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Real Estate Investing
| Investing in Real Estate |
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| Written by Sarnia Real Estate | |
| Tuesday, 09 October 2007 | |
 We hear everyday about friends or friends of friends who invested in Real Estate ten years ago and are now benefiting from the vast amount of equity or cash flow from these properties. Real Estate is always a hot topic in social circles but many don’t know how to take the first step in making an investment in Real Estate. We will guide you through the process and discuss the advantages, disadvantages and financing options when investing in Real Estate from a personal or business stand point. Investing in Real Estate is an exciting step for many people. Many people consider their home to be the best investment that they have ever made. If this is true, it's surprising than that more people don't own more investment Real Estate. Owning an investment property, or several, not only provides the opportunity for potential capital growth, but in the right circumstances can also provide excellent cash flow. Real Estate as an investment is a big step. There are many important factors to consider, however, for most people the pros outweigh the cons. This is where working with a Realtor such as Corporate Commercial Realty will provide you with the information you need to consider to make the best investment choices. Pros of a Real Estate Investment:
Cons of a Real Estate Investment:
Financing an Investment Property Investors who consider adding real estate assets are often confused about their mortgage financing options. Since the Bank Act allows only up to 75 per cent of the value of a property to be in uninsured financing, many investors who put 15 per cent down use an insured mortgage for the difference. The cost of the insurance premium can be as high as 4.5 per cent, which can translate into a $10,000 cost on a $225,000 mortgage. Even so, not all investors can meet the strict requirements that go along with an insured mortgage on rental property. These requirements include having a relatively high net worth and demonstrating that you can carry the mortgage payments in addition to your other debts without factoring in all of the rental income you will receive. This certainly doesn’t leave room for many Canadians who want an investment property. Another option if you have a good amount of equity in your principal residence is to take some of that equity out, typically through a line of credit, to get a big enough down payment that then may qualify you for a regular first mortgage. To simplify the process, you can also now consider those lenders who have mortgage products specifically designed for small investors who own or are purchasing a residential investment property. Canadian investors can now access up to $500,000 without costly mortgage insurance premiums, or leveraging the equity in their principal home. Up to 85 per cent financing inclusive of applicable fees is available for single family units or up to a four-plex located in major urban centres. Properties on well and septic systems located in a town or subdivision can also qualify. Typically, 75 per cent financing is available for condominium units and all properties must generate a positive cash flow. Perhaps now more Canadians can heed the wisdom offered by many financial professionals and diversify, diversify, diversify by including real estate in their investment portfolios. What are CAP rates? The Capitalization Rate or Cap Rate is a percentage used to express the 1st year’s rate of return for an investment property. It is calculated by dividing Net Operating Income (before debt service) by the sale price. Cap Rates from comparable sales are also used as a method to estimate market value of an income property. For example, if the net operating income of a property is $15,000 and the market cap. rates are 8% for that type of property, then the sale value should be $187,500 ($15,000/0.08) |
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| Last Updated ( Tuesday, 09 October 2007 ) |
