2 Reasons for Buying a Rental Property

There are two reasons for buying a rental property.

The first reason is leveraging the bank's money. For example, when buying a stock for $100, you have to pay the full $100 to get that specific stock. When buying a rental property, you can put down 20% and then the balance, the 80%, can be borrowed from the bank through a mortgage.

The second reason is two plus two gives you 19. Is this is a trick question?

"2 + 2 = 19"

Yes, two plus two equals 19. The beauty of real estate investing is, over a five year period of time at 4% appreciation, (inflation plus two). Inflation is around 2% and then add another two, so that's 4% annual appreciation and regular mortgage pay downs. No extra payments, no accelerated payments, no lump sum, none of that stuff - It's just good old boring mortgage pay down on a monthly basis. In a five year period of time, your initial investment ... that 20% that you put in ... your equity position doubles and then your return on investment is 19% annually. So, two plus two, which is that 4% annual appreciation, will give you a 19% return on investments.

Now, investing in real estate is not the end all-be all. However, it's a good way to diversify your investments. So, if you have RSPs or if you have RESPs for your kids, investing in real estate and buying rental properties is a good complement to those other investments you have.