Hello, Everyone Investing in Hamilton real estate!!
I trust you’re enjoying your summer, and if you’re not out there looking for deals, you’re enjoying your time with those who matter to you and making memories.
Speaking of making memories, we have our kids learning all sorts of life skills: English and Math tutoring (yup, we’re those kinds of parents making kids learn in the summer), martial arts, swim classes, and now golf lessons and camp.
After many masterminds with successful entrepreneurs, investors and reading books, I’ve learnt that golf is a wonderful activity that the whole family can enjoy.
Even when the kids are teenagers and know everything; over a four-hour round, they’re going to have to talk to me at some point and fill me in on what’s going on in their lives; hence we’re making the investment now while the kids are young to develop a love for the game of golf.
It’s well documented that Tiger Wood’s favourite memories of his father were when it was just the two of them golfing together.
Plus, golf is a legit networking opportunity in my experience.
Just last week, I organized a golf outing attended by 15, seven, some even eight-figure entrepreneurs. All successful people to learn and network with. As the old saying goes, your network is your net worth.
Who says one can’t mix business with pleasure as I really like networking and golf?!
On to the subject of today’s article…
One of the common misconceptions about real estate investing is the idea that by simply buying property, you are going to become wealthy overnight.
However, in reality, for the vast majority of real estate investors, investing in property is a waiting game.
There are investment strategies and methods which allow you to see a return in a short period. However, if your goal is to build meaningful wealth to fund your lifestyle in the long term, one of the most reliable options for you is buy-and-hold real estate investments.
What is Buy-And-Hold Investing?
Put simply, buy-and-hold real estate investing is when an investor buys a property with the intention of owning it for an extended period.
Typically, this period can extend anywhere from five to 30 years. In the meantime, they rent the property out to tenants to generate monthly income until they decide to sell the property.
The income from rent payments on an income property is called cash flow.
Ideally, the cash flow generated on a property should be greater than the recurring payments associated with the property. This includes monthly mortgage payments, insurance costs, regular maintenance and any other payments you are liable for as the property owner.
To make the property a worthwhile investment, you will also want to make some degree of profit on the property while still keeping rent at a reasonable price that tenants will be willing to pay.
Appreciation and Raising the Rent
Over the years, the property will appreciate and increase in value, allowing the investor to raise the rent on the property.
In Ontario, these increases are limited yearly to a set rate determined by the Ontario Ministry of Municipal Affairs. Currently, the maximum annual rent increase permitted is set to 1.2 percent on existing leases.
When a lease agreement ends and a new lease is created, the property owner is free to raise the rent beyond these limitations.
It is important to know that the ability to increase the rent on residential properties is only restricted to units created or occupied prior to November 15, 2018.
The Short-Term and Long-Term Benefits of Buy-and-Hold Investing
One of the reasons that people often swear by buy-and-hold investments is the combination of both short-term and long-term benefits that are available.
Short-Term Benefits
The primary short-term benefit of buy-and-hold real estate investing is the ability to generate cash flow from your properties to earn a monthly passive income.
There are also multiple elements of maintaining a rental property that is tax-deductible and beneficial in the short term.
Long-Term Benefits
In the long-term, the primary advantage of buy-and-hold real estate is that your property will almost certainly appreciate over time.
This means that when it comes time for you to sell the property, you will receive more money than you initially put into the purchase. Investors also frequently praise real estate as a reliable way to fight inflation, as the expected appreciation that properties experience is often higher than the rate of inflation.
This protects your funds from being worn down and losing value sitting in a bank account as they slowly are overtaken by the rate of inflation.
Additionally, as you pay down the mortgage on your properties, you will build equity in the home which you can use to your advantage. This can be done by refinancing and taking out those funds to reinvest or fund large purchases from your own lifestyle.
Important Considerations Before You Invest
Before making any investments, it is always crucial that you do your research and due diligence and consider as many factors as you can.
This way, you understand the potential profits and risks you face as an investor and can carefully decide where and how to spend your money.
So, here are some of the critical factors you should consider when looking into buy-and-hold real estate.
- Cost
When buying a property, you must know how much you can expect to pay up-front, monthly, and long-term. This includes down payments, closing costs, fees, mortgage payments, insurance costs, and immediate and long-term maintenance costs. While your rental income should cover the majority of these costs, it is still important that you remain aware of them and plan for them accordingly so that you do not default on your mortgage and lose the property in the event of an unexpected vacancy.
- Financing
Most people cannot afford to purchase a property outright, and even among those who can, it is still incredibly common to look at financing options to buy real estate. There are a wide variety of financing options, such as:
- Traditional Mortgage Lenders
- Private Lenders
- Hard Money Lenders
- Home Equity Lines-of-Credit
- Joint Venture Agreements
- And More
Make sure you research the pros and cons of each option before you use any of these methods to purchase a property.
- Shifting Property Values
On top of considering the immediate costs of a property, it is essential to factor in the fact that the housing market experiences a wide range of high and low points.
While it is often safe to assume that a property will appreciate, the market is often unpredictable, and there is always the risk of a sudden downturn.
Now, this may not typically be a concern for homeowners who can ride out these lows and sell once property values have risen. However, in the event of unexpected financial hardship, some property owners may find themselves forced to sell their properties at suboptimal times when values are lower.
This can result in investors missing out on potential gains or potentially losing money on the sale.
In Conclusion
Buy-and-hold investing is a classic strategy for obvious reasons. However, often when people think about long-term real estate investments, this method is what they are imagining.
However, as explained earlier, you should always do your research before making any sort of investment.
Hopefully, this helps your research. If you have any further questions or want more information, you can sign up for our newsletter below.
Happy Investing
Erwin
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