In this article, we will explore how this strategic investment can help you build equity and amass wealth over time. By the end of this read, you'll have gained valuable insights into the world of real estate as an exceptional vehicle for investment.
Consistent Cash Flow - Once you take a plunge and invest in a suitable Real Estate property, it provides you with a constant stream of monthly income, which you will utilize to pay off your mortgage. And the main point here is that with every month's mortgage payment, part of it goes towards the principal, thus building your property equity. Let us understand with an example, suppose you buy a Semi-Detached freehold home for $650k with a down payment of 20%, and you lease it out for $2,500 per month. There are significantly fewer investments where you invest $130,000, and they start generating revenue of $2,500 per month. And here, we should remember that your initial investment is secure in this tangible asset. The generation of passive income and its ratio depends on the quality of the neighbourhood and property type you have invested in, and if done right, it has its benefits.
Appreciation - The presence of a tenant in the property, in addition to providing you with the monthly cash flow, also helps you buy time to be in the market. With time, the property values based on your market will increase and, in turn, your equity in the property. The appreciation happens in Real Estate due to the finiteness of space and the region's population growth. If you are in a market like ours in Greater Toronto Area, if you have made the purchase correctly, it will grow with time in the longer term and build wealth passively. In this image, you can see how the Real Estate Market in the long term has behaved in the Greater Toronto Area in the last 50 years. There have been fluctuations in the market, like the one we saw last year in 2022. However, in the longer term, those have been evened out.
Tax Benefits - Owning investment properties also brings some tax advantages. You can deduct many expenses, such as property management fees, insurance, repairs and maintenance, from your taxable revenue. In addition, all expenses related to operating your investment property can be written off from your income.
Control on your Investment - Unlike investments in stocks, and mutual funds, which are intangible assets, where we invest and just wait for the market to do the trick. There is a greater sense of control over your assets in Real Estate. For example, for a particular Real Estate investment, you can control its rental cash flow by upgrading its features, or improve the property's utility by upgrading it and increasing the worth of the asset, and realize at the time of sale. This greater control over the behaviour of assets is only possible in Real Estate and is one of the major reasons why it is considered a good investment.
Refinance Opportunity - A Real Estate asset is unique in that it can be utilized to renegotiate your existing mortgage with the financial institution. This way, you can withdraw equity built over time in your Real Estate asset and utilize that to make another more significant purchase. Our clients have at multiple instances have used their assets to develop their portfolio further, provided they have the income and lending qualifications for the financial institution.
We can see how investment properties can be utilized to create a steady stream of income from rent payments and, at the same time, build your wealth with time in the asset, and down the line utilizing the same asset to leverage on the equity built to expand your portfolio.
Wish you all the very best! Reach out to our dedicated team at Elixir for any queries you have in Real Estate and we will do our best to help.
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