Is Vancouver Real Estate a good Investment?
Often we get the question posed to us, why should we invest in Real Estate rather than other investment vehicles such as stocks, mutual funds and GIC’s. There are some fantastic reasons why you should choose Real Estate to be a part of your investment portfolio, and some negatives that you might not have considered. We read, adapted and added to an article written by Jim Yih that was written for canada.com
Along with Jim, I have had a positive experience when it comes to Real Estate investing, I have always surrounded myself with a great team, and now I am able to pass the same wisdom onto my clients as they embark on either adding Real Estate to their portfolios, or building their Investment strategy and increasing their assets.
Leverage is one of the great advantages of real estate vs other investment strategies. Real Estate financing is relatively easy to obtain, as the lender has a security for the loan (the property) and therefore is typically viewed as a less risky loan for the lender.
One major advantage of Real Estate over stocks and mutual funds is that you are usually in total control of the investment, you can choose your tenants who will be paying your mortgage, you can effect repairs if needs be, you can even live in the property should you choose. With stocks and in particular mutual funds, you have little or no control as to where your money is being invested or spent. For me, this is a large risk, as you are relying on others to make decisions relating to your investments for you, and of course, they will take a fee or salary for doing so.
Socks and Mutual funds typically have less associated fees than investing in Real Estate.
Real Estate investing is not without fees, and potential investors should be aware of that. There are several transactional costs associated, as well as ongoing costs. These could include lawyer fees, commissions, and other costs such as property transfer tax and home inspection fees. It’s important to have a good team around you that you trust when investing in Real Estate, and this can make the difference between building a mediocre investment portfolio, and one that generates you great cashflow.
As we have written in the past, I often have the discussion with new investors about the two types profits that can be realised from investment real estate. Capital appreciation and Cash Flow. Often investors focus on attaining a capital gain, or appreciation on the asset they purchase, this can prove a bad choice.
Cash flow should always be the primary goal when it comes to investing, in order for a property to cash flow, expenses including mortgage costs, taxes, maintenance and other expenses must be lower than the income derived from the tenants. If the property is not putting money into your pocket every month, then it cannot be considered an asset.
Time & Effort
There can be no doubt that Real Estate investing requires much more sweat equity than other, more mundane investments like stocks and mutual funds. Often you will find yourself dealing with tenants, arranging for repairs or maintenance or doing accounting for your properties.
You could of course arrange for someone to take care of those things for you, but then this impacts on your cash flow. I have some clients who do not mind to pay this extra cost, as it frees up their time. Others prefer or enjoy doing these tasks, would rather have a bigger cashflow, and others who enjoy doing them!
Risk & Reward
Risks regarding Real Estate investing are not often discussed, Jim stipulates that real estate carries a liquidity risk, meaning that its harder to sell your real estate than it is to sell stocks or mutual funds.
If your property isn’t cashflowing, then you might be stuck holding it, and having to put money in every month.
On the flip side if we look at some of the most wealthy people in the world, they have built, or hold their wealth in Real Estate. It can be extremely rewarding.
To conclude, its important that before you choose to invest in Real Estate that you do your research and consider all the options. It’s also important to have a great team around you, a Real Estate Agent, Mortgage Broker and Rental team if you want to use their services.
It’s equally important to have a plan in place so you can aquire the properties you want to, without hitting any roadblocks along the way. To put your plan in motion, or just to chat to see if real estate investing is right for you, give me a call and lets go for a coffee.
Adam Chahl – +1 778 385 6141