Why Real Estate

Why Real Estate

In any economic environment people need a place to live. Single-family starter homes and multi-unit buildings offering 1-2 bedroom suites are the lowest common denominator. That’s why investing in starter homes can be a true safe haven for your investment portfolio. In our experience we’ve learned that starter homes may not be “sexy” (compared to more complex, high-priced commercial properties) but they do appreciate steadily.

 

Real Estate Investing is all about buying a tangible asset that behaves like a low-risk, high-yield investment vehicle which also offers the following benefits:

  • Positive cash flow. This occurs when rental income exceeds all costs including mortgage payments, taxes, insurance, management & condo fees (if applicable), and maintenance & vacancy allowances.

  • Equity appreciation compounded by leverage. Over the long-term real estate has a remarkable history of trending upwards in value. But the real magic comes through leverage. Let’s say you invest $50,000 into an investment property worth $250,000 (so you put 20% down). Let’s now assume that the value of this property goes up at an average of 5%/year for the next five years. $250,000 x (1.05)^5 = $320,000. So in five years your $50,000 has more than doubled into $70,000 in equity (140% ROI). This is with very conservative numbers and true real estate investment experts can do much better.
  • Debt Service. Even if your property never cash flows or appreciates in value you are still paying off your mortgage with every rent cheque. In exchange for giving them a safe, clean and functional place to live, your tenants are helping you pay off this debt.
  • Favourable tax benefits. The property value appreciates over time on a tax deferred basis – like an RRSP or 401(k) until the property is sold. Unlike an RRSP, equity gains are taxed at only 50% of income tax, yielding far higher after-tax returns than RRSP’s can, as all RRSP returns (once paid out) are taxed as income.
  • RRSP eligible investment Ideal for your retirement portfolio.
  • Protection against inflation. Real estate is a “real” or tangible asset as opposed to a virtual or paper based mutual fund/stock portfolio. This protects, and can actually benefit, your investment during periods of high inflation. Inflation is the rate at which the general level of prices for goods and services is rising. Increasing price levels mean a loss in the purchasing power of money; meaning that a dollar today is worth more than that same dollar will be worth next year. Rising prices also increase the cost of a home thus providing a natural hedge to the effects of inflation and improving your overall return on investment (ROI).
So what are the risks? Well, there are many. You could miss some important due-diligence and buy in an area being changed for the worse. You could over or under leverage your investment and adversely affect your returns. Or you could mis-manage it and be eaten up by large negative cash flow every month. While these risks are real, they are easily avoidable if you have professionals working for you.

Investing with us takes the hassles out of dealing with potentially problematic tenants and making repairs to your property. In essence, we make real estate investment/ownership easy, worry free and even fun.