Is it a good investment?
The percentage of homeownership in Canada – among
the highest in the world – pays tribute to the sense of buying a house instead
of renting one. There isn’t the chance of a
capital gain we saw in the 80s and 90s, but you can at least build up a
nest egg for your retirement years through what can be seen as a forced savings
program.
But how about buying an additional house or a multi-family property? Is this a wise move? Does
it make better sense than putting money into mutual funds or the stock market? And if so, what guidelines should you follow in making
a purchase?
Good questions indeed – with, I suppose, no quick answers.
On the plus side, there’s less chance of suffering
the sort of loss the stock market can inflict on people.
Property values tend to hold firm and over the years will almost
certainly increase, if only to a lesser degree than in the past. Moreover, this value is generally looked upon as
better collateral for a loan than a stock portfolio often is. Not the least, as an investor you are much
more in direct control of what’s happening.
The main negative is the limited liquidity. You
can always get rid of a stock overnight, even if it involves a loss. In contrast, it takes time to sell a house, particularly
if it’s tenant occupied, and even then you won’t necessarily get all your
money out of it. In addition, too, you can find
yourself at the beck and call of tenants and not always at convenient times.
In effect, both the property and stock markets
offer profit making opportunities alongside the possibility of losing your
investment. And as I see it, the deciding factor
in choosing either one depends on your capacity for risk taking and your
willingness to participate in managing the investment.
As a shareholder, you can simply sit back in the hope of clipping dividend
coupons. As a landlord you can more assuredly
guarantee yourself an income, but you have to look after your tenants and
go collect the rents from them.
However, as an Exclusive Buyer Broker (which means
I no longer list property but work solely for buyers), I do see two particular
advantages in choosing real estate as an investment.
For a start, you can compare apples with apples.
You can find proof of value by looking at the asking and selling
prices of similar properties. In oversimplified
terms, you should thereby be able to obtain a 5% return on the purchase
price of a single family home and about 10% if it’s a multi family one.
Into the bargain, there’s no good reason why you can’t mortgage the place
so that your tenants are buying it for you – which means that the percentage
return on your downpayment is in the order of 20-30%.
Or, if you wish, you can pay out a lot less than the market
value of what you’re buying, which is hardly the case with stocks and bonds,
is it?
On balance, then, I’m not afraid to claim that buying houses is well worth considering. It’s always going to bear fruit and won’t ever let you end up with a lemon!
If you'd care to call and discuss any of these
points with me, I'll be only too pleased to hear from you.
Thank you for your time.
Duncan Pollock, Real Estate Broker,
427 Gate Street, Niagara-on-the-Lake, Ontario, Canada L0S 1J0
Tel: 905-468-3154 Fax: 905-468-3812 Cellular: 905-704-9037
email: duncanpollock@sympatico.ca
Note: E-mail
addressed changed as above on Nov 3 2007
website: http://www.duncanpollock.com