From helping thousands of everyday people purchase their first, second, and tenth(!) income property — and from doing it many times ourselves — we can say confidently that real estate is one of, if not the best long-term investments you can make.
In addition to the financial benefits, owning real estate has also proven to be predictable and safe.
This rare blend of low risk and high rewards gives credence to the famous quote attributed to Andrew Carnegie: “Ninety percent of all millionaires become so through owning real estate.”
Quotes like this have a way of simplifying larger concepts and helping us make sense of the world around us. In this spirit, let’s take a look at what makes real estate such a powerful investment through the frame of other famous quotes.
Homes are Essential
“There is nothing more important than a good, safe, secure home.” – Rosalynn Carter
The essential nature of a home is, in large part, what makes real estate one of the safest investments you can make. Houses are not only tangible and therefore hold a physical value, but they also perform an essential function in societies everywhere: shelter. As long as people need a place to call home, real estate will have value.
“Buy land, they’re not making it anymore” – Mark Twain
Not only do homes perform an essential function, but they also happen to be built on a scarce commodity: land. As populations grow, land becomes more precious and valuable. The necessity of homes, when combined with the fixed supply of land, is a potent one-two combo for stable, long-term growth.
“Don’t wait to buy real estate, buy real estate and wait.” – Will Rogers
One of the best long-term benefits of owning an income property is the equity you gain through market appreciation.
If, for example, you purchase a $500,000 property and its value increases 5%, you’ll have gained $25,000 in home equity. And, as your equity grows, you can draw from it to purchase more properties or for other purposes.
Over time, the financial gains realized through market appreciation — as we’ve seen here in Waterloo Region — are substantial and, often, greater than you’ll achieve through other investment vehicles.
Here’s a big reason why:
“In the broad definition, “leverage” simply means the ability to do more with less.” – Robert Kiyosaki
Simply put: when you invest in real estate, you’re able to obtain — and make financial gains on — an asset that’s 5x the size of your investment (which is your 20% down payment).
If you buy $100,000 in stock and get a 5% return, you’ve made $5,000.
With that same $100,000, however, you could purchase a $500,000 home. If that home’s value increases 5%, you’ve gained $25,000. That’s a 25% return on your investment.
Even at a 2-3% yearly value increase, real estate delivers serious ROI.
And, even if your home NEVER appreciated, you would still make significant financial gains. This brings us to our next benefit:
“Landlords grow rich in their sleep” – John Stuart Mill
Leverage is about making your money go farther; mortgage paydown is about making your money work smarter.
Your tenants, when they make their rent payment every month, are essentially paying for your home (by covering your mortgage costs).
Again, even if the market never appreciates after you buy your property, over time you will own an asset worth 5x your initial investment.
Using the example from above: your $100,000 investment would be worth $500,000 once the mortgage is paid.
And, depending on your situation, that could happen sooner than later – which brings us to…
“Never take your eyes off the cash flow because it’s the lifeblood of business” – Richard Branson
You already know this from managing your day-to-day finances: money in – money out = a positive or negative value in your bank account. The goal, of course, is to have more coming in than going out; it’s no different when owning an income property.
It’s possible, even with your mortgage, insurance, and other costs of doing business to achieve POSITIVE cash flow through your real estate investment. This money can be used to pay down your mortgage faster. And, as your mortgage payments drop (and eventually disappear), your cash flow increases!
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson
This quote, for the record, is in no way attempting to disparage other investments; huge gains can be made responsibly through stocks and cryptocurrencies. But, often, big rewards come with commensurate risk, in-depth knowledge, and perhaps a bit of luck.
Investing in real estate, however, is relatively safe, steady, and easy to understand. As long as you understand the basics, you don’t need to be glued to the Wall Street Journal or Nasdaq ticker all day long.
Real estate can truly be a hands-free, stress-free investment. Speaking of which…
“A wealthy person is simply someone who has learned to make money without working” – Robert Kiyosaki
Owning an income property doesn’t need to be a day-to-day job. You can take steps to remove virtually all the maintenance, effort, and thought from the equation.
Examples of this include purchasing a newer home that’s low maintenance and hiring a property manager to handle the day-to-day management of your renters and property.
We dedicated an entire article to this topic because the concept of passive income is so powerful.
“If you would be wealthy, think of saving as well as getting” – Benjamin Franklin
So far, we’ve talked a lot about income. The other side of the equation you need to manage is your expenses.
There are costs to owning an income property. The good news, however, is that, like with owning any other business, you can deduct the reasonable costs of owning your income property. Improvements, property management, mortgage interest — the list goes on.
Knowing which levers to pull and buttons to push can put thousands back in your pocket at tax time. Partner with a great accountant who focuses on income properties to get the best results.
Recession and Pandemic-Proof
“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world” – Franklin D. Roosevelt
Long-time Canadian real estate investors can attest to the accuracy of this quote.
The Canadian real estate market has both survived economic downturns and, as we’ve now seen, thrived during a global pandemic. In addition to the essential nature of a home, the day-to-day utility and comfort it provides have become so much more pronounced and therefore valuable over the past year.
Add in the mortgage qualification safeguards built into our system to protect against mortgage defaults and you have an investment vehicle capable of weathering storms large and small.
“Always invest for the long-term” – Warren Buffett
If you go back and re-read this article, you won’t see any mention of “flips” or “instant profits” or “getting rich quick.” Like most things in life, progress requires dedication to a plan and the willingness to be patient.
But, in the case of real estate, the requirement of patience is paired with a proven model for — and track record of — growth. If you want sustainable long-term wealth, real estate, for so many reasons, is an option you’ll want to consider.
And you can quote us on that.