Your tenant pays your mortgage and utilities every month. In other words, they pay for your investment.
Real Estate is the most secure investment in the world. Although some have lost large amounts of money in the stock market, cash flowing properties pay for their ongoing expenses.
Real Estate cannot be lost or stolen, nor can it be taken away. Purchased with common sense, paid for in full, and managed with reasonable care, it’s the safest investment in the world. Franklin D. Roosevelt
The Power of LEVERAGE: Other people’s money
The power is realized by an increase of your investment dollars through leverage. Leverage is defined as making use of borrowed capital in order to supplement current funds, and increase possible returns on an investment.
While a bank will not lend you 80% of the cost for an investment in stocks, bonds or mutual funds, a bank will provide this for an investment property, even up to 90% for a CMHC insured property. Banks do not consider a hard asset as risky as a stock investment.
When the value of the property increases, you gain on 100% of the value. This means: If a home went up by an average of 3% per year – the ROI would be 15% (3% times 5). When you add in your cash flow and mortgage pay down it would be difficult to find a stock that could give you the same ROI.
Other people’s money: YOUR TENANT
This is invaluable when real estate investing. Your tenant pays your mortgage and utilities every month. In other words, they pay for your investment.
Ability to Create Value Improvements
You are able to improve the property in order to sell or to increase the rent. Try doing this with a stock or mutual fund.
LONG TERM Investing
Unlike the stock market, history states you will prosper when you invest in real estate over the long-term. A great example would be a home valued at $37,000 in 1980 would have a value of $290,000 in 2008. Over the years the value may fluctuate and even go down, but in time, the value will always increase.
With equity building tenants paying the mortgage, you are sure to gain in a 5 to 10 year hold.
You can Sell the Asset or Refinance
You have the ability to sell the asset. You can also increase the mortgage to pull out cash while maintaining ownership.
A Buyers Market
It is presently a buyers market in Calgary and there is still a great need for rentals. Alberta and Calgary have been importing workers from around the globe for the last decade and rental vacancies are still low. When you combine this with low-interest rates, it is a great time to buy investment property.
Recent government changes – in effect April 2010-will also extend this as fewer people will be able to buy with low down payments. For real estate investors, this should mean more renters.
If you are potentially interested in real estate as an investment we welcome your questions or calls.
