5. Appreciation
The increase in value of your original capital investment in the property over time is the key appreciation factor. The national average has been about per cent a year for real estate over the past 25 years. It should be stressed that this is just an average. Certain geographic areas or locations have had considerably more than the “average” increases in value, especially if it is a well-selected and maintained property, in a growing and desirable community.

Example:  If the real estate cycle is going up in a high-demand area, the appreciation could go up as much as 20 per cent to 50 per cent or more in one year. When you apply the ROI calculations in this scenario, as discussed in point number 1, the ROI on your original personal down payment can be considerable.

6. Equity Build Up
When you make payments on your mortgage, you are paying down on the principal over time. As you are reducing your debt, you are at the same time building up your equity—that is the portion of your original loan that you no longer owe any debt on.

Example: In practical usage, most people commonly refer to equity as the amount of clear value in the property that the investor owes, free and clear of any debt. In realistic terms, the true equity is what you would net upon sale, after all real estate commissions and closing costs are taken into account. Lenders realize this as well, which is why they generally do not like to lend if 100 per cent of the equity would end up being pledged, in order to minimize their risk and leave a margin for safety for the future.

7. Inflation Hedge
Inflation means the increasing cost of buying a product or service. In other words, it is the decrease in your purchasing power. For example, if something cost you $5 five years ago, and is now priced at $10. People on fixed incomes who are not indexed (through their pension plans) for inflation are very aware of the eroding purchasing power of the dollar. The inflation rate in Canada varies at different times of the year, in different regions of the country, and for different commodities.

Example: Naturally, the appreciation of the value of property over time includes an inflation factor. Historically, land appreciation value for residential properties has been approximately three to five per cent greater than the inflation rate. Another benefit of real estate is that you are paying off the mortgage in inflated dollars. That is, you are probably getting more money now, in terms of salary increases or rental revenue, to pay off lesser value money when you took out the original mortgage.

8. Increasing Demand for Land
Land is a finite commodity. Due to property demand as a consequence of population increase through birth and immigration, and decreasing supply of land, real estate prices go up. Also, the boomers are creating or inheriting wealth, and wanting to buy investment property, hence additional demand. Depending on geographic shifts of population as a consequence of buoyant economies and job opportunities in certain regions of the country at any given time, there can be further demand.

Example: Many communities have slow growth or no growth policies, due to rapidly expanding needs for community services. Other communities have extensive red tape or other bureaucratic delays. This restricts land availability for new development, causing existing land to go up in value. Real estate is a commodity that the public needs. Other investment commodities are not so reliable or predicable, because they don’t constitute a public need and therefore demand. In addition, many people want to have a second home as a retreat, vacation property or place for retirement. This creates further demand on land.

9. Part-time Involvement and Flexible Options
Investing in real estate does not require more than part of your available time. Once you learn the proper techniques and have a written investment plan, you will be more efficient, selective, and confident. This will save you time. An investor should determine at the outset how much time is available for researching the market, negotiating, buying, managing and selling. There are options available, some which would take more time than others to manage.

Example: If you don’t have the time or interest in personally investing in real estate yourself or feel it would be too stressful, there are options. One could keep it simple, and just invest in one property that is nearby and requires little personal maintenance, for example, a condominium. Alternatively, one could be involved in a group real estate investment, such as with family or friends or other investors. However, there are many pitfalls of group real estate investing that need to be understood and avoided.

There are many types of real estate options dealing with residential use available. For example, single-family houses, condominiums and townhomes, recreational property, two- to eight-plexes, and small apartment buildings, either purchased individually or with groups, and self-managed or using professional property management companies.

10. Skills Can Be Learned
Buying and managing residential real estate can be a relatively easy process. The essential foundation knowledge and skills can be learned. It just takes motivation, drive, positive attitude, time, and a desire to learn the key principles, strategies and techniques. It is necessary to understand and avoid the classic pitfalls, and rely on skilled objective professionals for advice and feedback in advance of any commitment.

Example: The ability of an average investor to acquire the skills to successfully and profitably invest in real estate with minimal risk, starting with a principle residence, is an attractive option to many. Many investors wish to diversify their investment portfolios by including investment real estate. In addition, it can provide an interesting and challenging experience dealing with tangible property, rather than otherwise intangible forms of investment. Another benefit is that there can be a direct correlation between the quality of decision-making by the investor, and the successful net financial outcome. This degree of personal influence and control is attractive to many.

As you can see, the benefits of prudent real estate investment, starting with your primary residence, are compelling. CL