If you want to be a multi-millionaire, doesn’t it make sense to study the people who have reached this status and understand how they got there? According to a study by Forbes magazine, real estate is typically about 40% of a millionaire’s net worth, especially when they are the recipient of generational wealth. In this post, we’ll take a look at why so many affluent people invest to such a large degree in real estate and how real estate investing can help grow your wealth long-term.

Thinking about acquiring a pre-construction property? Learn more about our New Construction Specialists right here.

Knowing Your Objectives

We will start by exploring the general objectives of investing and compare how real estate investing measures up. When you Google the objectives of investing in general, the most quoted statements are:

1. Don’t put all your eggs in one basket- diversify to protect against inflation as well as
   market vagaries
2. Create multiple streams of income
3. Look for passive income
4. Do your research and stay informed

How does real estate investing stack up against these four goals? In general, real estate investing offers the chance to diversify, which helps to protect and grow wealth. Not many investment vehicles can offer the same level of advantages.

Right off the top, you own something that is tangible and real, bricks and mortar rather than numbers on a screen, so to speak. A tangible asset that appreciates (as it has always done historically over time) creates a foundation for further investment. Other advantages can include:

• A ready cash flow of passive income
• Asset appreciation
• Asset leverage for further investment
• Leverage of initial investment for higher yield
• Tax benefits
• Diversification
• Principal paydown

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A safe and family-friendly community often makes a great place for a real estate investment. Learn more about Barrie in the posts below:

• Is Barrie a Good Place to Live With a Young Family?
• What Are the Best Retirement Communities in Barrie?
• Is Barrie, Ontario, a Safe Place to Live?

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The Ability to Leverage

Nothing can grow your wealth faster than leverage through mortgage financing or private lending. Here’s an example of how this could work in the real world.

Let’s say you have $100,000 to invest. You could purchase $100,000 worth of stocks. Alternatively, you can buy $400,000 in real estate with just a 25% down payment. (You might even be able to invest with less, but paying more upfront means you can avoid mortgage insurance and possibly obtain a better interest rate).

• A $400,000 investment that appreciates at 6% a year as an average in a balanced market earns an additional value of $24,000 yearly. After one year, that property would be valued at $424,000.
• If those stocks also appreciated by 6%, this would result in an earnings of $6,000, bringing your total investment to a value of $106,000.

Either way, you’ve invested $100,000. However, your return was far greater in real estate. That is the power of leverage! Borrowed capital or mortgage debt allows you to substantially increase the potential return due to rising home values.

This obviously is not a short-term snapshot of either the real estate market or the stock market (as both are currently volatile). However, over time the averages prove to be a reasonable assumption. Most investment vehicles simply do not allow you to leverage your results like real estate does!

Steady Cash Flow

The most obvious advantage to be realized is the income from a revenue property. With diligent tenant screening and proactive lease management, property owners can enjoy cash flows to supplement their monthly income. The reliability of this source of income is excellent.

Regardless of economic conditions, people need housing, making rental properties relatively recession-resistant, and people in general will prioritize paying rent. The biggest risk to steady income is the reliability of the tenants you choose, but with due diligence and reasonable management this risk can be minimal.

Property selection can also help predict reliability of good tenants. Furthermore, cultivating positive tenant relationships further reduces the risks of issues, and helps ensure longer retention.

Speaking of cash flow, you can learn even more in our post Benefits of Owning Revenue Properties.

Passive Income

Real estate is something tangible to add to your investment portfolio, not just paper. Rental property ownership stands out due to its resilience during market downturns.

Employing a reputable property management service can efficiently handle tenant interactions and property maintenance, reducing owner involvement. Members of The Weeks Group are landlords, and we do use local property management companies and find the small cost to be offset by the huge advantage of arm’s length ownership. Though not entirely hands-off, this approach allows investors to enjoy income streams with less direct involvement.

A Hedge Against Volatility and Inflation

Real estate is something tangible to add to your investment portfolio, not just paper. Rental property
ownership stands out due to its resilience during market downturns.

Unlike stocks, property values tend to hold steady or even appreciate during economic recessions, providing a reliable hedge against market volatility. This unique characteristic allows investors to maintain stable returns and mitigate risks associated with traditional investment avenues.

Who Is the Weeks Group? Get to know our team and how we work right here.

Asset Appreciation and Subsequent Leverage

Real estate historically appreciates in value over time, providing revenue property owners with the potential for capital gains, in addition to the income they provide. Demand for rental properties, coupled with limited housing supply in many markets, can drive property values higher.

You can also strategically enhance your property to drive value up, prioritizing certain renovations, such as updating kitchens or bathrooms, which tend to have a higher return on investment, boosting property value more than some other upgrades.

And then, there is the very attractive proposition of adding a line of credit that is tax deductible to invest in additional properties using the Bank’s money and not yours. Robert Kirosaki, author of “Rich Dad, Poor Dad,’ repeats this over and over. You use someone else’s money, and it is not taxed money like your own personal money supply would be.

Principle Paydown

This one can vary in benefit depending on the interest rate you have from the bank for your financed portion. With rates coming down steadily, we soon will be in a position that will allow each payment we make to the mortgage will pay down much more of the principal amount of the mortgage so again will allow leverage on your growing equity. And, cheaper payments in general for the mortgage. Remember in most cases rents cover this payment.

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Want to know more about buying real estate in Barrie? The posts below will give you food for thought:

• 5 Tips When Buying A Waterfront Home
• Why Buy a Home in Snow Valley?
• What to Look for in a Waterfront Home in Barrie

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Common Investment Methods

Residential rental properties encompass single-family homes, apartments, condos, townhouses, and legal suites within or near an owner’s residence. They can offer consistent income and the chance for capital growth, especially in high-demand, low-supply areas.

Multi-family units allow for economies of scale, simplifying property management. They help diversify more, and an owner is not as heavily impacted if a tenant moves out, as there are others. Commercial rental properties typically yield higher rental incomes than residential ones but are more complex.

Nevertheless, they can be lucrative, especially in prime locations with robust economic activity. Vacation rentals are typically furnished and rented nightly or weekly, often generating higher incomes than long-term rentals, especially in tourist hotspots or peak seasons. However, they demand careful management and may face regulatory limitations in certain regions. Many of our local municipalities have these restrictions, so check with The Weeks Group regarding any communities you are interested in.

Tax Benefits

Revenue property owners benefit from a number of tax deductions and incentives, reducing their overall total tax liability. Deductible items include advertising, management and administration fees, mortgage interest, repairs and maintenance, and many more possible items and can be deducted from rental income, lowering overall taxable income. A good accountant can advise what you can and cannot deduct.

The Bottom Line

Investing in revenue properties has long been a popular avenue for generating income and building personal wealth. With good planning and careful selection and execution, revenue property strategies offer many benefits which justify their popularity as a preferred option for building wealth and freedom.

As long,standing real estate agents in Barrie, the Weeks Group have the expert advice and guidance you will need. We have even created unique tools that help to evaluate the potential returns of investments to make the right decision for building your wealth.

Are you ready to take the next step towards investing in Barrie real estate? We are here to help at every step in the process. Reach out today to hello@weeksgroup.ca or call 705.305.4174 to learn more.