I have often been asked why I focus my investments in real estate – why not stocks or options or bonds. There are many different benefits to investing in real estate. I thought I would focus on different aspects of what makes real estate a good investment. Each area is a part of what makes the whole of real estate profitable.
The acronym I am going to use is PARTICLE.
P – Principal Paydown
A – Appreciation
R – Refinance
T – Tax Benefits
I – Improvable
C – Cash Flow
L – Leverage
E – Equity
Principal Paydown – Every month our tenants rent goes towards mortgage payment and part of the payment goes towards paying down the principal of the property.
Appreciation – Over time the value of real estate has gone up. Think about your house or your parents house. What did it cost when it was bought and what does it cost now. We like to think of appreciation as the icing on the cake.
Refinance – Take the money out of existing properties and use it to purchase more properties. Its a great why to increase your investments and add more profits.
Tax benefits -The interest on the mortgage, repairs, maintenance, insurance, property management fees, these are all tax deductible. We also use CCA to deduct the actual value of the property at tax time, deferring taxes until the sale of the property, or use corporations to reduce taxable income.
Improvable – The value of real estate can increase significantly with the right renovations.
Cash Flow – Each month our properties pay us to own them. Rent collected – all expenses = Cash Flow
Leverage – We use the bank’s money to leverage our purchasing power. With a $40,000 downpayment we can buy a $200,000 property.
Equity – We buy properties with equity in them or we create equity through renovations. We never buy at market price.
These are 8 major benefits of investing in real estate, there are others.
Quentin D’Souza is the Chief Education Officer of the Durham Real Estate Investor Club. Author of The Property Management Toolbox: A How-To Guide for Ontario Real Estate Investors and Landlords and The Ultimate Wealth Strategy: Your Complete Guide to Buying, Fixing, Refinancing, and Renting Real Estate.