By Valen Vergara
Indicators show that more than a quarter of Canadians are considering purchasing real estate as a means to increase their income. The likelihood that you will be involved in a real estate transaction and own property one day in Canada is higher than most other areas in the world.
If you hold a mortgage you are actually investing in real estate, and therefore, you are a real estate investor! There are many reasons why getting started in real estate is a great decision. If you are stuck, and uncertain if you should start investing, here are reasons that should help you get “unstuck.”
Real Estate Has Cash Flowed For Centuries
Creating an income by way of land ownership and property has been common practice for centuries. Feudalism was a combination of legal and martial customs in medieval Europe that flourished between the 9th and 15th centuries. It was a system of structuring society around relationships in terms of the holding of land in exchange for labour and service roles. Sound familiar? Thought so!
Not much has changed in that civilization presently runs along these lines. Renting out land and real estate is one of the oldest forms of entrepreneurship out there! Back then, nobility owned the vast majority of territory. Plebeians paid Kings, Queens, and Lord’s rental income to take residence and was tasked with maintenance and bestowed with the responsibility of caretaker. The overclass ruled the underclass in this manner. Today, even though the wealthy own a lot land and property, it is a different story, whereby any person can own land and property if they just have enough of a reason!
Other People’s Money (OPM)
If you think you cannot afford to purchase real estate you need to find someone who can. This is when you use borrowed funds by people to raise the return on an investment. For instance, leveraging borrower funds to purchase real estate supply on margin. The borrower now can use these funds on credit and structure repayment terms.
Generally, the payment schedule is one of two structures. The first can be a fixed preferred return in which the lender receives a flat interest rate before the borrower receives any profit. The fixed preferred return can be paid per annum (yearly), disbursed monthly. For example, if a lender charges the borrower 1% per month on any unpaid balance, the per annum rate is 12%.
Secondly, the borrower may extend the opportunity for the lender to take part in an equity split partnership where the lender and the borrower share cash flow that results with an income property after all expenses, mortgage pay down, and equity appreciation.
Either way, both parties can take advantage of real estate investments in this way and form a joint venture agreement. This is when a “money partner,” and a “working partner,” work in tandem and invest in real estate operating under specific terms and conditions.
Risk And Reward
For the most part, unlike investing in stocks or securities, real estate investments can lower your risk-adjusted return.
Your risk-adjusted rate of return is improved by calculating how much risk is involved in generating a return. This is represented by a numerical rating. The risk-adjusted rate of return is factored after carrying out a risk assessment with regards to your investment over a predetermined time horizon.
Correspondingly, when comparing the same risk categories with many other investment classes, statistically, real estate has a lower growth risk and a better risk-adjusted return or comparative performance.
Taking into account different real estate cycles, the act of simply holding on to real estate can create a higher return just by marketplace appreciation, without any danger of overall portfolio risk. Now that is a reason for the season!
Necessity Driven
Real estate investments are physical assets. Tangible. Everyone needs a place to live. So investment properties are always in high demand.
If someone does not have the down payment to purchase a home they most likely will be able to come up with a damage deposit for rent. So living services are an invaluable commodity to all socioeconomic groups.
Having land and property means you can add value to the economy where it is needed most. Owning land and property and forcing appreciation into your investments can cause gentrification. Gentrification is what happens when an area appreciates in value and undergoes urban renewal and community economic development.
The value of real estate will always remain because shelter is a basic necessity! Many would say it is a human right. All in all, you can get started in real estate, and these reasons and others lend a helping hand to do so. You can make reasons not to get involved in real estate or allow the right reasons to get you going.
However, you can’t do both.
Valen Vergara
www.valenvergara.com
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