Calgarians may be surprised to find out just how profitable revenue properties are in Calgary, even with the media suggesting that housing prices are overvalued in our fair city.
In fact, returns of 17% annually – or more – are not uncommon, and that is before factoring in appreciation or tax benefits. All you need to get started is a 20% down payment, which can be as little as $30,000, or $15,000 if you partner with someone, decent credit, and the ability to think long term.
If you think a $30,000 dollar barrier to entry seems low, you might be surprised to learn that there are a fair number of condos throughout Calgary that are ideal revenue properties in the $150,000 price range. These low price point properties are a great starting point for the rookie real estate investor. With a relatively small mortgage, low maintenance fees, and high rental demand in the right areas, they are in many ways a smarter investment than stocks or bonds.
To begin, real estate investments are simple. You buy a house and you rent it for the same amount or a greater amount than it costs you to own it. It is real, you can touch it, drive by it, and know exactly what is happening with it at any given moment. Furthermore, once it is rented, it is mostly a hands off investment, aside from the odd time when you need to rent it out or make a minor repair.
It also makes complete financial sense. Over a period of 15-30 years, a rental property will become free and clear – the renters having paid off the mortgage – and will supply a steady flow of income for the remainder of the time that you own it. At 17% returns, it will also likely outperform the stock market. 17% may seem high, but I assure you these returns are not only out there, but common.
Take for example a property recently purchased by one of our clients. She paid $190,000 for the inner city condo. After putting 20% down, her mortgage was $152,000. She chose a variable rate mortgage (because the payout penalty will be significantly lower if she decides to sell) with a 30-year amortization.
She rented the property for $1,395. After maintenance costs, insurance, and taxes, her monthly cash flow is $292 monthly, or $3,380 annually, which equates to a return of 8.64% on the cash flow alone.
In addition to the cash flow, the mortgage is also being paid down by $3,482 in the first year, which equates to another 8.90% return, for a total return of 17.54%. This is before you add appreciation and tax benefits, which could increase the annual returns by another 5%-25%.
The best thing about our client’s plan is it is simple, it isn’t some crazy strategy from a late night infomercial. In 15-30 years she is going to turn a $38,000 investment into a condo that will be free and clear and worth at least $200,000, likely double that amount. All she had to do was a little bit of research today to be wealthy tomorrow. Imagine what would happen if she owned 10 of them.
If you would like to know more about investing in real estate, give us a call and ask about our Cash Flow Club.
