Real Estate Investing 101


Needless to say, there are many discussions that could be included in a ‘Real Estate Investing 101’ article, but this one is a bit different given I want you to look at real estate from a different perspective. 

To begin with, I want you to look at any real estate asset that you can see – be it your own house, the house across the street, a duplex on your street, a triplex or an apartment building in your neighbourhood, etc. Think of that asset as the thing that protects your investment. Any time we invest money we need to deal with two very important aspects; 1) the security of your investment (i.e. what protects your investment) and; 2) the expected or potential rate of return. 

Think of a bank, they lend out a mortgage and they register the first mortgage against your property. So what protects their money? Your house. What is the expected rate of return? Whatever you have agreed to pay the bank as an interest rate on the mortgage. Not much risk here is there? The bank has your house as collateral and they have a contracted agreement that requires you to pay a predetermined rate of interest. You need to look at a real estate investment in the same way, but from a different angle. 

When you look at any house on your street, you too can use that house to protect your investment by either owning it or lending against it. If you look at owning it, you can do it in one of two ways; 1) own it yourself (i.e. own your own rental property), or 2) own it as a group with a number of people (i.e. a real estate income trust – REIT)

Alternatively, if you look at lending against it, you again can also do it in two ways; 1) lend against it yourself (i.e. private mortgage lending), or 2) lend against it as a group with a number of people (i.e. a syndicated mortgage). 

This is a very conceptual look at real estate investing but it is a good way to overview different options of real estate investing, both from an asset protection perspective, as well as an expected rate of return. Needless to say, each different method of investing has many different pros and cons which need to be much further explored to truly compare these different options. But in concept, it’s very similar in that we are all about balancing the protection of your investment with your expected rate of return. We just need to figure out what real estate vehicle to use.    

I hope you found this article helpful. If you have any questions regarding real estate investing then get in touch with us and we will be happy to offer any advice you may need.

– Gerry

Edit: On The Run Agency