Investing

The Advantages of Real Estate Investing

Cash Flow

Cash flow is essentially your monthly profit. It’s the amount of money you have left after all your expenses are paid. Not only is cash flow your profit, but it’s also a safety net that buys you time. If you’re losing money on a real estate investment, you may be forced to sell. If the property is cash-flowing, you can wait it out, time the market, and sell on your terms.

Mortgage Paydown

This is the amount of money paid off your mortgage every year by your tenants.

Appreciation

This is the value gained by the real estate asset over time. Since property values and market rents tend to go up over time, it’s a great way to hedge against inflation.

Tax Benefits

Talk to your accountant, but there are a variety of tax benefits and write-offs you can take advantage of through your rental property.

Methods of Real Estate Investing

Fix n Flip

This involves finding discount-priced properties in sought-after neighborhoods; renovating them, and selling them for a profit. Key components include; buying at the right price, ensuring a high ARV (after repair value), and keeping the renovations on budget.

Pros:
Flips have the potential for high returns.

Cons:
Added risks such as getting caught in a down market or going over budget on renovation costs.

BRRRR Strategy

This acronym stands for Buy, Rehab, Rent, Refinance, and Repeat. Many investors buy your typical 1960s bungalow, put a legal suite in the basement, get it rented, refinance the property thru the lender (pulling out most of their equity), then roll those proceeds into the next investment property. It’s a great way to build long term wealth.

Pros:
Can act as a great method for building a large real estate portfolio over time. You are essentially recycling and reusing your money, from one project to the next.

Cons:
Investors can often hit a “lending wall”. As you acquire more properties, it will get increasingly more difficult to get approved for financing on both the purchase and the refinance. It is best to speak with an investor-focused mortgage broker to help plan accordingly. Real estate investing is like a game of chess, you always need to be thinking a few steps ahead.

Turn-Key Rental:

This method involves buying an existing investment property that doesn’t need renovations and usually holding it long-term. Whether that’s a single-family home, a legally suited home, or a multi-family building.

Pros:
Probably the safest and most conservative method of investing, there is far less risk, since you don’t need to undertake a large-scale reno.

Cons:
Since you aren’t undertaking a reno there is less “upside” since you aren’t doing a “value-add” renovation. That being said tho, there’s also far less risk. As with any investment; higher returns tend to also mean higher risk.

“House Hacking”:

This method involves purchasing a personal residence and either renting out rooms or developing a legal suite to rent out. I am a huge proponent of this method, especially for young people, first-time home buyers, or empty nesters. People can save a lot of money by developing a suite, then either living in the suite and renting out the rest of the home or vice-versa. You can almost cover your entire mortgage using this method.

Pros:
Drastically reduces your living expenses and allows you to put money away for future investments. Since the home is your personal residence, if and when you do decide to sell, the gains would be tax-free.

Cons:
You would be sharing a home with renters, which isn’t for everybody.

Being a real estate investor myself, I believe that there is no one strategy that’s best. It all depends on people’s financial situation, skill-set, and time availability. In addition, the current real estate market needs to be considered.

I like to sit down with clients and figure out their goals and their vision. From there, we work back and figure out the best plan moving forward and the best method to get them to where they want to be.

Real estate investing is my passion and I absolutely love helping my clients achieve wealth through real estate. With my knowledge of the market in and around Edmonton, and my experience as a realtor, real estate investor, flipper and general contractor, I believe that my clients have a competitive advantage and will be able to consider all options and decide what works best for them.

If you are new to investing or you’re an out-of-town investor, we can provide you access to our team of professionals including lawyers, mortgage brokers, contractors and property managers.

Tips for Investing

  • Numbers

    Don’t get emotional: investing is a numbers game and the numbers need to make sense. The data and terminology can be overwhelming: cash flow, return on investment (ROI), Net Operating Income (NOI), cap rates, proforma’s, construction costs, holding costs, rental rates, interest rates, amortization, etc. Sometimes you feel like you’re drinking water from a fire hose.

    There is no one size fits all in real estate investing and there’s no right or wrong way to go about it. Different methods work better for different people. With my experience in REAL ESTATE, INVESTING and CONSTRUCTION, we can figure out what will work best for your specific situation.

  • Tenants

    Don’t get emotional: investing is a numbers game and the numbers need to make sense. The data and terminology can be overwhelming: cash flow, return on investment (ROI), Net Operating Income (NOI), cap rates, proforma’s, construction costs, holding costs, rental rates, interest rates, amortization, etc. Sometimes you feel like you’re drinking water from a fire hose.

    There is no one size fits all in real estate investing and there’s no right or wrong way to go about it. Different methods work better for different people. With my experience in REAL ESTATE, INVESTING and CONSTRUCTION, we can figure out what will work best for your specific situation.

  • Have a Plan

    Will you be living on the main floor and developing a legal suite in the basement as a “mortgage helper” or vice-versa? Do you want a “turn-key” rental property that’s ready to go? Do you want a value-add project that you can refinance or BRRRR (Buy, Rehab, Rent, Refinance, Repeat)? Do you want to do a fix-n-flip? Do you want to invest in multi-family or single-family? How long will you be holding the property?

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    If you have any questions or are looking to connect with a local Fort Saskatchewan Realtor, contact me today!

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