There are many types of real estate investors that use many different strategies to obtain a great return on their investment. Some may be more experienced or savvy investors willing to take on more risk than others, while some may be more risk-averse. The buy and hold strategy is one of those strategies that reaps great reward with less risk than others.
Below are several ways that one can earn money with Investing in Real Estate using this strategy:
1. Passive Appreciation
This is probably the most important and the most return you will receive on the investment. A property over time will appreciate in value. Depending on the area or city you live in, the numbers may fluctuate year over year, however in the GTA, we are seeing anywhere from 7-10% on average per year.
2. Principal Paydown
As a landlord, you buy a property and have someone else pay the mortgage. What a great concept. The rent you receive pays your mortgage, where the principal amount you owe to the bank will decrease over time.
Hopefully all the rent you receive covers all your expenses such as mortgage payment, property tax, house insurance, maintenance fees, etc. Once all these payments are taken care of, the remaining balance is the icing on the cake and cash in your pocket.
4. Forced Appreciation
This involves renovating the property and therefore increasing the property value. This type of appreciation can increase the value of your house two or 3 times the cost of the reno. Updating your kitchen, washrooms, flooring, etc. are all major renovations that can increase the value of your home, however smaller renos around the house can also help.
5. Tax Benefits
When purchasing a rental property, there are many expenses that can be deducted against your rental income: Capital expenses and Current Expenses. These deductions include: depreciation, insurance, interest on loans, legal & accounting fees, management fees, repairs & maintenance, property taxes, utilities, renovations, transportation to property, and many more. We always recommend speaking to an experienced accountant in this field to maximize the benefits.
For more information on how an investment property can benefit your portfolio, Team Bhavsar is always available to discuss.
Written by Paul Bajwa from the Team Bhavsar.