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MORE MILLIONAIRES WERE MADE BY OWNING REAL ESTATE THAN BY ANY OTHER INVESTMENTS IN THE WORLD.
Buying real estate is about more than just finding a place to call home. Investing in real estate has become increasingly popular over the last fifty years and has become a common investment vehicle. Although the real estate market has plenty of opportunities for making big gains, buying and owning real estate is a lot more complicated than investing in stocks and bonds. In this article, we'll go beyond buying a home and introduce you to real estate as an investment.
Basic Rental Properties
This is an investment as old as the practice of landownership. A person will buy a property and rent it out to a tenant. The owner, the landlord, is responsible for paying the mortgage, taxes and costs of maintaining the property. Ideally, the landlord charges enough rent to cover all of the aforementioned costs. A landlord may also charge more in order to produce a monthly profit, but the most common strategy is to be patient and only charge enough rent to cover expenses until the mortgage has been paid, at which time the majority of the rent becomes profit. Furthermore, the property may also have appreciated in value over the course of the mortgage (real estate has consistently increased in value since 1940), leaving the landlord with a more valuable asset. (To learn more, read Paying Off Your Mortgage and Understanding Your Mortgage.)
There are, of course, blemishes on the face of what seems like an ideal investment. You can end up with a bad tenant who damages the property or, worse still, end up having no tenant at all. This leaves you with a negative monthly cash flow, meaning that you might have to scramble to cover your mortgage payments. There is also the matter of finding the right property - you will want to pick an area where vacancy rates are low (due to demand) and choose a place that people will want to rent.
Perhaps the biggest difference between a rental property and other investments is the amount time and work you have to devote to maintaining your investment. When you buy a stock, it simply sits in your brokerage account and (hopefully) increases in value. If you invest in a rental property, there are many responsibilities that come along with being a landlord. When the furnace stops working in the middle of the night, it's you who gets the phone call. If you don't mind handyman work, this may not bother you; otherwise, a professional property manager would be glad to take the problem off your hands - for a price, of course. (For further reading, see Tips For The Prospective Landlord.)
EXAMPLE: BY INVESTING $80,000.00 12/5 YEARS AGO YOU COULD BECOME A MILLIONAIRE
Year: 1993
Property: 145 Hillcrest Ave. 1 Bedroom condo. Dundas/Hurontario in Mississauga.
Price: $80,000.00
Downpayment: $8,000.00
145 Hillcrest Ave Mississauga, Ontario
BUYING: Imagine you have bought 10 condominiums 12.5 years ago at 145 Hillcrest Ave. at the rice of $80,000.00 each with 10% down payment a total investment of $80,000.00
12,5 YEARS LATER (2006):Your 10 Mortgages at $72,000.00 each will be reduced to $36,000.00 each. With your tenants money you reduced Mortgages by half. Profit of $360,000.00.
2006 NET INCOME: Today the some units are renting for $1200.00 After paying Taxes $120,00/month, Maintenance $420.00/month. and Mortgage $220.00/month. Your NET income would be $440.00 per unit or NET INCOME OF $44,000.00 per year. Not a bed Income at all.
TOTAL PROFIT IN 2006: Today the some unit re selling at $150,000.00 a profit of $60,000.00 per unit or $600,000.00 for 10 units.
Your $80,000.00 investment grew to $360,00.00 + $600,000.00 + $44,000.00 = $1,004,000.00
12,5 YEARS LATER: YEAR 2018:
PROPERTY VALUE: At real estate value increase of 4% per year today, price of $150,00.00 will become $230,000.00
MORTGAGE: Reduced to $0.00
RENT INCREASE: 3% per year = $1660.00 - Maintenance $500.00 - Taxes: $160.00 = $1000.00
INCOME INCREASE: $1000.00/month + $120,000.00/year CAN YOU RETIRE AT THAT INCOME?
MORE MILLIONAIRES WERE MADE BY OWNING REAL ESTATE THAN BY ANY OTHER INVESTMENTS IN THE WORLD.
Written by, Boris Piko,
Broker Owner with 33 years experience in Real Estate | 
