Why Invest in Real Estate?

By: Joe Samson

by Joe Samson, Calgary Realtor

Wow, it was another exciting month in Calgary's Real estate Market. Real estate prices are continuing to rise like there is no tomorrow with a bit of assistance from the volatile stock market. Earlier this week when I had tuned into the business news all I could hear is how the stock market has done it again. The biggest drop in one day since 911, leaving people staring like deer in a headlight and asking the question of now what? The stock sell off had started in the Asian markets, continuing to Europe and finally it finished in the North American market. Millions of people worldwide were going to bed not knowing what they're going to face the following day. Should I sell my investments now to minimize my losses or wait and maybe it will recover in the long run?

Over the last couple of years in Calgary, more and more people had decided to inject some of their savings into the real estate market. Especially after the dot.com bust in the early part of the millennium. Including myself and many others were getting tired of the continuous fluctuations of the stock market. It was extremely stressful to wake up everyday and hoping that nothing bad is going to happen in the stock market and not being able to control my investments differently than buy or sell. As history has already provided many examples to us about how a company could disappear overnight and completely wipe out your investments, yet I have never seen a house disappear from the face of the earth so suddenly. If it did by some unfortunate event, usually an insurance provider has reimbursed the owner.

Piece of mind - is the first thought that comes into my mind when I think about real estate as an investment vehicle. Security, predictable future and leveraged growth are the number one reasons why many choose to invest in real estate. According to Andrew Carnegie 'Over 90% of all millionaires become so through owning real estate'. Now that's a powerful statement. Let it sink in for a minute. Even if you are somewhat skeptical about the future of Calgary's real estate market we cannot pass by such an important statement and not to acknowledge it as part of a major footprint of success.

Real estate values go up for many reasons. The number one cause of increasing real estate prices is the scarcity of supply or where the demand of the influx of people to a geographical area will outperform the supply. The good news for us in Alberta is that our provincial government has done such a great job of creating an economical atmosphere for business that there will be new business opening up and moving to this province for many more years to come. Not to mention the billions of dollars of projects already in the books that requires a constant feed of new employees from outside of Alberta.

Why real estate vs. the stock market? Unfortunately, many media outlets don't understand the concept of the power of leverage when it comes to calculating actual ROI (return on investment). Every time I look at a news clip or read an article in the paper where they are comparing the performance of real estate prices to the stock market, I am ready to kick something to calm my frustration. The secret of many successful investors comes from directly applying the power of leverage. It doesn't matter what kind of business we are talking about. If you want to be successful, you will need to find a way of multiplying your knowledge, power and time. If you choose to invest in stocks, you will get your returns one on one. Meaning that if you invest $1,000 and that particular stock goes up in value by 10% your ROI will be $100. When you put your dollars into a piece of real estate, the banks will usually require 25% of your own money and they will put up the remaining 75% of the purchase price for you. The beautiful part of this arrangement is that if the purchased real estate increases by 36% like it did in 2006 than your ROI will be 4 x 36%. Now that's the true power of leverage.

Real estate values most definitely won't be increasing by 36% forever. However even if we make a very conservative assumption of prices to only increase by 6% annually than you are still anticipating a 24% ROI. In many of my client's opinion it sure beats any of the G.I.C. investments available today.

Right, but I am not cut out to be a Landlord. What if the tenant doesn't pay or damages the property? What if...? Excuses can be created in every situation in our lives just to rationalize why not to do something. Sometimes to move ahead in life, we need to get a little more comfortable with being uncomfortable when we decide to get involved with new ideas. However, if you prefer not to deal with tenants you can completely circumvent that challenge. Once again, if we examine some of the other evidences that successful people have left behind we can easily find the solution to this problem. You not only need to leverage your money, you will also need to leverage your time and knowledge by hiring the right professional to be on your team of success. Can you imagine Donald Trump taking phone calls at 2:00a.m. about a leaky toilet? Or personally collecting his rental cheques every month from his tenants? I didn't think so. So, why do you think that you need to do it all alone? Why not do exactly what some of the major players in this investment business have already done? If it worked for them why wouldn't it work for you?

It's absolutely essential to hire the best professional experts on your team of advisors to propel your investments to the top and not to leave anything to a chance. Some of the professionals you should absolutely consider on having on your real estate team are Property Managers, Accountants, Contractors, Lawyers and knowledgeable REALTORS® who will not only advise you but allow you to stand on their shoulders and push you up to achieve your goals.

I truly believe that everyone can succeed at investing in real estate if one puts their mind to it. But it's up to you to decide and take actions. You owe it to yourself to further explore the possibilities of investing in real estate. As you are probably aware, real estate is and has been a solid blue chip performer over the long term (after all they're not making any more land!).
posted by www.JoeSamson.com

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