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Is Real Estate Investment your thing?

  • Writer: Cedric Hu
    Cedric Hu
  • Jan 3, 2024
  • 3 min read

In year 2024, investing in Multiplex in GTA market, it is almost a no-brainer, for those of you, who knows quite a bit about this market. You can read another blog for the same discussion: https://www.polyprime.ca/post/multiplex-economics


However, for those who are not so familiar with real estate market, things may not be that straightforward, especially when you are being bombarded by so much market news every day.



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Let's take a step back and check a few things...


First thing first: Everyone (that can afford) should invest, one way or another!!


Why? Inflation!!! If you are 30 years or younger, you might need to read this blog to appreciate that: How a McDonald burger price increase 10 times in 60 years


The following is a menu of McDonald's from 1960s.---So, you got the idea.


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So, Why invest in Real estate?

If you could purchase a 1000 MacDonald's burgers in 1960s at $19c and sell it today, you'll make 10 times profit, right? Of course not, because there is no easy way to store the original value of a burger.


That leads us to another point: Real Estate, is one of very few tangible things, that actually appreciates value over time (without you trying too hard). If you are curious about other things that also appreciate, ask chatGPT, it gives you very good answers.


Now, a longer version:


  • Hedging Against Inflation: Real estate has historically demonstrated resilience against inflation. As the cost of living rises, so do property values and rental income. This inherent ability to hedge against inflation makes real estate an attractive long-term investment, safeguarding investors' purchasing power.

  • Steady Income and Tax Advantages: Especially for those closer to retirement, owning rental properties allows you to benefit from a consistent stream of cash flow, offering financial stability and additional resources for further investment or personal expenses.

  • Tangible Asset that you can actually control: One of the primary advantages of real estate investment is the tangible nature of the asset. Unlike stocks or bonds, real estate provides a physical, palpable asset that investors can see and touch. It allows for a considerable degree of control: manage their properties, make strategic improvements, and respond to market conditions, influencing the performance of their investment.


OK, Is Real Estate right Investment for you?

I hate to say it, but yeah, it depends...

Maybe a more meaningful answer is that: it is NOT the best for beginners with limited capital and knowledge. You might like the liquidity of stock market more---Even crypto currency has its own appeal when your timing is right.


Most due to the following reasons


  • Capital Intensity: Real estate often requires a substantial initial investment. Purchasing property involves not only the purchase price but also additional costs such as property taxes, maintenance, and potential renovations. This capital intensity can be a barrier for individuals with limited funds or those seeking more liquid investment options.

  • Lack of Liquidity, and high transaction cost: Real estate is considered a less liquid asset compared to stocks or bonds. Selling a property can take time, and the process may involve various complexities, making it challenging for investors who may need quick access to their funds. Plus, the transacting cost (commission and tax) often adds up to 5-8% of total value, which makes real estate not a great fit for short term (less than 2 years) investment.

  • Market Volatility, and Interest rate fluctuation:

  • Management Responsibilities: The risk of dealing with a not-so-great tenant, and then the subsequent LTB (Landlord and Tenant Board) is daunting, to say the least. Managing real estate investments requires time, effort, and expertise. Landlords are responsible for property maintenance, dealing with tenants, and addressing unforeseen issues. Investors who are not prepared for the hands-on nature of real estate ownership may find it burdensome.



A closer look at Toronto real estate market

In GTA area, the overarching force is the population growth, which generates wealth as "Demographic Dividend".


Another blog explains the wealth effect of this population growth, and the long term view for real estate investor: https://www.polyprime.ca/post/a-closer-look-at-gta-real-estate-market



PolyPrime's verdict

To be done

 
 
 

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