Real estate vs other commodities

On the surface, real estate investing may not look any different from any other investment vehicle, but it truly is a different animal than traditional investment asset classes like gold or silver. Though it is still similar in some respects in the sense you will have to do lots and lots of research and sift through lots of opportunities to find the occasionally misplaced bet in your favor to bet heavily and cash out. The bigger the investment, the more you want to do your homework before jumping in with both feet, mistakes can be costly.

Now, real estate investing isn’t easy, it never was and probably won’t be. The truth is, if you’re a total beginner at any type of investing, your probably not finding everything super easy and some level of work put in (unless your doing it wrong). Just remember not to fall prey to the media bias and expect to get things fast and overnight. It is true that some overnight millionaires have been created through real estate, however, for the majority of successful investors, things have happened relatively slowly and patience was a major factor. You can speed things up by learning from others, and getting different perspectives from mentors, realtors in the local area, and any other parties involved in the transaction. If you want information, remember real estate is localized, so you want to get information from local sources as well as global ones. For example, if your going to invest in Vancouver real estate you want to get advice from a Vancouver realtor or if your going to invest in surrey you want to get advice from a surrey realtor, if your going to invest in both then you want to get advice from a Vancouver and surrey realtor. 

When you begin, using leverage to purchase properties will probably be daunting. However, it really can work wonders and get you more than you may have hoped for in terms of your overall rate of return. For example, if you invest $20k in a $100k property with $80 of leverage that cash flows $3k/year your return is $3k/$20k which comes out to 15%. Now, if you invest 100% of your own capital, your return would only be 3%, the difference is 5X. Now, of course, you’re likely to have to pay off the debt service with continual payments, but overall, you’re likely to generate a higher rate of return than competing asset classes over the long-term. Not only can you benefit from cash flow, but also appreciation. You know, in the previous example, if the price of real estate rises 6%, it takes your stake in that property to $9k/20k boosting your overall rate of return to a whopping 45%. You normally just don’t see returns like that in any other asset class that is as solid. If you compare the returns from real estate to that of a mutual fund like at any local bank. (If you don’t know what a mutual fund is either, there is a link in this article)

Like anything, this can be intimidating, to mitigate the downside, simply do what you need to do to get certainty around the deal and the best way you can do that is by looking at hundreds of other deals, when you walk real estate and look at more deals than you intend to purchase, your brain will begin to get a better idea of what a property is worth so when the right deal comes by, your not as intimidated to invest in it and go big. Also, going big in real estate over the long-term is probably better than going big in something more robust like stocks(if you’d like to get more information on this investment class then you can read about it here on the globe and mail, cnbc, or if your in Canada market watch. .

If you do this correctly and get the right property, people who have made fortunes and money hand over fist in real estate will tell you all the risk was worth it, so don’t be afraid to stick with this when things get dark, if you don’t give up there’s almost always light at the end of the tunnel.

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