"It was delightful meeting you yesterday after a long time. Further to our discussion, here are some of the objectives to consider before buying your next property. These go hand in hand with the REALTOR you choose to work with, as the ability to deliver these objectives is more critical than the objectives themselves." - That is how my email started to my clients.
Just after I sent it, I thought to myself, "Why not share this with everyone?" After all, this is something everyone can benefit from. Of course, I have removed all the information specific to my client and exactly how these steps would benefit them. However, if you like what you read here and wish to reap the rewards in real estate, then by all means reach out and contact me. After all, isn't that the purpose of this?
Profitability avenues and their corresponding guarantees: As I list some of the points below, I have also put besides each, a general sense of surety that comes with them. For example, we can be 100% certain that if payments are paid, the mortgage loan will reduce. However, we can’t be certain of the rate at which the market will appreciate.
Asset Acquisition: Profitability is not solely based on how your investment performs after you acquire it, but how much care went into the actual buying decision. What information was considered and the amount of research play a critical role in ensuring that you buy the right property in a happening location at an optimum price.
Exit Strategies: When selling, the larger the buyer pool that you can appeal to, the more ways you have to get out of your investment. This is achieved before you buy. If we start thinking about this after you purchase, then it is too late.
Risk Mitigation: The greater the number of ways you can turn profit on an asset, the less the risk. It is not necessary to utilize every available option, however having more is certainly beneficial than having less.
Principal Recapture - Guaranteed
The amount of money that you will accumulate by paying down the mortgage is certainly a benefit, albeit this not the only and certainly not the best return. Consider this example based on your scenario. A $500,000 property bought with a loan of $405,000 will give you $59,562.48 of principal at the end of the 5 year term. This is based on a 2.89% interest rate and on a 25 year amortization. Click here to go to the calculator that was used. As illustrated by the above example, on its own, principal recapture gives you an annual return of 2.4% (11.9% over 5 years).
Market Appreciation - Not Guaranteed
We know that real estate market has been performing incredibly well for the last few years. It is likely that the rate of appreciation will fluctuate and may go down than what it is right now. Market Appreciation is dynamic we cannot control.
Property Improvements - Guaranteed
This is a no brainer. If you spend money on the property, the value will go up. How you spend it and on what determines the rate of return.
Future Development Potential - Guaranteed
This is the most lucrative avenue. When acquiring your next investment, if you consider future development as part of your strategy, then it makes your investment dynamic and somewhat insulated to the market fluctuations. Simply put, based on the options available to you, you can appeal to a larger buyer pool. For example: If you are able to subdivide your investment property into two lots, then you’ve created another potential house for you to sell. Other options include adding on a second storey or adding to the property. Consider this your 'get out of jail free' card.
"I hope you find this email informative. Remember, it is not necessary to utilize every available option, however having more options is certainly better than having less. Needless to say, working with a REALTOR who has your big picture in mind gives you a huge edge." - And that is how my email ended.
Recommended Reading: How many purchases are you making when you are buying a home?
Formally educated as an Architect, Jagdeep Singh is Toronto REALTOR™ consulting on both resale real estate and new developments. Powerful Local Focus on Real Estate with a Global Perspective™. This post is for information purposes only. Though effort has been made to ensure the accuracy of the contents, the reader is advised to verify the information independently. This post may contain contain information that is privileged, confidential and exempt from disclosure under applicable law. The reader is not allowed to reproduce it in any medium without the author’s prior written permission. Jagdeep Singh is a broker with Century 21 Heritage Group Ltd., brokerage (416) 798-7133 which is independently owned and operated. This message is not intended to solicit parties currently under contract.