Real Estate Investing

Investing in Real Estate

We own our own home, a single family house that we purchased 20 years ago and it has been a great investment and a nice place to raise a family. Other than our house we own REITs (Real Estate Investment Trusts). We do not own rental properties, not that I am against rental or commercial real estate. We already have a big portion of our net worth in real estate, and the last few years the real estate market has been crazy overpriced. There isn’t many good deals to be had in the Victoria area and it’s tough to find rentals with a positive cash flow. It seems that most of the very wealthy people I personally know have made their money in real estate. Real estate investing has pro’s and cons.

Pros
-have a real asset to leverage against
-you get monthly income
-you can insure your investment
-you control your properties
cons
-Not very liquid and high commissions to sell
-Constant maintenance and finding tenants
-Highly leveraged unless you can pay cash
-cash flow issue can arise with vacancies

REITs

We do own some REITs but not many as our primary residents is still a big part of our net worth. REITs also have pro’s and con’s. I have an equal weighted REIT that owns all the Canadian REITs so it is very diversified and yields around 6%. You can see my portfolio structure Here.

pros:
-They are very liquid, you can trade them with a click of a button when the stock markets are open.
-Low cost commissions, the cost depending on your brokerage between $4.95-$9.95 to sell/buy.
-No maintenance, you don’t have any toilets to unclog or worry about tenants not paying their rent.
-Payment options, you can use leverage or you can purchase with a few hundred dollars.
– You are more diversified and can buy any region and mix of usages. Residential, commercial, industrial, etc.
-Tax efficient, you can put them in a tax efficient account.

cons
-Volatile, REITs are like stocks and move up and down with the market.
-Interest rate sensitive, when interest rates go up REITs go down as a rule.
-No control, you have no direct control over what management does except to buy or sell.

Final Thoughts

Personally I like owning both real estate and REITs. They are a great diversifier in a portfolio as well as you get a nice yield. If the real estate market ever does get back to nice evaluations in Victoria area I will be seriously looking into picking up some rental properties for our portfolio.

Here is a YouTube video for your enjoyment. It’s 7:00 min. Marc Faber is somewhat bullish on Canada. If you are interested I have written a post here about YouTube copyright policies.

Marc Faber on Canada, Real Estate and Investing in Canada.

 

Comments

  1. I have 4 rental units (2 duplexes) they have been better investment than what I have made in the stock market in the last 8 years and the money keeps coming in every month.

  2. Real estate investing is something a lot of bloggers have invested in, I’m not sure about it as it could be a lot of overhead. I have thought about REITs but not investigated further. I’m intrigued by the new trend of crowd sourced peer to peer investing like reality shares.

    • Thanks Steve. I know Joe from retireby40 has written a lot about ­ peer to peer investing like reality shares. I don’t know enough about them to invest. I do like the simplicity of REITs,. I own them for the long term but they are very quick and easy to sell if you have to.

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