Real estate investment has always ranked as a top wealth generating investment approach. According to the College Investor, “Over the last two centuries, about 90 percent of the world’s millionaires have been created by investing in real estate”. Considering the competitive market with extremely high demand, unpredictable conditions related to COVID, and the unprecedented low interest rates, entering the market can be a difficult. In the face of these challenges, investors must carefully evaluate their financial circumstances and plan for the long term when in Real Estate. So what are some key considerations when considering a Real Estate investment? Many people get excited about adding to their real-estate portfolio and consider the financial gains on the property purchase and sale price, but don’t examine the impact of mortgage financing options as one of the strategic ‘make it’ or ‘break it’ factors in calculating the holistic capital gains related to a given property acquisition decision. We are going to examine the 4 key factors to help you make an informed decision regarding your real estate portfolio.
|Short-Term||Buy to Sell or Flip||Quick turnaround by purchasing a property that is highly desired or that allows for value creation through remodeling and renovations||Quick flips or fix and flips are risky as there is no guarantee that there is a buyer out there willing to pay for a property more than you purchased without any increased value generated – there could also be market implications that prevent a quick sale and may turn into a medium-term strategy that requires cash injection, and extra money on hand to hold|
|Medium-Term||Buy to Hold||While there are no guarantees, property prices often times go up over time, and most investors leverage rental income to maintain the property and build equity.||May not be able to find the right tenant to rent the property, can incur unexpected damages that require repairs, and ultimately may not be able to sell it at a desired price. Upkeep and maintenance charges are unavoidable in most rental arrangements. Also some land-lords experience unexpected vacancies or damages to their properties. A downturn in the market can lead to lower valuations.|
|Long-Term||Buy to Build||Potential ability to create significant value in an under developed neighbourhood to support housing needs and benefit from market growth as well as increased valuation||Typically lack cash flow until developed and there are many dependencies on permits, public hearings, density, and land development strategies planned by city planned in the particular neighbourhood|
- A) Purchased at $1Million, Sold in a year at $1.1 @7% Mortgage = 3% Earning
- B) Purchased at $1Million, Sold in a year at $1.1 @3% Mortgage = 7% Earning
Posted on by Amin Eskooch