Buying real estate other than your personal dwelling can be a viable long term investment option in areas where there is a demand for rent. The College Park neighbourhood in Oakville comes to mind.
There are three benefits from investing in rental properties: cash flow, mortgage payoff, and property value appreciation.
1. Cash flow is generated from the sum of rent collected minus expenses. If a landlord has a positive cash flow of $300 per month, which is not an unrealistic amount, the returns over 10 years come out to be $36,000.
2. Part of the rent charged to tenants can be used to pay down a mortgage over time. Take a $500,000 house with a 20% down payment, 2% interest, and a 25 year amortization. In ten years $263,370.65 will be owed.
3. The third and largest benefit of multiple property ownership is property value appreciation. This is because housing prices typically increase overtime. If you buy a house for $500,000 and housing prices go up 4% per year, the house will be worth $740,122.14.
When these hypothetical income streams are added together, it becomes clear that real estate renting can be quite a profitable venture. The return on investment, which is the down payment in this case, are quite substantial.
Photo Courtesy of Rich Brooks