Owning multiple properties & benefits
Investing in cash-flowing real estate is obviously a benefit for an investor, especially if that investor holds onto the property for a long period of time. Every cash-flowing property has three income streams: flow of cash, property appreciation and mortgage pay down.
Flow of cash: The rent collected, minus the expenses. A modest cash flow on a single-family home in any of the large Canadian markets can vary, but let’s use $250 a month as our example. Multiply that monthly cash flow of $250 across 10 years of owning the property: that’s $30,000!
Property appreciation: In general, real estate appreciates over time. Let's say you buy a property for $300,000 with a modest appreciation of four per cent per year – in 10 years the property is worth $426,990. Congratulations, you have just earned $126,990 in equity.
When all three of these income streams are added together, the investor would have a financial gain of $190,982. Not bad for a 20 per cent down payment of $60,000. Actually, when you calculate the return on investment of the actual money invested (which is only the down payment of $60,000), that is a 318 per cent, or 31.8 per cent per year, return on your money.
To be honest, nowhere else you could find a return that good. Please take into consideration that this is just an example and, of course, there are always unforeseen variables that can cause your returns to fluctuate, such as: vacancies, repairs, interest rate fluctuations, etc. Also, appreciation rates can fluctuate, which is why it is imperative to buy your properties in areas with strong economic fundamentals.
Mortgage pay down: All the while you’re holding a mortgage on a property, it’s slowly getting paid down by your tenant. When you sell the property the difference from the first day you got the mortgage until the day you sold the property is yours in the form of equity.
As an example, let’s use a $300,000 purchase price with a 20 per cent down payment, a three per cent interest rate, a 25-year amortization and a mortgage of $240,000. In 10 years, the mortgage amount would be $206,008, a difference of $33,992.
Having many properties provides the investor with many benefits. So ask yourself this question: What if I owned multiple cash-flowing properties? After reading this article and going over the examples provided, you can answer this question. If an investor can benefit substantially from holding one property for many years, multiply these gains – to put it simply, the more properties held, the better off the investor will be.