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Money Investment Rule

Market Updates | September 2, 2020

Investing in real estate or any investment, what does it mean to you? Investopedia’s definition is “investing is the act of allocating resources, usually money, with the expectation of generating an income or profit. You can invest in endeavors, such as using money to start a business, or in assets, such as purchasing real estate in hopes of reselling it later at a higher price.” Allocating resources are the two key words in this definition. Owning real estate for personal use or as an investment vehicle are the same in my world. Both are assets that an individual or company allocates resources (money) too, and both should have the approach that a profit or gain should be the ultimate goal. 

This brings up an important money rule of life and one that I try to live by. Any dollar I allocate into investments, real estate or another asset class, stays in my investment portfolios. That means my personal home, buy and hold properties, buy and sell opportunities, land developments, joint venture opportunities, stocks, and RSP contributions all remain allocated to investing and growing. 

In other words, let’s say I invest $100,000 in a buy and hold property and it produces a thousand dollars a month in positive cash flow. Question, do I spend the $1000 on anything I want to? Or, do I keep it in the investment portfolio? I personally leave it working in the portfolio. I would always encourage allowing the allocated resource to continue to grow and in this case, the asset has three growth or income streams.

The monthly positive cash flow stream, which brings in a $1000 per month and over 12 months the total would be an impressive $12,000. Yes, it is positive cash flow and many investors would use it as their source of day-to-day living. This is ok, but I would encourage reinvesting it back into the asset. One never knows when you may need it for a special opportunity, circumstance, or even maintenance.   

The second income stream is the mortgage pay down. This stream is often forgotten or overlooked, but is the most predictable growth stream. Pay down happens regardless of market conditions, vacancies, or even maintenance of the asset. The mortgage payment is made monthly or bi-weekly, and the mortgage balance is magically reduced, and the equity in the property in most cases should be more. 

The third income stream, which is really the icing on the cake, is the appreciation growth stream. When the asset or in this case the property appreciates it is almost like winning the lottery. This is where many investors and even residential homeowners forget the important money rule of life. They take the appreciation and spend it on things outside of their investment portfolio by refinancing or selling the asset and then spending the appreciation income on personal wants. I get it, stuff happens and sometimes the only option is to pull from the appreciation or one of the other two streams. However, this is the fastest way to interrupt or kill your investment portfolio and net worth. 

I am sure that many of you are already practising this money rule of life. However, when the asset value increases substantially, it is easy to spend the investment allocation (money) on personal wants and even needs. I have been there and at times have gotten off track with my investment discipline. That being said, investing is the act of allocating resources. Acting means you have a script or plan that you are committed too. When your plan is consistently executed, your investment portfolio will continue to grow and you will never find yourself questioning your choices. Money rules of life create a better financial future.

The month of August was another very busy month with record sales volume not only in the Vancouver and Fraser Valley but also across Canada. The pandemic created a cabin or COVID fever to sell and move to a new home and or area. Rural and single family homes continue to be the hot seller, with many going into multiple offers. 

It is interesting, I am in dialogue with agents around North America and many tell me they are also in strong sellers markets. Inventory is low and buyer demand feels like 2007 and 2008! What does this mean when markets around North America are all experiencing high volume in sales and increasing prices? 

I believe the answer rests in cabin/COVID fever, new work opportunities (working remotely or work from anywhere), and ultra-low interest rates, and low inventory. Inflation is also having an impact on the market, higher costs in building supplies and products caused by COVID in manufacturing and distribution of building products and materials. The net result is the new home costs more, which puts pressure on the entire resale market as well. 

I am not sure how long this trend will last but for now, the market around North America is on a tear. My advice is be careful, make sure you are working with a hyper-local and knowledgeable realtor, invest wisely, and make sure you understand and apply the money rule of investing.

Please reach out to our team for more information or help with all your real estate needs.

Click Below To See The Fraser Valley Stats:

Fraser Valley STR Stats

Click Below To See The Vancouver Stats:

Vancouver STR Stats

 

STR (Sell Through Rate) Formula = Sales ÷ Active Listings + Failed Listings + Sales

 

Randy Dyck
Personal Real Estate Corporation
604-807-4366 or randy@eximus.com