Why Invest in Income Properties?
People do it for different reasons; a better return than the bank will give you, it’s less volatile than the stock market, an investment towards retirement, a nest egg for your kids’ education or simply as a business opportunity. Regardless, all reasons are good!
The fundamental benefit of investing in income producing real estate is the opportunity to own a tangible asset that has the ability to both grow in value and generate income. Couple that with the advantage of owning an assess for which the bank may be willing to finance up to 75% of the purchase, the tenants help pay the monthly mortgage, yet you reap all the benefits, such as a growing income stream, future appreciation and potential tax advantages. As for risk, while it is certainly present in the short run, an owner’s risk tends to diminish systematically over time as the mortgage balance is paid down, rents are raised annually and property values increase over the long term.
The Power of “Financial Leverage”
Investing in income property also allows you to take full advantage of the extremely powerful investment tool known as “Financial Leverage”. Financial leverage is simply the ability to purchase an asset of much greater value than the initial amount invested. That’s very important. Here’s the math. If you were to invest $250,000 in a stock or mutual fund and that investment appreciated by 10%, your gain would be $25,000. Using the power of “Financial Leverage”, if you invest the same $250,000 and apply it as a down payment on a $1,000,000 apartment building and it appreciates by the same 10%, your gain would be $100,000. That is four (4) times greater! Probably more than any other single factor, the opportunity to apply the fundamentals of financial leverage is why real estate has always been such an attractive investment alternative for investors.
A lot of expenses can be deducted; property taxes, insurance, repairs, inspections, evaluations, appraisals, real estate fees and depreciation to name a few. Talk to your accountant for more specific details.
Every month your tenants will pay you rent which you will apply towards your mortgage. Your tenants literally pay for your investment. Another benefit, an investment property is considered one of the greatest assets. It is can serve as collateral to borrow against should you need extra capital. Many investors will draw equity from one investment property and use that capital as down payment to buy another property.
Historical Price Perspective – Booming Rental Market
Over the last years the value of real estate has continually increased by an average of about 5% per year in Ottawa. Of Canada’s eleven major cities, Ottawa’s house prices rose the most during 2019, with a 7.38% average price rise, in some areas of the city, as much as 11%. As with virtually any investment, however there is no guarantee your journey will be always be smooth but the market always bounces back. If you’ve been a homeowner or real estate investor for any length of time, I’m sure this sounds familiar and you may have weathered some of these market cycles through the years. Bottom line, there have been periods where values decrease, but overall trends has been nothing but up!
Why Buy an Income Property Today?
Certainly no one can argue that real estate prices in the Ottawa escalated pretty dramatically over the last few years! Does that mean that now is a bad time to invest in income property? No, not at all, and certainly not for the more patient investor. The combination of moderating prices and low interest rates, coupled with Ontario’s new 2.1% annual rent increase continues to present an excellent window of opportunity.
What should you do?
We would suggest that there is never a bad time to invest in real estate and now is as good a time as ever. And, as you should always do before committing your hard earned dollars to anything, we recommend that you do your homework and seek good counsel from a Realtor who specializes in this business; contact us today!
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