THE ILLUSION OF RAINING MONEY
When a typical real estate investor starts their journey, they have grand visions of huge profits. Why? Well, if you take some of the courses out there, the presenters make it sound like they started with peanuts, then struck gold! It makes for a great story, but in the interest of time they often leave out the 10 or more years of challenges and problem solving. Or if you watch HGTV, it looks so easy: buy below market value, do smart renovations, make tens of thousands of dollars on each flip. Or maybe a family member has told you stories of their “portfolio”—often the initial investments were made decades ago when banking rules were completely different. Even 5 years ago, the rules were dramatically different!
Ask experienced investors and they will tell you: it often takes 7 or more years to create enough cashflow to live off of. But the real investment gains in real estate come from Long Term Buy and Hold real estate. That’s right, the same strategy that the wealthiest people in the world use. Real estate is now the third leading strategy for creating Billionaires! Check out this article: https://www.forbes.com/sites/willyakowicz/2019/03/09/how-the-worlds-billionaires-got-so-rich/#5850258a6ae6 Investor wealth, and legacy wealth, comes from the mortgage paydown over time—and leverage. Can you imagine if someone pitched a tv show about this totally non-dramatic, non-sexy secret to growing real estate investment wealth? That show is never getting picked up!
It’s just about the math. How many times do we tell our kids that? Yet in real estate investing, we need to remind ourselves to stay-the-course in order to really reap the rewards of mortgage paydown. Just as a reminder, in the first few years of your mortgage, the payments are much more heavily weighted towards interest payments, than towards principal paydown; in some cases 2/3 or more of your monthly payment just goes to interest—you barely begin to pay down the debt. However, as time goes on, the tide turns and eventually you are paying down more principal than interest. Homework: Just go online and check your past 5 years of Annual Mortgage statements on your own property—you’ll see the difference! Now imagine if your tenants were paying off that debt AND paying your interest!
Yes, we use other strategies as well, but we love 2020 as the year of opportunites for Buy and Hold investors in Calgary. Some builders are even offering 2 years of rental guarantees on new-builds! These prices and deals will definitely NOT last forever. Once the real estate and rental markets begin to rise, a lot of people will climb on board. Take your time this year to learn, strategize and invest wisely while the choices are so plentiful. Then give your investments time to mature.
