There are many reasons why people choose to invest in real estate. When done wisely, with the expertise of an experienced Realtor, it is one of the best ways to build wealth and prepare for your financial future. Compared to traditional investments like RRSPs, stocks and bonds, your dollar goes much further when invested in real estate.
Individuals who have invested in the Canadian real estate market in the last five to ten years have seen incredible returns on their investments. However, with the success of the market, prices are at an all time high making it harder and harder for first-time buyers to get their foot in the door. With prices reaching a level of stability, it seems that the time to buy is today, but yesterday was definitely better.
A REAL ESTATE REALITY CHECK
For those of you looking to get into the condo market expecting a cash flow positive investment property, the reality of the market today is that this is not as easily achieved as it once was. Put simply, the higher the market gets, the more you’re going to need to cover your carrying expenses. Gone are the days where 20% down is going to cover you.
This is not meant to discourage you from investing in real estate. The real estate market is still a low risk, high return investment plan. The intention here is to set expectations: while your investment may or may not be cash flow positive, there are ways to approach your investment that will reduce those margins, as you build equity.
PURCHASE REAL ESTATE FOR WHICH YOU CAN CHARGE A PREMIUM
Determining what sets a premium really depends on the market at the time. Right now, 1 level units with plenty of windows are in high demand and will typically rent quicker than a 2 level unit. Prices also favour properties set in mature quiet neighbourhoods and not busy intersections.
When it comes to square footage, a smaller two bedroom condo will rent for a higher price per square foot than a larger two bedroom condo. For example, a 680sqft condo with two bedrooms and two baths will rent for a higher price per square foot than a larger two bedroom condo with the same amenities. Why?
Because the average rental price for two bedroom condos is based on what the area commands; the size won’t have too much of an impact on the overall rental price but it could impact your overall purchase price. Opting for a smaller one plus den or two bedroom investment condo allows you to net a higher return and reduce carrying costs.
If you’re planning on holding your investment as a long-term rental property, you can invest in a disadvantaged unit which will be cheaper on signing for reasons like poor view, proximity to garbage area, and so on. If the building is in a prime location, you’ll still be able to charge a competitive rental price for a unit that cost you far less in comparison to the premium units in the building. However, when it comes to resale of your investment, you get what you pay for. The same reasons that made your unit inexpensive on signing, will affect your resale price.
THE BENEFITS OF BUILDING EQUITY
The bottom line is anyone looking at real estate as a means for creating wealth that hasn’t yet gotten into the market is missing out. Point blank. The sooner you’re able to get your money to start working for you by getting into the market, the better. To ensure that you are comfortable, choose an investment that fits your financial situation and risk tolerance.
We know by precedent that by holding a property it will increase in value. Historically in real estate averages a 3% increase year-over-year, though the market has been out-pacing this average in recent years. While you may not be generating cash flow, you are building equity — and fast. As your mortgage goes down and rent prices go up, your rental income will continue to increase.
As your investment builds equity, you’re able to borrow that equity (up to 75% of the property’s market value) allowing you to leverage that money into additional properties. As your portfolio grows, you’ll eventually be able to sell one of the properties allowing you to pay off balances, leaving you with several properties building equity, no remaining debt, and a healthy cash flow positive rental income.
So while it’s much harder to land a cash flow positive investment in today’s market without putting a huge amount of money down, if you invest in the market wisely and within your means you’ll begin building equity, growing your portfolio and amassing wealth.
Click each of the links below to view printable pdf ROI Sheets for each price grouping of the Windham Place Condos
ROI is one of the most important calculations to do when considering a new income property. ROI stands for “Return On Investment”, and represents the amount of money you’re making on a particular investment.
The formula looks like this: ROI = (gain from investment – cost of investment) / cost of investment
Have a look at the Estimated ROI examples we have provided for you and let us know any questions.
PS: We have potential tenants looking for places to live. Its good the before you agree to rent to anyone that you meet them in person and do a thorough review of their background.