When talking to investors,
it seems like people are looking for one of two things: Number one,
cash flow or appreciation. Well,
what if I told you there's actually a third way to get a return on your
investment property?
Something that seems to get overlooked by quite a few people as if it's kind of
like a hidden return.
This one is so important that even if the value of your home
stays flat, you're still going to make a return on your income property.
By the way,
this is our third episode of our elements of real estate
return series. So if you missed the first two episodes filmed by Jasben,
make sure you check it out up here and we'll put the link in the description
below. We do go over things like appreciation and cash flow.
So you want to make sure you watch those episodes. By the end of the video,
you're going to know what this third element of real estate returns is and how
that could impact your decision when you buy your first or next
income property. If you're new to our channel, my name is Felix Chan,
Calgary realtor and mortgage broker with the LiveInnerCity real estate team,
where we bring you the best and honest real estate market news, home tours,
and mortgage tips.
If you don't want to miss any of our real estate market updates,
make sure you hit subscribe,
put the notification bell on all so you don't miss any of our future episodes.
So what is this hidden return? Well,
it is principal pay down.
Now everyone knows that you're going to pay your mortgage over 25 years,
but what does that actually mean to you on a yearly basis?
Or what kind of equity are you left with at the end of the five-year term? Well,
today we're going to break down those numbers for you guys.
Let's say that you buy a $500,000 property and you put 20% down,
which is $100,000. Now you have a mortgage of $400,000.
If you got a five-year fixed mortgage with today's rates,
your mortgage payment will be about $1,840.
And of that $1840 per month,
slightly more than half of that is going to be your principal.
At the end of the five years, your tenants would have paid off
$59,800 of your mortgage
principle. What that breaks down to is $11,960 per
year, or $996 per month.
What that means is that every single month,
your net worth increases by almost a thousand
dollars. So let's just say a few years down the road you decide to sell.
And in a worst case scenario, property values stayed flat.
Well, if you were to sell,
you would still make a return on your investment because you would have paid off
a thousand dollars per month during your ownership.
And your principal payments are only going to grow more
every single month you hold onto the property. So knowing this,
how does this affect your decision when you want to go buy your
next income property? So, as an example,
let's just say you want to buy a property in the inner city with a goal of
building an infill years down the road. Well,
due to the high cost of acquisition,
you might just break even with your cashflow.
Chances are you're going to get some appreciation over time because the land
theoretically increases because of scarcity.
So knowing what your principal paydown is per month, you actually might be okay,
knowing you're not going to cash flow that much.
The most important thing you need to know as an investor is understanding what
your investment objectives are. If you understand this,
you're going to have a lot more direction,
and you're going to be able to be more intentional with the properties that you
see knowing the returns that you're looking for.
If you need help pinpointing what your investment objectives are,
or what's more important for you as an investor,
then feel free to give us a shout. There's a link in the description down below,
so you can reach out to us and we will set up an investor strategy session with
you and go through all the pieces to find out number one,
what kind of investor you are and number two,
what kind of investment returns you're looking for. And if you're out of town,
like a lot of the people that reach out to us,
we'll let you know what is realistic and what you could expect to see
as a return. And guys, if you haven't seen our previous episodes, like I said,
Jaz did episode one and two, check those out.
We also have one of our best performing videos.
It is called the $460,000 investment property it cashflows
$600 per month. Now these are still available.
However, they're no longer available at $460 - $460,000,
sorry.
There are close to a $500,000 and that's including a GST.
Now these are brand new builds.
They come with a legal basement suites because it's half duplex and you
just can't get better cash flow from any kind of investment property
here in Calgary. So if you're interested in purchasing them,
just like some of the others that we've helped with just previously,
make sure you reach out to us. We're a little bit scared that prices will go up.
That is actually our feeling. So if you do get in sooner,
then that means you're going to get a better return on your investment.
We are going to link those playlists up here and also include it
in the description. So make sure you guys check that out. My name is Felix Chan,
Calgary realtor, and mortgage broker with the LiveInnerCity estate team.
And we will see you in a few.
seconds.