the student community can include: Access to transit, proximity to the university campus, ease of access to downtown, updated units, newer buildings; the list goes on and on. Knowing your target market will help you find the best locations, most suitable units, and how to generate rents that meet your goals.

How good are you as a property manager? Sometimes a firm understanding of accounting or finance might be help you with the ins and outs of generating a return, but how are your people skills? Keeping tenants for an extended stay is cheaper than finding new ones, so the daily operations of your property can be critical. Make sure you’re up to the task. If not, consider hiring a property management firm. They’ll take between 5-10% of your rental income, but they can relieve a lot, if not all of the hassle. They handle maintenance, rent collection and can save you money by finding qualified, well-suited tenants on your behalf. And if your decision to buy is hanging on by that 5-10%, the second-property route might be a little risky anyways.

Ultimately, you’re the one making the decision, and nobody knows your skills, tendencies and comfort level better than yourself. That said, it’s always a good idea to consult an expert before you make a play. Talk with your financial planner, mortgage agent and a Realtor; and then decide whether direct or indirect real estate investment is the smarter play for you.