Real Estate home ownership has proven to be one of the best investment you can make
If you’re looking for a way to invest your money that can reap a variety of benefits, forget stocks, bonds and cryptocurrency. Look no further than home ownership.
Home ownership is the North American dream, and with good reason. We at the Wilson Team of Mortgage Professionals have helped thousands of people achieve that dream and we’re eager to help you do the same. But, first, let us discuss some of the reasons you should invest your money in real estate.
If Real Estate makes your heart sing and you enjoy driving around neighbourhoods, looking at properties… you may want to make Real Estate a full time business. Do you imagine how you might improve them or whether they would be good rentals? Or do you simply dream of financial freedom based on reliable investment choices? In either case, real estate investing could be right up your alley.
Real estate investments are a wise choice for any investment portfolio, because the value of good property generally goes in one direction: up. Of course, there may be hills and values, but overall, there’s an upward trajectory. Investing in real estate is an excellent way to build wealth and be prepared for retirement. In fact, if you earn enough from your real estate investments, you might be able to retire early from your day job.
Even better, if you love real estate, why not consider making it a business? Rather than simply investing money, invest your time and turn real estate into a career.
GOOD REASONS TO INVEST IN REAL ESTATE
REAL ESTATE ALWAYS HAS VALUE
Any piece of property you purchase has intrinsic value, because the land itself is worth something. Land with existing property generally raises the value, and that value increases when you make improvements. Unlike stocks, real estate is never worth zero.
POTENTIAL FOR CASH FLOW
If you own rental property, you can count on a monthly income stream. Aside from necessary repairs to the property, it can be largely a passive income stream – you simply sit back and collect the rent.
ABILITY TO LEVERAGE YOUR MONEY
Leverage refers to using borrowed money to purchase property or increase the potential return on investment. For a 20 per cent down payment, you can enjoy all the benefits of owning property. Especially when interest rates are low, investors have excellent opportunities to increase their holdings.
BUILDING UP EQUITY
With rental properties, your tenants can essentially pay for your property by helping to pay down your monthly mortgage. Eventually, you’ll own that asset and the monthly payments will go directly to your wallet.
CONTROL OVER YOUR INVESTMENT
When you invest in real estate, you have a chance to make many of the decisions about the property: how to develop it or improve it and how much money to allocate for repairs and upgrades each year. Unlike the stocks you own, where you are at a distance from the ownership, with real estate, you are in the driver’s seat.
A HEDGE AGAINST INFLATION
While prices increase, the value of the dollar may decrease – that’s inflation and it’s prevalent in today’s society. Rents and property values generally stay in step with inflation, however, so when inflation rises, real estate values go along with it. However, if you have a fixed-rate mortgage, your fixed costs don’t change, so you can own a more valuable property without increasing your costs.
TYPES OF REAL ESTATE INVESTMENTS
Real estate investment isn’t a one size fits all opportunity. There are a variety of ways to make money with your real estate investment, depending on your budget and your interests. Options for investing include:
- House flipping.
House flipping involves buying a home, making improvements and selling it for a profit. You can live in the home while you’re renovating and save on housing, or you can buy the property purely for investment. - Rental properties.
You can buy a property purely for the purpose of renting it for the additional income. You can also buy a multi-unit building – a duplex, a triplex, etc. – and live in one of the units while collecting rent from the others. The rents go toward paying off a mortgage and increasing your cash flow. - Wholesaling.
Wholesalers acquire the contracts for sale properties from sellers – especially those properties undervalued by the market — and find buyers for those properties. They offer properties at a higher price than the seller might and pocket the difference. It can be a great short-term investment strategy and one that allows a new investor to become familiar with the market. - REITs.
Real Estate Investment Trusts (REITs) are publicly traded companies that own, finance or operate income-producing properties by pooling the funds of a variety of investors. Without having to manage properties themselves, investors can earn regular dividends. - MICs.
Mortgage Investment Corporations
- BRRRR Strategy.
Buying for zero down payment - Joint Ventures.
A strategy that involves two or more parties. - Flip to yourself.
A strategy used when we increase a property value. - Rehab.
Don’t be afraid to get your hands dirty with the property that needs work. - Rent to own.
Build equity by helping a tenant achieve home ownership. - How to become the bank.
Learn how to lend your money with Real Estate security and make incredible returns. - Arms Length Mortgages.
How to lend your RRSP, TSSA and registered money as a mortgage. - Other people’s money.
Learn how to maximize the bank, private fund, tenants, working partners, investing partners, joint ventures, other people’s credit, and more..
TAX ADVANTAGES
Who doesn’t smile at the thought of paying less in income tax? As a property owner/investor, you can take advantage of various real estate-related deductions when filing your annual tax return, including:
- Interest.
The interest you pay on money you borrow to invest in real estate is tax-deductible, as long as you use the property to generate income. If the only income you’ll get from the property is the capital gains when it’s sold, you can’t deduct interest. - Advertising.
If you rent out property, the marketing fees are deductible from your income. - Banking.
You can deduct your related monthly and annual fees. - Depreciation.
Assets such as appliances will eventually need replacement, so check with your accountant about depreciation benefits.
Insurance. - Insurance premiums for rental properties are tax deductible.
Repairs and maintenance. The upkeep of the property, whether you do it yourself or hire someone, is deductible. In addition, if you are a passive investor and maintenance is included in the expenses that determine your dividends, you can either write it off or claim it as a capital cost – check with your accountant.
- Professional fees.
The fees you pay to your accountant and your lawyer or for property appraisals or inspections can be written off.
Property management. The salary or fee you pay your property manager is tax deductible. - Property taxes.
You can deduct the property taxes paid on all rental units from your income. - Home office.
If you run your real estate investment business from home, you may be able to deduct a portion of your rent/mortgage, utilities, internet and other relevant expenses. - Travel and vehicle expenses.
If you use your vehicle to oversee or maintain your properties, you should be able to deduct financing charges, maintenance, fuel, insurance, etc. You may also be able to write off mileage for travelling to these properties, but you’ll need to keep a log.
MANAGING YOUR PROPERTIES FOR PROFIT
Some investors enjoy taking care of their own properties: finding renters, doing repairs, etc. When that’s the case, they can pay themselves for such work, but it must be reported on a personal tax return. If you have a corporation to handle your real estate investments, you charge the corporation for this work, but must still declare the income personally.
Some investors enjoy taking care of their own properties: finding renters, doing repairs, etc.
Before you decide to jump headfirst into real estate investment, take the time to educate yourself on the field and the market.
LOOK BEFORE YOU LEAP
Each mortgage lender will sit with their investors and look at all the products available in Canada based on the Federal Regulations. They will select what makes sense for their investors and decide how to underwrite it and at what rate they want to price it. Then they will select the insurer, based on their regulations and guidelines. Each insurer has different risks ratios, products, and options; however, the insurance premiums are equal. The cost to have insurance is the same for each insurer. It’s based on product and down payment.
The insurance premiums charged are rolled into the overall borrowing amount. For example: if you are buying a home for $400,000 and your down payment is 5% ($20,000), then the total loan is $380,000. The CMHC premium is 4% of that total loan of $380,000 which is $15,200. The total mortgage is now $380,000 plus $15,200 which is $395,200. When you are using any mortgage calculator, you don’t want to double count the CMHC fees or forget about them! Also, check with your mortgage broker to see what applicable taxes are being charged on the premium, as that will need to be paid on closing as part of the closing costs.