There are many possibilities for investing, such as Stocks, Bonds, GICs and Mutual funds. With all investments there is a balance between risk and reward – the more risk the greater the potential reward, however greater risk comes with greater potential loss.
As you know, if you limit risk by too much, then you struggle to overcome the inflation rate. Inflation is the rise and fall of the cost of goods. If gasoline is $1.00 per litre today, and you invest $1 in a 1 year GIC at 2%, at the end of one year your $1 will be $1.02 so if the price of gas increased by more than 2 cents you failed to overcome the rate of inflation over that year.
At True Assets, our primary investment is in real estate. Here is why we chose this route:
There are many benefits to real estate as an active or inactive investment – we will go over a few of them here.
- Controls
- With an investment in a stock you can only decide when to buy based on the market price. With real estate you can control where you buy, when you buy and how you buy. You can buy in certain countries, communities and neighbourhoods depending on the market and cycle of that area. When the purchase is made, you can control the maintenance, management and use of the property.
- Appreciation
- We have all seen and heard about real estate that has increased in value over time without any money being spent on the property – this is appreciation. Depending on the area, market and cycle when you buy, it can happen rapidly or take some time but real estate in general keeps up with and surpasses inflation.
- Forced Appreciation
- At True Assets, we use this strategy in most of our deals. When you purchase a property, you can do repairs and upgrades to increase value. If bought correctly and responsibly repaired and upgraded, appreciation can occur very rapidly, creating a very exciting investment opportunity.
- Cash flow
- Cash flow is defined as income minus expenses, which sets a True Asset apart from a typical bank defined asset. If you have a rental property and you have to put money in every month to cover expenses, that is not a True Asset. If you have a rental property that pays you every month, that is a True Asset.
- Leverage
- When was the last time the banks offered to lend you money with your stocks, bonds or GIC’s as collateral? Yet almost every property purchased is funded by a lender using the property as collateral for the loan. This is why you can buy a home with as little as 5 or 10% down while the lender kicks in the rest so you can take advantage of control, appreciation and cash flow from the entire asset. The true power of leverage is realized in the following example (using round numbers for clarity): If you buy a property for $100,000 and put a down payment of $25,000 and the property appreciates by 5%, the whole property value would be $105,000. But you only invested $25,000 so a $5,000 return on your investment is 20%, which is only on leveraged appreciation. This does not include cash flow or forced appreciation.