Why We Love REI
Appreciation
Canada has been ranked in the top 10 countries to live in the world in pretty much every article or news story. We have a welcoming immigration policy with currently according to the governments plan a total of 310,000-350,000 new permanent residents will settle in Canada each year. Of those immigrants half of them chose to make Ontario their home, this is close to the population of the city of Hamilton entering our province and settling in the GTA and Golden Horseshoe Area every 3 years. Currently we are no where close to building enough new rental units or even homes that are for sale to meet the demand in the growth of our population, this is one of the reasons we have seen such a huge spike in rental rates as the amount of quality rental units available is so small compared to the demand right now. And the demand is only going to increase. In the next 10 years if we are looking at getting approximately 1.5-2 million more immigrants into the province what’s the likelihood of there being less demand for our properties than more.
Leverage
Real Estate is one of the easiest investments to leverage. Now to be clear, this does definitely have a component of risk whenever you bring debt into an investment. However when you buy a good income property that produces enough rental income to cover the cost of your debt it allows you to gain leverage. A simple example of how powerful this can be is if you buy a property for $400,000 with a 20% downpayment of $80,000. And if that property simply appreciates 2% each year to match inflation, you actually make a 2% gain on the entire $400,000 which is $8,000, however in terms of a return on your investment of $80,000 this $8,000 is actually a 10% Return. Now add to the fact that the long term average appreciation of Real Estate in the Greater Toronto Area has been closer to 6% the numbers can be quite attractive as an investor as that would be a 30% return on investment per year.
Mortgage Paydown
Now even if we are completely incorrect and Real Estate does not appreciate $1 over the next 30 years. If you buy a good income property that covers its expenses with a traditional mortgage, it will be completely paid off and pay you a dividend each month. How does that sound for a worst case scenario… a $400,000 asset in exchange for your initial investment of $80,000… a 400% return over 30 years plus a monthly dividend for you to do whatever you want with
Cashflow
Now if you buy right your investment property should generate a monthly cashflow or at a minimum cover its expenses each month. If it does have a negative monthly cashflow make sure you have a rock solid plan to get it back to a positive cashflowing position. The cashflow you receive from buying an investment property in the beginning is likely not going to be much, however by owning multiple rentals over a good amount of time (10 years plus) you will really start to see the benefits. The way I look at cashflow in the beginning is insurance, it’s the money that you can use to cover unexpected expenses and to make sure that your investment is solid. Over time this can grow into a stream of income into your life. One of my mentors who started investing in the 70’s built up his investments to the point that he currently owns 2 apartment buildings right now, each with over 100 units. He told me that his 2 properties generate for him over $1000… each… per day!