Read this before you buy an investment property!
Are you thinking of investing in real estate? If so, you are making a wise decision! (We're a little biased but we think it's the best thing ever...)
Real estate is a great way to build wealth over time. However, there are some things you need to know before getting started. In this blog post, we will discuss a bit about the basics of real estate investing and provide you with some tips to help you get started.
There are different types of real estate
First, you need to understand that there are different types of real estate investments. There are many different kinds of real estate, including residential, commercial (office buildings, retail stores, etc), industrial, and land.
At this point, we only invest in residential real estate so that's our area of expertise! So let's dig into that.
Our speciality: Residential real estate
Residential real estate includes properties such as single-family homes, multi-family homes, and condominiums. Our portfolio currently consists of single family homes and duplexes in the province of Ontario, Canada. Many investors start with buying a little single family home or duplex to start, because it's a relatively low cost and feels less overwhelming than something bigger.
Where we live, you need to put 20% down on an investment property. You can buy something that needs a little work, or something that is ready to rent out.
If you are living in the property, you only need to put 5% down. Some people buy a house to live in and rent out part of it (half of a duplex or rooms in a single house) and do something called househacking. This is a GREAT way to get started with real estate investing!
There are different strategies you can use
We won't go into detail here about all the strategies you can use when investing in real estate, but we just want you to be aware that there are a lot! Which one you choose really depends on your goals, risk tolerance, and financial situation. Here are some of the different approaches you can take:
If you are holding onto the property, you can rent it out short term (eg. Airbnb) or long term (eg. annual lease).
You can also join up with others in you real estate investments and be an active partner or a money partner!
Risks & Rewards
In addition to knowing about the different types of real estate and strategies, you also need to understand the risks and rewards associated with real estate investing.
Like any investment, there is always some risk involved. You have to be careful to choose your properties, partners, and tenants wisely. To know your true cash flow, make sure to know how to analyze properties well, and don't forget about any sneaky expenses! Some risks of real estate investing include bad tenants, negative cash flow, and market downturns. However, if you are willing to take on a little bit of risk, the potential rewards can be amazing.
Real estate investing can offer you the potential for high returns, long-term wealth creation, and a hedge against inflation. One of my favourite things about real estate investing is how there are so many benefits:
your tenants pay down your mortgage
you get cash flow every month
you benefit from passive appreciation as house prices naturally increase over time
you can force appreciation by doing renovations and improvements
there are great tax benefits
I think one of the best things is that you benefit from 100% of the value of the property but you only put 20% into it! (unlike stocks where you pay 100% of the stock and benefit from 100%). For example, say you put in 20k on a 100k house... as inflation happens and house prices increase, you are benefiting from an increase of value on the whole 100k house, not just on that 20k!
Self reflection time: What are your goals?
Now that you know the basics of real estate investing, it’s time to start thinking about your investment goals. What are you looking to achieve with your investment? Are you looking to generate income, build wealth, or both? Once you have a clear understanding of your goals, you can start to look for properties that fit your investment criteria.
If you’re ready to start investing in real estate, be sure to do your research and always consult with a professional before making any decisions. With a little bit of knowledge and effort, real estate investing can be a great way to achieve your financial goals.
We hope you enjoyed this blog post. For more information on real estate investing, please feel free to contact us. We would be happy to answer any of your questions and help you get started on your real estate investing journey. Thanks for reading!