Buying an investment property, whether you're in Kelowna, Surrey, Victoria, Vernon, or elsewhere in B.C., definitely has its allure. For one, Kelowna and the Okanagan are one of the top emerging real estate markets in Canada. On another note, some may opt to invest in real estate further outside of Vancouver such as in cities like Surrey, Burnaby, Richmond, Coquitlam, given the increasing trend of working from home, the perk of more space, and potential for growth as these areas continue to expand.
Regardless of city, many have made a fortune in real estate and are financially independent as a result. The real estate market in Canada over the past 25+ years, has created an amazing number of millionaires. Many were created as their primary residence has inflated exponentially in value over the years. Most of these millionaires were created in certain regions within the country, where real estate values have gone up substantially. If you live in the Metro Vancouver or GTA area, you may know that the two primary regions where this has occurred is the Greater Toronto Area and Metro Vancouver. Many of these folks have benefited from tremendous equity build up. As a result, they can leverage themselves and explore many other investment opportunities and use this equity to build their wealth even further. Many use their available equity and leverage themselves further into the real estate market. Ownership of an investment or rental property is extremely attractive to many, and their pursuit relentless in some cases. There are many advantages to starting up your real estate investment portfolio, as well as some disadvantages. All of this is dependent on type of market, geographic location, and many other factors.
Is Real Estate a Good Investment?
Real estate investing in some cases, perhaps in most, is far more attractive than most other types of investments. If you’re looking to invest in real estate in Vancouver, Surrey, Victoria, Kelowna, or elsewhere in the Lower Mainland, consider the many advantages to doing so in building your wealth. This is due to the main advantages associated with it, which include:
Lower Risk Level
Real estate has always remained a solid and secure investment. Of course, the risk level is dependent on the geographical area, market conditions, and other factors. However, traditionally it tends to increase in value over time even as the market may go through cycles.
It is far easier to borrow against real estate than other types of liquid assets. Lenders are more inclined to lend on real estate since it is a desirable investment. The market lenders offer many options to the real estate owner should they ever want to borrow against their property. There are lenders for all property types and just about any situations you can imagine.
You are the Boss
Owning a home puts you right in control of your investment. You call the shots and there is not much experience required. The process itself of owning a home is easy and quite seamless. Most homeowners learn and acquire their real estate skills as they continue to own the property. Homeowners usually only answer to themselves since they are ultimately in charge.
In most cases, home ownership is a part-time job. Not only is little experience required, but also part-time involvement from the owner. There is no requirement to be involved in a time-consuming process. Home ownership is low activity and usually a turnkey operation requiring very little effort to manage.
As previously mentioned, real estate tends to increase in value over time. As a result, the owner will build up equity in the property. This increase in value may be leveraged and used for other investments. It provides the property owner with options and recourse to pursue and engage in other investment activities.
Income Tax Benefits
Unlike other investments, there are far more potential tax benefits available to the property owner. Investments such as stocks, GICs, RRSPs, etc. are all subject to income or investment income tax. There is no opportunity for the investor to try and minimize the income tax paid on these types of investments when realized. Real estate on the other hand, does offer certain tax benefits. For example, the equity appreciation on your primary residence is tax free. Any increase in value in your home is tax exempt. This is a tremendous tax advantage for a homeowner. A property owner may also use expenses incurred on an investment property as a taxable write-off or benefit. This is an example of offsetting and equity appreciation, by the costs associated in maintenance of the asset. There are potentially many other taxable benefits to the property owner.
On the flip side, there are a few other sides of the coin to consider as well:
Initial Capital Investment
To become a property owner, you must have funds available to apply as a down payment for the purchase. This is a struggle for many, because depending on the market, one may need a substantial amount of funds in securing a property. As you know, it takes time to save money and it is not an easy task. Be prepared to invest a large sum up front to realize your property investment. If you currently own a home in Vancouver, Surrey, Kelowna, or elsewhere in BC, and want to explore your options in pursuing a second or investment property, get in touch with us today.
Liquidity is tied up
Once you own a property, your resources are then tied up into the property. These resources are committed to the property and cannot be accessed so readily. So be prepared to part with and have your funds sitting invested into your property. This may limit your ability to diversify and pursue other investment opportunities. To create some sort of liquidity, you would have to borrow against the property or sell it. Please keep in mind that a real estate investment can really pin you down financially.
Length of Ownership
Purchasing a property usually involves a commitment from the owner for an extended period. Having taken on one of the largest financial obligations with property ownership, most are in it for the long haul. As you know, it can take a long while for real estate to appreciate. On the other hand, real estate values can also retreat and slip away with varying market conditions. If values decline, then there is ground to be made up and one might be forced to hang on for far longer than anticipated.
Government rules and regulations may also influence the real estate market. Government ultimately calls the shots and can have an extreme impact on real estate values. Realistically, the government owns all the real estate as we know it. Property owners may hold a deed for the land, but the government is the trustee. The government has the power to expropriate, rezone, re-develop, license…. most real estate as they choose. All of these variables may affect the property value.
All of the factors mentioned as being an advantage or disadvantage will certainly impact the value of your property. As a result, it is highly recommended that you do thorough research and get expert advice prior to engaging in the purchase of property. Interested in learning more about investing in real estate in Surrey, Vancouver, Kelowna, Victoria, or elsewhere in BC? Get in touch with us today to explore your options.
Are you looking for a private mortgage lender to help you get started with investing in real estate? Click here or give us a call today at 604-620-2697 and we’ll get back to you within 24 hours.
Silver Hill Blog
Jim Horvath is the principal broker and director of Silver Hill Mortgage Corp., arranging private mortgage loans in British Columbia for over 25 years.