“It’s tangible, it’s solid, it’s beautiful. It’s artistic, from my standpoint, and I just love real estate.”
-Donald Trump
There is no doubt that some of the wealthiest people on earth made their money through real estate. Building wealth through real estate can give you financial freedom and more time to enjoy living! This is part one of a series of articles I will be writing on real estate investing for Canadians, expect at least one new article on the topic every two weeks. If you’re tired of hearing about other people making money in our amazing real estate market now is your chance to step up and get into the game.At the most basic level there are only 2 ways to make money through real estate: Rental income and capital gains. Understanding these basic concepts is fundamental in becoming a successful real estate investor.Here are some quick definitions:
Rental Revenue: This is the money you receive from tenants living in your properties. This is taxed by the government the same as any other income.
Capital Gains: This is the money you make from increases in your properties value when you sell. Income through capital gains is taxed less than rental or employment income and is only paid when the property is sold. You do not pay capital gains tax on your primary residence.
An investor usually earns income (or attempts to) from both sources. A property bought to earn a monthly income (often referred to as a revenue property) will often increase in value (resulting in capital gains when they eventually sell). Properties bought to be resold because they are expected to increase in value are also usually rented out to help with mortgage payments.
Some other terms you should know:
Cash Flow: This refers to actually money coming in and out. If your property generates more cash per month than it costs you it is said to have positive cash flow.
Equity: Equity refers to your ownership in a property. If you put $30,000 down on a $300,000 property you have 10%, or $30,000 equity. If that property goes up to $425,000 you now have 36% or $155,000 in equity. You can see how one is able to turn a small investment ($30,000) into a large profit($125,000).
Look forward to future articles covering everything from increasing your leverage to using options to make money with minimal risk.
This site is a great place to post opinions, ask questions or recommend learning materials.For more reading on real estate investing I recommend:“Real Estate Investing in Canada: Creating Wealth with the ACRE System” by Don Campbell. It starts with the basics and is written for Canadians by Canadians. This book covers a lot of the little details. For the big ideas behind many successful real estate investors I recommend anything by Trump or Robert Kiyosaki.
