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James Knull
RE/MAX Real Estate
10805 - 120 street, Edmonton, Alberta
P: 780.488.4000
F: 780.426.5700
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Why Invest in Real Estate?


Rental property has the benefit of yielding monthly income, providing guaranteed growth, and providing a market return, amplified by leverage. No other investment vehicle offers all three of these benefits simultaneously.

 

 

CASH FLOW


Every project will have revenues and expenses leaving a bottom line profit. Rental property is no different. With enough rental properties in one’s portfolio, the cash flow could provide a livable income. Every year rents can be increased, however, the monthly mortgage payment stays stable over the life of the mortgage. As a result, the cash flow increases year after year.

 

FIXED GROWTH


Fixed growth is becoming an increasingly popular proposition as the market continues its downward trend. The security offered by a predictable return providing peace of mind. A mortgage is a debt repaid to the bank over time. Each year there is a predicable amount of money that is transferred from bank debt to owner’s equity.

Over a 25 year time line, even if the market doesn’t increase at all (an unlikely proposition) the entire purchase price of the property will be owned. As a example, a $300,000 dollar property is purchased using a $60,000 down payment. Paying off the mortgage represents a 500% return on investment over 25 years. 20% per year expressed as simple interest is extremely impressive as a guaranteed return.

 

MARKET GROWTH


Every year the real estate market fluctuates, however, over a long enough timeline, every market will usually trends upwards. The minimum recommended timeline for a project to insulate against a market downturn is five years. In Alberta, over the last 50 years, the average real estate market return over positive and negative years has been slightly higher than 7%. As a conservative approach, I suggest using 5% as a benchmark for to account for the current downturn lowering the average.

The ability to Use leverage makes real estate a superior investment. Mortgage money is borrowed from the bank at a ratio of 4:1. In other words, five times the money invested grows, therefore, the returns also increase by a factor of five. 25% per year is the resulting yield. Combining the market growth with cash flow and fixed mortgage pay down results in impressive overall returns on investment.

 

Conclusion


Rental property makes sense as an investment because of the three diverse ways it produces returns. Cashflow can provide a livable monthly income with even a modestly sized portfolio. As you enjoy this income, your net worth actually increases over time as market forces increase the value of your property and the mortgage is steadily paid down. Imagine having a livable income during retirement without having to dip into the equity into your portfolio to do so.

If you’re excited about getting started, let me help you do it right!

 

 

The data included in this display is deemed to be reliable, but is not guaranteed to be accurate by the REALTORS® Association of Edmonton. Data last Updated: Sat, 16 Dec 2017 15:04:23 America/Edmonton
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