Why Real Estate?
The road to property investing isn’t always easy, and at times will be hard work and rather time consuming. But it is something that millions of people around the world do every day, and so can you. Owning a home is very exciting and rewarding. It can also be dangerous and full of obstacles. In this workbook series, we show you how to avoid dangers, dodge obstacles and take the most profitable path.
Owning your home is the first step to building wealth in real estate. If you rent, you are very familiar with the frustration of giving your landlord money every month that could be going into your property. For Me, that was the moment when I said, “Enough is enough. I don’t want to give away any more money. I have to do something.”
You probably realize that home prices go up every year you wait to buy a home. That house you looked at last year and thought about buying is probably thousand of dollars more today, and will be thousands more tomorrow. You are getting behind every year, and it becomes harder and harder to catch up. Even when prices decline, such as in high foreclosure markets, the long-term trend is upward. Prices will continue to climb over time.
When you own your home, you not only pay down your mortgage loan every month, but you experience market growth on the full value of the asset, regardless of how much of it you own. Let us say that another way. You can put $30,000 down on a property worth $300,000 and you will see market returns on $300,000! This is what we call “leverage.”
“Leverage is what sets real estate apart
from any and every other investment”
Leverage is a very important concept which we will cover in detail later.
If you already own your home, you are already a step ahead of where Scott and I were when we decided to become property investors. (Read Our Story) You are familiar with purchasing property. Much of Stage 1 of the Successful Landlord Training Program will be review for you, but you will move from general familiarity with purchasing property to ease and comfort handling property transactions.
Your next step is to own and manage rental property. Stage 2 covers all aspects of evaluating and managing rental properties. If high risk isn’t your cup of tea, you’ve come to the right place. We don’t like risk either. With any investment you have an element of risk — that’s just the way it is — but you will reduce your risk considerably if you educate yourself properly and avoid emotional decisions.
If you want to experience being a successful landlord for the first time, but want to reduce your risk as much as possible, we recommend considering an income suite in your home. Your risk of losing money is lowest with an income suite because you have already invested in your own home. A second property brings a second mortgage and a second set of expenses, but a suite in your home will generate income with little additional expense.
Most likely you will have to renovate a space for the suite, but eventually when you have a few properties generating cash flow, you may decide to reclaim that renovated space for you and your family.
The most ‘able’ investment
Whether you are a seasoned investor or a first-time home buyer, you will find great opportunities to make money today in real estate. While the market will change in five or 10 years, you can always capitalize on current market conditions, whether it is a hot upswing market, or a slow sinking market. The key is to invest smartly.
Educate yourself and you can make money in any economic climate.
Statistics from the Canadian Real Estate Association indicate that residential real estate values have increased on average 5 percent annually over the last 30 years. Of course, different properties will experience different gains across local markets, but the upward trend is unmistakable. The largest potential for a real estate investor is in cash flow and long term growth.
Real estate is truly the most able investment. Real estate is:
Accessable - Anyone can buy it
Anyone over the age of 18 (or 21 in some places) can enter into a contract and buy real estate. Property does not discriminate against your gender, race, religion, social status or income. It does not love you or hate you. It is simply there for whomever will go get it.
Appreciable – It increases in value over time
Real estate is virtually the only asset that is both an appreciating and performing asset. Appreciation simply means that as time passes, the value of the property will increase. Almost any other valuable asset you own will decrease in value over time.
Rentable – Cash flow! People will pay you to use it
Property is also a performing asset. So not only does it increase in value just for existing, its pays you along the way. Cash flow is our single most favorite attribute that real estate has to offer. In other words, a property will pay YOU every month, forever.
Leverageable – A little money controls a lot of asset
Leverage is all about using small amounts of your money and letting other people’s money, OPM, do the work. Next to cash, real estate is considered the most stable investment to own.
Because of this security, lenders will give you money secured on real estate. The risk is low for them because they know that:
- The asset can not be moved, stolen or easily destroyed
- The asset will appreciate in value
- The asset will belong to them if you cannot make your payments
Leverage is a very important concept. It is the way smart investors turn very little into very much. We explore powerful leveraging techniques in Chapters 7 and 8.
Improvable – Easy to add value
Property can be improved, and improvements add value. When done properly, the total value added is usually greater than the sum of the improvements. For example, if you purchase a property for $100,000 and add $10,000 in smart improvements, the property will likely be valued at more than $110,000.
Deductable – Tax Benefits
Real estate offers several tax advantages, especially if you have a proper strategy in place. Taxes erode your returns on other investments, including bank accounts, stocks, equities and bonds. In contrast, real estate investments offer you reduced tax rates, including tax-free capital gains on your principal residence, and the ability to deduct the wide range of investment expenses. We discuss tax structures in detail in Chapters 32 and 33.
Stable – Slow to rise and slow to fall
Unless you have your money in a guaranteed investment, barely making enough to cover inflation, real estate is the most stable and predictable investment vehicle. Of course, real estate values adjust to current market conditions, but these adjustments happen slowly and can be anticipated.
Liveable – Houses were made to live in
Human beings only have two material necessities: Food and shelter. Since that will never change, we can guarantee that our population will always need somewhere to live. Real estate is the only investment vehicle that experiences ever-increasing demand. In the long run, as demand rises, prices always follow.
Learnable – Anyone can learn it
Real estate investing is not rocket science. Nobody is born knowing how to be a successful landlord, but anyone who can read is capable of learning how to generate wealth with real estate. It also gives you a unique opportunity to participate in your community, by improving the neighborhood through quality investing and giving back financially.
We all live in, work in, shop in, and walk the dog on real estate. We shop in malls and shopping centers, go to work in office building, store our goods in industrial buildings, create our products in manufacturing facilities, and build dreams on raw land. During our lifetime, each of us will live and work in numerous dwellings. You and every person you know will come into contact with tens of millions of dollars of real estate every day.
“The real estate pie is so unimaginably large
that you only need the tiniest slice to become wealthy”
There’s enough slices of pie for everyone willing to take action. Very many people want to be wealthy, buy whatever they want, and create generational wealth to pass along. But very few actually accomplish this.
You may have heard it before and you will most definitely hear it again:
“Only those who take action will succeed”
No one serves you the “wealth pie.” You have to get up and get your slice.
