Benefits of Being a Landlord at Triple Crown
Residence I is now fully occupied, and about half the community is made up of well -established renters who are happily paying rent to new owners of cash-flowing rental properties. Why do so many of our clients want to be landlords at Triple Crown?
Real estate investments are better than most. Mortgages provide some of the most favourable financing terms compared to any other investments, tenants pay your mortgage’s principal balance while you ride the property’s appreciation, and real estate can be leveraged as collateral to finance other properties to increase your net worth.
It’s important to be able to at least break even after all the monthly expenses are paid to make sure your investment is sustainable. If at the outset you have some monthly cash flow – profit after expenses – that’s rare in Victoria, but it’s a real possibility with a Triple Crown condominium where owners are commanding average rents of between $2000 -$2200 per month.
A few thousand dollars clear every year after expenses is great, but the real leveraging power of real estate investment is in the capital gains year over year. Let’s look at some averages:
If you take out a mortgage with an average of 3.5-4 per cent on a fixed mortgage with down payments of around 25 per cent and with amortization periods at 25 years on a $400,000 property, the average principal pay-down on your mortgage will be around $6,000 per year.
At the same time, if your property asset appreciates by the average of about 5 per cent per year, that’s an added value of $20,000 in the first year.
The combined total of $26,000 per year, and the compounding factor of appreciation over time is what begins to build real wealth. After year five, you’re at around $500,000 on an asset you bought for $400,000. And because the mortgage is being paid for by someone else, it’s worth more. After five years, the pay down is around $30,000.
If you do have some cash flow and you want to increase the speed you build up equity, you can expedite that by lessening the amortization period and increasing your monthly payments on the mortgage to pay it down more quickly. You essentially use the monthly cash to increase your principal payments and to pay far less money towards interest over time.
We’re using these averages as examples which are not to be construed as representative of your own investment scenario or returns. Before you make any investment, be sure you consult your financial and an accountant who is familiar with real estate investments.