Owning real estate is a dream come true for many – considering these 10 important factors in real estate investing can help make your dream a reality.
In Canada and the United States, generations have held an underlying belief that hard work and perseverance can make anyone can rise from rags to riches and become financially successful. A core component of that dream is homeownership. Homeownership provides a secure place to live where one can build a community, reduce housing/living expenses, build equity, maybe even accumulate more property and wealth, and achieve a higher socioeconomic status for oneself and one’s children.
In many countries, homeownership is for the wealthy or affluent making it either financially or culturally impossible to own land. Ancestral homes are passed down through generations or are astronomically expensive.
Housing will never be out of style; people always need a place to live. Accumulating wealth through owning real estate – is the stuff of the Canadian/American dream, and it is still achievable.
All investments start with a goal and involve a degree of risk. Before making a purchase, important factors to consider that impact profitability include
- Property Location – proximity to amenities, parks, walking trails, scenic views, shopping, schools, transportation hubs, culture, desirability of the neighbourhood, and how the area will develop in the future can either advance or diminish a property’s value. In short Location, location, location is key.
- Real estate prices follow four economic cycles; recovery, expansion, hyper supply, and recession, and typically span 18 years. It is important to know which cycle real estate is currently in and where it is heading.
- Demographics – age, income, race, gender, income, migration patterns, population growth, regional preferences of buyers, percentage of retirees, percentage of those buying vacation, second home, or investment properties all play a factor in influencing a property’s value.
- The goal of the property is of critical importance. Will the property be your primary residence, or will you buy and rent it, buy, and flip it, or buy and hold?
- Determining cash flow – or figuring out how much you will have left after expenses will either provide you with a safety net and profit or run you in the red. It’s important to run the numbers and decide based on numbers not emotions.
- Type of loan, terms & conditions. Your credit score is a significant player in whether you qualify for a mortgage and the terms your lender will be willing to offer.
- Availability – is supply higher than demand or is demand higher than supply? High demand and low supply = high real estate prices. High supply and low demand = low real estate prices.
- Interest rates. Lower interest rates = more buyers + expanded demand for real estate, which drives up prices. The lower the interest rates, the lower the cost to receive a mortgage, which creates a higher demand for real estate and increases pricing. The higher the interest rate, the lower demand for real estate and the lower real estate prices.
- Government policies and legislation – including tax incentives, deductions, and subsidies. Government legislation either boosts or deters real estate demand.
- The economy – how healthy is the economy? Economic indicators include the GDP, employment, manufacturing activity, prices of goods/products, etc. When the economy is in recession, typically so is real estate. However, these last two years in Canada have been somewhat of an anomaly.
Real estate is less volatile than the stock market and will always have broad appeal because it is a tangible investment that almost always increases in value over time, provides diversity, and comes with tax benefits. For those who study and master the key factors that influence real estate investments, real estate continues to be a strong investment.
What do you think is the most important factor in real estate investing? I’d love to hear about it [email protected]
If you’d like to hear from an expert about 2022’s Canadian real estate predictions – join our Facebook Live (Real Estate Investment Resource Group) January 25, 7:00 p.m. MST interview with Tanya Wttewaall, mortgage broker of 18 years as she shares her advice on Alberta and Canadian real estate investing in 2022.
To get access to helpful tips, tools, and educational resources for DIY landlords, sign up for a membership for Landlord Fundamentals 101. To save even more time and money, combine Landlord Fundamentals 101 with one-on-one coaching to qualify for the Canada Alberta Job Grant.
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