Investing in real estate is one of the most effective ways to grow your personal wealth. For many, the process begins and ends with the purchase of a family home—and there’s nothing wrong with that. The equity built through homeownership has helped countless Ontarians retire comfortably. But what if you’re interested in investing more—and seeing bigger returns? It’s not nearly as difficult as many people think.
In this post, we’ll show you what a basic, long-term real estate investment strategy might look like…
Your first property
Let’s say you’re a renter who wants to become a homeowner, and you have a decent nest egg set aside. You’re also interested in the impressive financial benefits associated with buying a rental property. While you definitely have options, buying a home that contains a secondary suite could be your best bet.
This type of arrangement will allow you to generate monthly income by renting out a self-contained living space within your home. Usually, we’re talking about a basement suite with a separate entrance.
The rental income you’ll receive each month will help offset your mortgage and other costs of living, and you’ll be able to write off certain expenses (such as some repairs that arise). Keep your discretionary spending low, and you’re on the road to building up some serious savings!
Boost your rental income
Fast forward a few years. Your day-to-day expenses should be largely covered by your rental income, and you have a significantly bigger savings account than you did before. You also have plenty of experience acting as a landlord. The skills you’ve learned will come in handy if you’re ready to level up and start seeing bigger returns.
Now is the time to consider leveraging your equity to purchase a multi-family building, such as a four-plex. You can apply for a traditional equity loan (which will mean predictable payments over a fixed term) or an HELOC (a revolving line of credit that will allow you to take money out when you need it).
Over the next few years, you’ll greatly increase both your cash flow and your overall rental income. Having four new tenants may seem overwhelming, but it doesn’t have to be! An agent who has experience with investors can help you find the ideal property, offer some helpful hints, and even help you locate a well-equipped property manager if need be.
Where do you go from here? After you’ve managed a multi-family building for a few years, you may want to diversify. A great way to do that is by adding a commercial property to the mix. To make your purchase, draw from the equity in your home, that within your multi-unit property, and from your savings.
The cash flow you generate now should be very substantial. Of course, you’ll also face new challenges—like choosing the ideal commercial building, and learning the ins and out of dealing with a new type of tenant. There will be a bit of learning curve, but everything you’ve learned as a landlord so far will be helpful.
The best advice at this stage is, don’t be afraid of this major opportunity. By outsourcing much of the work to trustworthy professionals, you can minimize the time and effort you put in—not to mention your stress levels.
Cash-out and diversify
Ready to retire? After a couple of decades in the real estate investment game, you should be well set up to do so. Now is the time to consider selling your multi-family building, pay off your line of credit, and start fully reaping the rewards of your long-term strategy.
Many investors use their gains to make the lives of their family members better. Others travel or buy the vacation home of their dreams. The point is, years of smart, relatively-conservative investing gives you plenty of options.
Things to consider
Real estate investing is all about numbers. Approximately how much can you expect a property to appreciate annually? How much is your annual income set to rise each year, and (crucially) at what rate can you expect to borrow money?
You may not have the answers to these questions, and that’s okay. Working with the right real estate agent, lender, and financial advisor will set you on the right path—and give you the confidence you need to achieve your goals!
Thinking about buying a home as an investment in the near future? Reach out to learn what’s happening in the market—and what it means for you.