If you’re reading this article, the odds are good that you want to make money by investing in real estate. Whether you’re looking for a way to fund your dream retirement, pay for your child’s post-secondary schooling, or want to set yourself free with passive income, you need a solid plan. We’re here to present you with one.
Unfortunately, there’s no such thing as an “easy money” solution; really, if there was, everyone would already be doing it! But when done right, property investment can be a fulfilling and rewarding way to earn a profit and plan for your future at the same time.
How Can Investing in Property Make Me Money?
The good news? There really is no bad time to start investing in real estate. That said, if you are looking to establish a long-term portfolio, acquiring your properties on the right side of a real estate cycle and as early as possible will give you an advantage!
That’s why you should get started right away, especially if it’s something you’ve been seriously considering. Low interest rates on mortgages allow you to borrow money to buy your properties at a very affordable price, and the current rental market is strong and is expected to see increased demand over the next few years.
Right now, new construction properties are generating a lot of interest from investors, especially in up and coming markets like Edmonton. They’re in high demand with tenants who want to enjoy the benefits of living in a brand-new home located in a flourishing community.
However, you can’t just get any property, throw a tenant in there, and assume it’s good to go. As you think about getting started, it’s important to understand the three main pillars of making money from real estate.
Capital Appreciation or Forced Value
Capital appreciation is how any property you own can appreciate - or grow - over time. You buy the home for $200,000 and later sell it for $300,000.
Forcing or creating equity is a strategy that people who flip homes primarily use to make money in real estate. They look for homes that need a lot of work or that have motivated sellers and scoop up the property for a low price. Then, they make the necessary updates - often using their own labor to save on the monetary cost - and can sell it for a much higher price.
However, you don’t need to buy a fixer-upper to take advantage of capital appreciation. Even the most basic home tends to appreciate over time, and the best part is it typically requires no effort from you.
For example, if you buy your property at $300,000 and the value increases by a modest 2% per year over a 5 year period, at the end of 5 years your property is worth $331,000. You have an extra $31,000, and you haven’t done anything extra.
You can increase your chances of getting a high rate of capital appreciation by purchasing in an up-and-coming neighbourhood. Once there are no more available homes in the area and more amenities are completed, the value of the properties increase.
Cumulative Cashflow
Cumulative cashflow is what a lot of people think about when they talk about investing in rental properties. This is the amount of money that’s leftover after your expenses (which can include the mortgage, property tax, insurance, property management costs, repairs, etc.).
It’s the “passive income” that people strive for when they start on their investing journey: you make money without doing a lot of work.
Sure, you could use this money for your daily living expenses, but if you want to really build up your empire, there are some other options.
- Consider putting those earnings into a savings account, then buying a new property once you have saved up enough for a down payment. Then, you’re earning income from a second (or third or fourth) property.
- Put that money towards the mortgage principal and pay it down faster. You’ll be on your way to an even bigger profit margin sooner than you think! Once you pay off the mortgage, you just have some monthly operational expenses and your cash flow increases substantially!
Mortgage Principal Reduction
Building equity in your property by reducing the mortgage principal is the ultimate long-game of property investment. Any time you make a mortgage payment - using the money you get from your tenants - you reduce the principal balance and increase your equity.
Whenever possible, you should pay more than the minimum amount on your mortgage. Each monthly payment gets divided between the principal balance and the interest on the mortgage. In the first few years, a much larger percentage goes toward interest. By paying more toward the principal balance, you’re reducing the amount you owe, decreasing the amount of interest you pay, and shortening the time until your mortgage is paid off.
Having more equity in your home is good for your finances too. Lenders will allow you to tap into that equity through a home equity loan or line of credit. It also gets you closer to fully owning the property, which is going to increase your monthly cash flow and give you the lifestyle you desire.
No matter where your investment strategy lies, it’s important to think about whether you’re getting a good return on investment for the amount of time you’re putting into the work. Always be on the lookout for better ways to make your money work for you.
How Can TriUrban Help Me Be a Successful Property Investor?
The TriUrban team is made up of professional property investment specialists who have many years of experience buying and selling investment properties.
Whether you live in the Edmonton area or are looking to do some long-distance real estate investing, we can help you. We’ve made it our mission to help others avoid common real estate investing mistakes so they can be successful with property investment.
One of the biggest challenges of successful investment is choosing the right property, in the right location, that will attract a great tenant. At TriUrban, we truly believe new construction investment properties are the best way to get the ROI you want.
We've done years of research on the best areas to build in so you can be assured our homes are located in profitable neighbourhoods. Plus, we have strong relationships with multiple builders to ensure we can find the right property type to suit the unique goals, wants, and needs of each investor.
When you work with TriUrban, you can count on us to deliver the best investor experience from start to finish. We get to know you to understand exactly what you want, and guide you through the entire investment process to ensure you have the best possible set-up to achieve your maximum ROI. If you're interested in getting started down the path to making money through property investment, contact us and we’ll be happy to help.
Originally published Feb 6, 2018, updated Sept 30, 2020
