Throughout the ages and even now in modern times, most of the world’s wealthiest people have either created their fortunes or held their fortunes in real estate. Historically, Real estate law was originated in the 11th century when feudalism (a system based on personal ownership of resources) was introduced to England by the French-speaking Normans. The words “real estate” are derived from the term, “Royal Estate” (“real” originating from the French term “Royale”) since all property was initially owned by the King. In modern times, Wal-Mart (the biggest privately owned retail chain in the world), has recently opened up it’s own real estate division. Wal-Mart Stores Inc. owns all of the real estate it’s stores occupy. The corporation was once owned by one man named Sam Walton. If he was still alive today he would be the richest man on the planet.
You may be asking yourself, “why is investing in real estate is so profitable compared to other investment vehicles?” Let us look at some of the many advantages. The fact that real estate can be easily leveraged is a MAJOR advantage over other popular investments like stocks and mutual funds. Stocks typically cannot be leveraged much, if at all. If you don’t believe me, try to ask your banker to give you a loan to buy mutual funds! Even with the conservative nature of the banking system, any bank will not have a problem lending on a good piece of real estate. Here is an example: a $40,000 stock purchase means you own $40,000 worth of that stock. If you put that $40k down payment on a $400k house in Toronto, let’s say it increases at a conservative 4% per year. In the first year you own this house, you would not only gain that 4% appreciation on your down payment… you would gain the appreciation on the entire purchase price, the whole $400,000! This equals a capital gain of $16,000 in one year. You have now created a 40% ROI or Return On Investment, which is a great return on your money ($16k divided by the your $40k down payment). This is only one of the ways real estate will increase your wealth. The other two ways are positive cash flow (from rental income) and equity buildup through mortgage paydown.
The great thing about equity buildup is while the income comes in from your properties, paying your mortgage down, you will build equity. Not to mention you can pull that equity back out of the property and use it to buy more properties! This is called subordinate financing, a tool Ray Kroc, the founder of McDonald’s, used to create his empire. Did you know McDonald’s owns more real estate than the Catholic Church? Just something to think about…
Positive cash flow is a combination of selecting the right property in the right area and competent property management. You must select a property where the tenant profile and rents are high, and still have a low enough purchase price to keep the mortgage costs down. This, in turn, will lead to the rental income from that particular piece of real estate to exceed the mortgage, taxes, utilities and insurance. These will be your main expenses for the property. If the positive cash flow is high enough, you will not only benefit from extra spending money, but also easily cover the costs of minor maintenance repairs that need to be done from time to time.
Of course to realize all of these enormous benefits of investing in real estate you must, of course, take action! Whether it is a single family home or a 20 unit apartment building, use the help of an expert who specializes in this field of real estate to keep you on the right track. The cost of a good Realtor’s expertise is well worth the gains he or she will help you achieve through proper real estate acquisition, and all of the world’s wealthiest people know how great an investment real estate is. It’s time for everyone to start taking advantage of this same strategy. If you are reading this from the Greater Toronto Area or surrounding cities/towns, I am more than happy to sit down with you for a free consultation in a coffee shop of your choice, to show you the plan for achieving your goals in real estate and show you the path to financial freedom. Whether it is your first or your 20th property, call or email now so we can get you onto the fast track!
By: Kyle Bouchard