Advantages of Real Estate Investing

Investing in real estate is as advantageous and attractive as investing in the stock market. It has three times more prospects of making money than any other business. But, since the market forces equally guide it, you cannot undermine the real estate’s constant risks. Let me begin discussing with you the advantages of real estate investments. I found the benefits to be most suited and practical.

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Advantages

Real Estate Investments are Less Risky

Compared to other investments, less misadventure is involved in a real estate property. I will not get away from the fact that you have the risk of losing it, just like any investment you make. Real estate investments are traditionally considered a stable and rich gainer one takes seriously and fully sagacity. The reasons for real estate investments becoming less risky relate to various socio-economic factors, location, market behavior, the population density of an area, mortgage interest rate stability, good history of land appreciation, less inflation, and many more. As a rule of thumb, if you have a geographical area with plenty of resources and low, stable mortgage rates, you have a good reason to invest in such a region’s real estate market. On the contrary, if you have a condo in a place burgeoning under high inflation, it is far-fetched to even think of investing in its real estate market.

No Need for Huge Starting Capital

A real estate property in Canada can be procured for an initial amount as low as $8,000 to $ 15,000, and the remaining amount can be taken on holding the property as security. This is what you call High Ratio Financing. If you don’t have an idea about how it works, then let me explain to you with the help of an example. Remember that saying… Examples are better than percepts!

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If you buy a condo worth $200,000, you must pay the initial capital amount, say 10% of $200,000. The remaining amount (which is 90%) can be financed against your condo. It means that in High Ratio financing, the ratio between the debt (here in the example, it is 90% Mortgage) and the equity (here in the model, it is 10% down payment) is very high. Calculating high-ratio mortgage insurance with Canada Mortgage and Housing Corporation (CMHC) is also important. You can also purchase the condo at a 100% mortgage price if needed.

Honing Investment Skills

A real estate investment will be a pleasurable learning experience, especially when you buy a condo for yourself. It allows you to learn, and when I went ahead with my first real estate property, I was a dump man. Ask me now, and I can tell you everything, from A to Z. Necessity is the mother of all inventions. I had to buy the property, so I tried with it and was successful. I acquired all the knowledge and skills through experience in selling and purchasing residential property. Thanks to my job. It gave me the experience to become an investor.

Not a time-consuming Adventure

Real estate investment will not take out all your energies until you are prepared and foresighted to take the Adventure in full swing. You can save a lot of time if you are vigilant enough to know the techniques of making a reasonable investment at the right time and when good market conditions prevail.

It would help if you were prepared to time yourself. Take some time out and do market research. Initiate small adventures that involve negotiating real estate deals, buying a property, managing it, and then selling it off. Calculate the time invested in your real estate negotiation. If the time was less than the optimum time, you have done it right. And if you invest more time, you need to work it out again and make some real corrections for consummating the next deals. You have various ways and methodologies, called the Real Estate Strategies, to make it happen for you correctly.

Leverage is the Right Way

The concept of leverage in real estate is not a new one. It implies investing a part of your money and borrowing the rest from other sources, like banks, investment companies, finance companies, or other people’s money (OPM). There have been many instances where people have become rich by practically applying the OPM Leverage principle. As I had discussed under the subhead – No Need for Huge Starting Capital, the high ratio financing scheme gives no risk to the lenders, as the property becomes the security. Moreover, if the lender is interested in selling the property, the net proceeds from the sale should comfortably cover the mortgage amount.

Now consider a situation where the lender leverages the property at too high a a debt of 98% or even more. Suddenly, the market shows a downturn, then both the investor and the lender. Hence, the greater the mortgage debt, the more the lender’s risk, and the lender must pay higher interest rates. The only way to ease the threat from the lender’s head is to get the mortgage insured. CMHC (www.cmhc-schl.gc.ca) and GE Mortgage Insurance Canada (gemortgage.ca) are authorized to certify your high-ratio mortgage debts.

Let me explain with the help of an example… supposing you are buying a real estate property worth $ 200,000 at three mortgages, with the first one of $100,000, the second of $75,000, and the third of $25,000. The possible percentage of interest rates charged can be 3%, 5%, and 7%. The last mortgage amount of $25,000 will be considered riskiest, as it would be the previous mortgage you will pay when you finally make a selling deal.