Posted on: 17-12-06 21:12:29
If you're thinking about buying a piece of real estate as an investment property, market conditions are definitely in your favour. While the resale housing market has seen a tremendous amount of activity from first-time buyers in the past year, it's also a perfect time for existing homeowners to invest in secondary residential properties.
Leverage:
Secondary home ownership is an attractive investment option because it gives you even more leverage than you have with your principal residence. Leverage is when a relatively small amount of your money controls a much larger asset - like a property.
The more leveraged you are, the greater the financial return on your down payment becomes if the value of your property increases. There are very few other investments which can be purchased with such a small percentage of your own money.
For instance, let's say you acquire a second property for $100,000, with a $15,000 down payment, and during the first year that you own it, the property increases by a value of three per cent for a $3,000 gain. As a result, the return on your down payment of $15,000 is 20 per cent - $3,000 divided by $15,000.
Other Investments:
By comparison, let's say you were to buy a term investment of $100,000 (in cash) for one year and it increased by $8,000 over the course of the first year. Since it cost you $100,000 in cash to buy it, the return on your investment is only eight per cent before taxes. Obviously, leveraging is a powerful way to make your money work for you.
Costs:
You should also be aware that the cost of obtaining a mortgage (for legal and appraisal fees) on a non-owner occupied property can be higher than the cost of obtaining a mortgage on an owner-occupied property, when more than one unit - such as a duplex or triplex is involved.
Interest rates charged on rental properties might also be higher because some lenders view these properties as being a higher risk.
As mentioned above, the main responsibility of having a second property is being able to carry it financially. And if you're like most people, you'll probably have to rent it to someone as a result.
This is also a great deal of responsibility because you will have to maintain the property in addition to your own principal residence, and you'll be responsible for finding tenants who you trust and feel comfortable with.
Some parents with grown children ready to go off to university or college choose to purchase secondary properties for their offspring to live in while they attend school. This gives them an excellent investment and they are assured that the occupants will take good care of the home.
--
Vimal Patel
I am removing your contact but not the whole post simply because this seems to be simple advertisement on your part. Since this is a discussion forum, the post can still be discussed without your contacts.
-----------------------------------------------------------------
Vimal Patel, Realtor
Homelife Royalcorp Real Estate Inc., Brokerage
Cell: 416-887-3745
Office: 905-856-6611
Fax: 905-856-6232
vimal.patel@gmail.com
http://www.vimalpatel.ca" rel="nofollow">LINK
Real purpose behind this write up is very clear. I am also of the opinion that investing in property is a good option, but looking for gains in just one year will be like asking too much. Amit has preferred not to disclose many expenses associated with the home buying which will completely change the picture of 20% gain.
-Ben
Quote:
Originally posted by benparsad
Amit has preferred not to disclose many expenses associated with the home buying which will completely change the picture of 20% gain.
-Ben
This has been posted by Vimal not Amit...I m sure its an oversight.
But you are right, the actual returns in the first year is not exactly 20% as the poster wants us to believe.
Hiren
Quote:
Originally posted by benparsad
Real purpose behind this write up is very clear. I am also of the opinion that investing in property is a good option, but looking for gains in just one year will be like asking too much. Amit has preferred not to disclose many expenses associated with the home buying which will completely change the picture of 20% gain.
-Ben
Hi Ben. It's true that 20% is not an exact figure of the rate of return on an investment property. This is only a simple example to illustrate the difference between investing in real estate vs. traditional investment methods.
There can be other unforeseen costs in an investment property. For example, maintenance costs, vacant units in a multi-unit property etc. In my case I have 3 investment properties that are for the most part running pretty smoothly. Last week I had to have a furnace serviced and a tenant whose lease had expired so I had to have the unit cleaned, re-painted, etc. But in the long run as long as my monthly expenses are being paid (e.g. mortgage, utilities, taxes) for the property I am gaining valuable equity in the property in the long run. The key here is holding on to the property for the long haul. Investing in a 2nd, 3rd property is a long term investment and you can't expect to cash in on your return within a few years.
--
Vimal Patel
Sales Representative
Homelife Royalcorp Real Estate Inc.
Cell: (416) 887-3745
Office: (416) 324-3320
http://www.vimalpatel.ca" rel="nofollow">LINK
-----------------------------------------------------------------
Vimal Patel, Realtor
Homelife Royalcorp Real Estate Inc., Brokerage
Cell: 416-887-3745
Office: 905-856-6611
Fax: 905-856-6232
vimal.patel@gmail.com
http://www.vimalpatel.ca" rel="nofollow">LINK
Don’t forget the basic fundamental principle of buying Investment Property.
*** ALWAYS BUY POSITVE CASH FLOW PROPERTIES** most of the properties in GTA are negative cash flow property. I.e. you will be loosing money from your pocket.
Income - (minus) all expenses (taxes, insurance, condo fees, 5% vacancy rate, utilities, maintenance) = net income.
Your net income from rental should cover you mortgage (with principle).
Quote:
Originally posted by vimpatel
Leverage:
Leverage is when a relatively small amount of your money controls a much larger asset - like a property.
The more leveraged you are, the greater the financial return on your down payment becomes if the value of your property increases. There are very few other investments which can be purchased with such a small percentage of your own money.
Perfectly right.
However, the ore leveraged you are, the higher risk you are taking. and if you have the capacity for risks, why not trade in foreign exchange where you can leverage upto 100 times easily - meaning that for an investment of $1,000, you can trade currencies for $100,000
And with that small a lot, it is entirely possible to make $200 in a day.....which will mean a 20% NET and actual return in a day!!!
Even if you leverage half of it, it gives a return of 10% a day.
Would you then advise such an investment??
Chandresh
-----------------------------------------------------------------
Chandresh
Advice is free – lessons I charge for!!
Hi Vimal
Can you also go one step further, by giving us the best area for 2nd house as an investment,( in terms of getting rent and capital appreciation ) and also the approx. rate of interst on the second mortgage.
Thanks
