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Mutual funds may have their appeal, but look around you-one of the best investments of all can be found on virtually every street of every city in the country.
I'm talking about residential real estate--the kind of new homes and condominiums to which this magazine is dedicated.
If you're tired of watching your hard-earned savings yo-yo up and down with each turn of the stock market, today's real estate market offers a very attractive alternative.
First, consider the general investment conditions in Canada. We live in a democracy with a stable government, and are currently enjoying one of the greatest periods of economic prosperity in history. Then look at Toronto specifically. Real estate prices are a bargain when compared to those in New York, London, Tokyo or Hong Kong!
The timing is also excellent. Today's real estate prices are starting to increase, while both interest rates and the Canadian dollar remain low.
In Toronto particularly, the vacancy rate is low while rents are rising. And with no rental apartments built since the 1970's (and now with rent controls being phased out), the situation will only improve for those who own property.
With increasing construction activity, the stock of income properties available in prime locations is also increasing. By buying new, at pre-construction prices, in many cases your property's value will have appreciated even before you close.
Buying a new condo, for instance, lets you phase your down payment over a period of time. And newer properties are more attractive to tenants, with none of the repair/maintenance problems of older buildings.
Consider this scenario. Buy a new 600 sq.ft. one bedroom downtown condo today for $240,000. With a 20% down payment, you can carry the mortgage for 40 years at 5% financing for about $11,000 a year. Add approximately $3,000 for annual maintenance and another $1,800 for taxes and your total yearly costs are approximately $15,000.
Rent out the suite for $18,000 per year and your annual profit is approximately $3,000--or a 5.32% return on investment today.
But now look 20 years down the road when your mortgage is paid off (of course you could pay it off even sooner if you want). You can use your profit to pay off mortgage. It takes 10-15 years.
If property values increase only 3,8% a year, you condo has now doubled in value to $300,000. Assuming your maintenance costs remain stable but that rents double, your annual costs are now about $6,500 while the rent you collect is $30,000 - or an annual profit of approximately $23,500!
If you were to buy one such condo per year for the next decade, in 2010 you'd have $1.5 million portfolio. Your total principal will have increased in value and when all of the mortgages have been paid off, you will have a very comfortable income of hundreds of thousands of dollars per year during your retirement years.
There are other benefits to investing in real "bricks and mortar" versus dot.com companies that appear out of nowhere but often disappear just as fast. Even in "bad times", your real estate investment will never go to zero as it can in the stock market.
Furthermore, with real estate, you're in control of your own investment; it's not in the hands of some money manager at a brokerage firm.
Investing in real estate can provide the kind of financial security that we're all looking for --I've seen it time and time again. After all, even Donald Trump had to start somewhere!
I'm talking about residential real estate--the kind of new homes and condominiums to which this magazine is dedicated.
If you're tired of watching your hard-earned savings yo-yo up and down with each turn of the stock market, today's real estate market offers a very attractive alternative.
First, consider the general investment conditions in Canada. We live in a democracy with a stable government, and are currently enjoying one of the greatest periods of economic prosperity in history. Then look at Toronto specifically. Real estate prices are a bargain when compared to those in New York, London, Tokyo or Hong Kong!
The timing is also excellent. Today's real estate prices are starting to increase, while both interest rates and the Canadian dollar remain low.
In Toronto particularly, the vacancy rate is low while rents are rising. And with no rental apartments built since the 1970's (and now with rent controls being phased out), the situation will only improve for those who own property.
With increasing construction activity, the stock of income properties available in prime locations is also increasing. By buying new, at pre-construction prices, in many cases your property's value will have appreciated even before you close.
Buying a new condo, for instance, lets you phase your down payment over a period of time. And newer properties are more attractive to tenants, with none of the repair/maintenance problems of older buildings.
Consider this scenario. Buy a new 600 sq.ft. one bedroom downtown condo today for $240,000. With a 20% down payment, you can carry the mortgage for 40 years at 5% financing for about $11,000 a year. Add approximately $3,000 for annual maintenance and another $1,800 for taxes and your total yearly costs are approximately $15,000.
Rent out the suite for $18,000 per year and your annual profit is approximately $3,000--or a 5.32% return on investment today.
But now look 20 years down the road when your mortgage is paid off (of course you could pay it off even sooner if you want). You can use your profit to pay off mortgage. It takes 10-15 years.
If property values increase only 3,8% a year, you condo has now doubled in value to $300,000. Assuming your maintenance costs remain stable but that rents double, your annual costs are now about $6,500 while the rent you collect is $30,000 - or an annual profit of approximately $23,500!
If you were to buy one such condo per year for the next decade, in 2010 you'd have $1.5 million portfolio. Your total principal will have increased in value and when all of the mortgages have been paid off, you will have a very comfortable income of hundreds of thousands of dollars per year during your retirement years.
There are other benefits to investing in real "bricks and mortar" versus dot.com companies that appear out of nowhere but often disappear just as fast. Even in "bad times", your real estate investment will never go to zero as it can in the stock market.
Furthermore, with real estate, you're in control of your own investment; it's not in the hands of some money manager at a brokerage firm.
Investing in real estate can provide the kind of financial security that we're all looking for --I've seen it time and time again. After all, even Donald Trump had to start somewhere!
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