Why Should I Consider Investing in Real Estate Instead of Stocks?

Why Invest In Real EstateA common question that I’ve been asked numerous times over the last few years is why should anyone consider buying rental properties? Why not just invest in stocks, mutual funds, ETFs, etc.? It seems like it’s a lot less work and lower risk!

The reason is that rental properties can easily and consistently bring in 10-15% cash-on-cash return on investment, and an additional 20-30% after all vacancy, expenses, management & mortgage expenses have been accounted for. The caveat is that it requires some due diligence and work to ensure that you remain patient and buy the right properties (recommended reads: How to Perform a Cashflow AnalysisThe Difference Between a Successful and Failed Investment).

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Retiring a Few Years Later Can Make All the Difference

compound interestOne of the most important lessons in investing is to learn about the power of compounding. In many cases, investing early and regularly can make all of the difference in the world.

Let’s take look at a chart that shows the impact of investing $100,000 by age 30 vs. investing $200,000 by age 45 (assuming 8% average return each year). As you can see, even though the second individual invested an additional $100,000, they will have nearly $600,000 less at the age of 65… that’s a breathtaking difference!

the power of compounding

Investing $100,000 at 30 years old vs. investing $200,000 at 45 years old

But what if you haven’t had the luxury of starting to invest early? What do you do then?

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Our Love for “Luxury” is Costing Us Our Freedom

luxury house with poolDoes that $30,000 kitchen renovation really make you that much happier? Did you need granite countertops, new stainless steel appliances, built-in double ovens and recessed ceiling lighting?

Alternately, would new modern cabinetry with a standard countertop at a tenth of the price have been sufficient?

What about that $30,000 pool install? Did it need to be installed in-ground? Did you also need to replace your patio and extend it with high-end interlocking stone?

Alternately would an above ground pool that was a tenth the price have been sufficient?

Do these “luxurious” upgrades really bring you increased sustainable happiness or are you a victim to consumerism, short-term lust for higher-end physical possessions and, of course, trying to keep up with the Joneses.

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Investing in Real Estate is So Stressful… Perception vs. Reality

Perception vs Reality“Oh my gosh, your life must be so stressful. Dealing with collecting rent, evicting tenants, doing repairs, showing apartments. You must never get a break!”. These are some of the most common reactions I get from people when I mention that I invest in real estate.

Now let’s discuss how “stressful” it really is.

I’ve been investing in real estate since 2010, a total of ~60 months. During this period I’ve had to evict two tenants, one which left amicably and the other which took a 2 month process to evict. I’ve also performed mostly routine repairs every couple of months. The one non-routine emergency repair that I’ve experienced was a unit that experienced frozen pipes two winters in a row and required a few dozen hours to fix properly. Oh and I’ve also had to purchase a spray foam insulation kit and spray the basement walls in one of my units which had excessively cold floors above during the winter months.

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In One Month You’re Dead

Celebrate LifeToday you have your annual physical at the doctor’s office. You wake up and enjoy a hearty breakfast and then head out for your appointment. All looks well and you’re sent for the typical tests that accompany your annual physical and then your appointment is done and you’re off to work. One week later you get a call from your doctor’s office asking you to come in to discuss your physical. You oblige and head in as instructed.

The receptionist calls you in and you sit down on the patient bed. The doctor walks in and closes the door. He flips through his notes, looks at you and slowly mutters the words “I’m afraid I have some bad news.” Your heart skips a beat as you hear him mutter some words about results and re-focus long enough to hear the dreaded words “I’m afraid you only have one month to live”.

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It’s Just One Purchase… It’ll Only Irrevocably Change the Final 50 Years of My Life!

Investment DecisionsWhat can $100,000 buy you?

  • Home expansion / renovation (~500-750 sq. feet)
  • Luxury car & costs for 5 years (insurance, gas, maintenance, etc.)
  • Camping trailer, insurance & lot for 5 years

What can $100,000 earn you?

Alternately, if you deposited the $10,000 saved each year over the duration of 10 years instead of spending on one of the luxuries above and then earn an average return of 7.8% each year for the next 30 years you would own investments valued at $694,763.08.

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The Fundamentals to Successful Real Estate Investing

fundamentals to successful real estate investingReal estate is one of the best investment vehicles for your hard earned monies. Although it is not a passive investment, it offers numerous benefits over other vehicles:

  • Low barrier to entry
  • Easy to learn as you go along
  • Most decisions are common sense (e.g. a tenant doesn’t pay -> evict; repairs needed -> perform repairs; vacancy -> advertise, etc.)
  • Allows you to leverage other people’s time (e.g. property managers, lawyers, accountants, real estate agents, etc.) & money (the bank, private lenders, etc.)

But before you consider investing in real estate it is vital that you invest some time to learn the basics.

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Get Organized Before Buying Investment Real Estate

real estate investing checklistIt’s important to be organized when you acquire new investment real estate because there’s a list of documents that are required for each and every deal. When you have a few weeks to obtain financing approval, the last thing you want to be doing is stressing because you’ll need time for inspection, closing, auditing leases, etc. Here’s a list of documents you should have ready:

  1. Purchase offer (including all counter offers), dated, signed and accepted
  2. Proof of down payment
  3. Updated and signed net worth statements of all co-owners / primary shareholders if purchased through a company
  4. Tax reports & appendices on income and expenses of each rental property
  5. If purchased through a company, financial statements of the company for the last 3 fiscal years
  6. Detailed income list for all rental properties you own
  7. Current copies of all current leases (along with documentation supporting rental increases that have happened over the years for longer-term tenants)
  8. Detailed mortgage financial statements for all properties
  9. Detailed financial statements of all investments held (stock, real estate, etc.)

If you purchase real estate a few times a year take the time to organize and update these every few months. These documents are the lifeline to growing your portfolio.

Brent Mondoux
Founding Partner, Amplified Investments
brent@amplifiedinvestments.com
Investing in real estate

I Thought I Was Dying

Personal blog by our founder, Brent Mondoux

December 15th 2011

7:00 AM

My familyJust as any other work day, I awoke to the sound of the alarm clock. Sleeping on the opposite side of a king-sized bed, I was forced to crawl across to silence the irritating buzzing. As I went to move a sharp jarring pain radiated from the center of my back outwards. I couldn’t move, I was frozen in pain. I tried to breathe through it, assuming I had just pulled a back muscle as I had done previously, but the pain wouldn’t subside. I forced myself across the bed, struggling through the pain and silenced the damn alarm.

It felt like it took forever to get myself out of bed and into a vertical position. Getting dressed that day felt like the most tormenting ordeal I have ever endured. Far worse than an abscess tooth; far worse than a broken wrist; it was awful. I made my way downstairs to face my wife (Nat) and my son (Aiden). They knew right away that something was wrong. Visibly anguished, I bemoaned that I needed to go to the hospital. Nat looked at me and asked in concern “What happened? What did you do?” to which I confirmed “I don’t know. I must have pulled something in my back while sleeping but I can’t take this pain. I need to get it checked”. She acknowledged my comments and proceeded to get Aiden ready to drop off at school.

We drove up the street to drop Aiden off. Not wanting to alarm him, I put on my “big boy” face and grimaced through the pain as I got out of the car to hug him before he headed in. And then we were off. While heading to Ottawa, Nat was making small talk trying to comfort me from my pain, I could tell that she could sense my concern as well. She looked over at me and said “I think you should go to the medical center first. You won’t wait hours to be seen.” I agreed that it was a good idea.

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