Some of the wealthiest families in North America got there by investing in real estate.
Donald Bren is worth $12 billion, according to Forbes magazine. He is said to own close to 400 office buildings and 90 apartment communities.
Then there’s Donald Trump, a veritable icon of real estate investment. From skyscrapers in Manhattan, to golf courses in the Caribbean to a new luxury condominium development in Toronto, “the Donald” has built his wealth and his reputation primarily via real estate.
Equity appreciation is the most common method to generate ROI in real estate. As the market fluctuates, the property value increases. Market shifts are influenced by current economic conditions and are determined by comparable properties.
The value of multifamily properties with more than 5 units are evaluated differently. Banks and appraisers evaluate a multifamily property like a business; they look at net income. Properties that have been neglected create an excellent opportunity for investors to purchase the property “at a discount” and set out to “force the appreciation” by being diligent in their approach to property management.
According to CIBC World Markets, real estate has appreciated an average of 5% annually to-date.
Mortgage pay down is our favorite method of generating ROI. Each month, income from rents are used to pay all expenses, including the mortgage. An investor’s net worth increases as monthly rents pay down the mortgage on an investment property. In the end, the tenant ends up buying the asset for the investors.
Positive cash flow is achieved when rents collected are greater than monthly operating expenses. Whatever is left over after all expenses have been paid, including the mortgage, is deemed positive cash-flow. Experienced investors pay careful consideration to this area to ensure maximum ROI.
The Power Of Leveraging your real estate investment is a huge advantage. Banks are all too willing to assist in the purchase of a cash flow generating investment property. This ability gives us the option of financing the property 70% to 85% of the purchase price. A $100,000 investment can purchase an asset valued $400,000 or more. Banks are willing to do this because the loan is secured by the property.