8 Reasons Why I Love Investing in Real Estate
Here are 8 reasons why real estate is an "able" investment. Try finding any other asset class that has all of these benefits, that the average consumer can easy purchase and understand.
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If you're not investing in real estate, you're missing out! Let me share with you 8 reasons why I love investing in real estate.
1. It's Accessible.
Anyone can buy it. As long as you're over the age of 18 years old, whether you're a Canadian resident or not, you can buy real estate. Now recently Ontario implemented a "Non-Resident Speculation Tax", which honestly is just a tax grab. I've noticed that our foreign clients have not cared. At the end of the day, Canada is an economically AND politically stable country. Anyway, that's a whole other topic and I'll make a video about it sometime.
2. It's Appreciatable
Real estate typically will increase in value over time. One thing's for sure, there's only so much of it, and when something comes in limited supply, the price is bound to go up over time.
3. It's Leverageable.
You can buy on margin, and borrow against your equity. When you buy a home, you typically don't buy the place in cash. Usually you get about 20% down, and then you finance the rest through a mortgage (you can actually go less than 20% down). However, any gains that you make on the property will be real, so if you think about it, here's a simple example. You buy a $1,000,000 home with 20% down, that's $200,000 in cash. But the value of the home goes up by 20% every year, which is pretty realistic, even in today's market. So basically, you've just made $200,000 on your $200,000 down, or double of you've put down, in one year only. Now I know it's a very simplistic example, as there's closing costs, transaction fees, taxes that you have to pay, and you really don't see the gains until you actually sell. But you can always re-mortgage the property and take the equity out to use towards other investments. Anyway, imagine what would happen if you held it longer than a year!
4. It's Rentable.
Chances are, whatever you invest in will be rentable. Now there's different schools of thought of owning vs. renting, and how to use your money, but let me tell you this. With vacancy rates hover around 1% in Toronto, you'll typically see bidding wars for properties for tenants to live in. But tenants don't care about the real estate market, they just want a place to rest their heads! And the average rent for a one bedroom condo is over $2,000, that's crazy! Two bedrooms are just around $3,000, and that's just the average! And if you have a tenant in there, even if the rents aren't cashflow positive after expenses, they're still paying down your equity, and paying down your mortgage. I'm sure you've heard it before, tenants are always paying off the landlord's mortgages.
5. It's Improvable.
If you purchase a place that's a dump, you're probably going to get a discount on it. But even if it isn't, you can always improve the property and increase the value over time. You want to be careful not to over-improve the property and not get the returns, unless you're using it for your own enjoyment.
Number 6, and this is my favourite, there's great tax benefits to owning real estate. I don't know how long this is going to last, but currently if you're a resident of Canada, let's say you made $200,000 on your $1,000,000 property in one year, and you sold it, if it's your own primary residence, you don't pay any tax on that, that's great! And if it's not your primary residence, because I always say, you're home is not an investment because you're always going to need somewhere to live, somewhere equal or greater than where you currently live now, then you only pay tax on 50% of that. So in that example, $100,000 of that goes towards your income and you pay your taxes as you normally would. That's great! What other investment class do you know that can do this for you? Because typically you have to pay taxes on all of the gains. In addition to this, you can write off all the expenses to rental properties. If you purchase the property in a holding company, you can always defer the income.
7. It's Stable.
It's slow to rise and slow to fall. Now the number one complaint I hear about investing in real estate is that it's not liquid, but is that a bad thing? I don't want to have sleepless nights and lose my investment in a blink of an eye. Even if the real estate market does drop quickly, there won't be mass panic and it won't go to zero. And really, it won't affect you unless you sell. Your mortgage is commonly locked in to a five year term in Canada, so either you (or your tenants) would be paying it off, and they'll be paying the same monthly payments, regardless of what the market is doing. As long as you can hold on, you can probably weather any storms, and more importantly, ride the waves.
8. It's Liveable.
At the end of the day, someone is going to want to live in that property, even if the market tanks. Try living in your BlackBerry or Nortel stock. So I hope that opens your eyes, and I challenge you to find a better investment class. If you're already convinced and you don't know what to invest in, you can always give us a call, we'll find the right investment for you. And don't forget, subscribe to our channel, and stay tuned for our next video. Until then, happy investing!