Canadian Real Estate Investing Fundamentals -#1
If you are already a sophisticated real estate investor then you probably already know the fundamentals of what makes real estate so attractive and unique when compared to other investment vehicles. These series of articles will start with basic real estate foundations for investing and move up into more complex investing techniques as we go along.
Before I entered into real estate investing full time I was a financial planner selling mutual funds, insurance and the like. It was from this background that I forged the fundamentals of real estate investing. When comparisons are drawn to investing in stocks, mutual funds, or equity markets, then the uniqueness and benefits of real estate truly make themselves evident. My decision to pour my hard earned efforts into real estate full time only came after I understood how the financial markets worked. Once the proverbial "light went on" I had to let my clients know about real estate investing. So for purposes of clarity I will make comparisons to investing in the stock market versus investing in real estate and what are the differences and or advantages. As well we will not be talking about a REIT. A REIT is the stock markets answer for people who want to own real estate. A REIT, in my mind has the same drawbacks that a stock portfolio has. However, unlike a REIT, these investing fundamental lessons will look at direct ownership and show you how you can directly own multi-residential real estate or commercial property "hassle free."
Canadian Real estate investing fundamentals can really be applied to any real estate market, in any country. I just happen to be a proud Canadian who believes in my country. Canada has been good to me. Because of that, I invest locally. I invest in the Barrie, Orillia and Collingwood Ontario regions because the fundamentals show that these areas have strong growth potential for real estate. ( we will get into economic fundamentals of why these areas are so good later). That is not to say that these fundamentals can not be applied to Calgary Alberta real estate investing, or Victoria B.C., or Los Angeles California. A real estate fundamental is a fundamental anywhere in the world.
So with the backgound complete, let's get down to real estate investing fundamental lesson number 1:
LEVERAGE: "The use of fixed costs in order to increase the rate of return from an investment" This definition from Webster says it all. Leverage will increase your rate of return. I think to best understand leverage lets use an example.
What if you went to the bank and said that you have $10k but you want to buy $100k in an index fund? And you want the index fund to act as the security for the loan. What would they say? The last time I tried that they laughed and said "next!" Yet when you buy an investment property that is exactly what you can do. You can put down $10k for a $100k house and have the actual house (similar to the index fund) act as your security. But here is where the real leverage works. Homes appreciate. And this is a perfect example of the "unique benefit" of real estate investing; what is appreciating is the $100k. Not just your $10k. If you invest 10k in stocks it is your 10k that must work for you. In real estate it is the WHOLE PROPERTY that appreciates, the whole 100k is working for you. That is leverage. You leverage your 10k to have 100k work for you.
If it appreciates at 5% a year then on $100k that equals $5k per year, or 50% on your original $10k investment. That means your original 10k grew at 50%, AND the loan is secured by the actual property. Try buying 100k for any stock offering with only a 10k deposit and then make 50% return on it.
What if the house does not appreciate ( like we see in the present financial sub-prime debacle in the US)? Well stay tuned....the answer to that will be in real estate investing lesson #2...
MANA REAL ESTATE IINVESTMENTS
Specializing in real estate investments for private investors. Our real estate investing focus ( for now) is in the Barrie, Midland, Collingwood and Orillia areas. We offer 3 ways to invest, 1-with us ( in a joint venture, RRSP investing, or assignments), 2-syndication (in a limited partnership corporation), or 3-becoming a team member of Mana Invstments and working along side with us.
Mark Vosylius
www.manainvestments.com Investing in Canadian real estate since 1989 in the Barrie, Orillia, Georgian Bay, Midland Collingwood and the Muskoka's.
www.sixstepstosuccess.com Committed to helping you achieve your goals and success in life
Comments(2)