There are many compelling reasons why Investment Real Estate is so lucrative. It is a long term investment that can pay off in spades, if you pick a solid property in a good location and take the time to run your numbers. Here are some key points highlighting why you might consider adding real estate to your investment portfolio:
- Positive Rate of Return:
In the GTA, the 50 Year average rate of return on real estate in 5%. Even taking into account the recessions of 1981, 1991, and 2008-09, we have still seen growth. Think of your own scenario: if you happen to own a property in the GTA, and you purchased 5 – 10 years ago, has it increased in value? Think of your parent’s home, what they purchased it for and the value now. I’ll guarantee you they never thought the home they purchased in 1970 for $35k could list for $600k now. And that’s conservative!
- Diversify your portfolio:
Recently, when the stock market declined due to COVID, the housing market didn’t fall nearly as much as financial markets. Through the lens of a landlord, you will often have your tenant sign a 1 year rental agreement, so your Operating Income stays the same – even if there is a dip in the housing market.
It is also important to note that we have seen rents have consistently rise over the past 10 years. You can increase your tenants rent every year by the Rent Increase Guideline put out by the government, based on the Consumer Price Index (inflation rate) – at 2.2% in 2020. This will help you keep your Operating Income stable, which in turn helps your bottom line.
3. Build Net Worth:
The key to Investment Real Estate is running your numbers. Not every property on the market will be profitable, and you need to see positive cash flow every month in order to make it work. Plug in your numbers here: www.michaelcambridge.com/mortgage-calculator. If your property does have positive cash flow, fantastic! You will see your net worth increase in the years to come, as you will likely see appreciation of property value. With your tenants paying down your principal balance on the mortgage, essentially paying your mortgage for you, you will be able to refinance down the road allowing you to refinance and possibly invest in another property.
Understanding the numbers is key to investing in real estate. Having a strong team, running the numbers and doing your homework will help you get a successful outcome. If you would like to learn more about real estate investing, and understand how I go the extra mile for my clients, let’s chat.
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