We understand that investing in RRSPs, mutual funds, TFSAs, and so on, makes sense for some people.
However, you may missing out on a huge opportunity if you aren’t leveraging someone else’s money and only earning interest on your own hard-earned cash. Real estate gives allows you put in only 20% of the total property value and let someone else pay off the mortgage for you.
To show the difference, we must compare apples to apples. For example, let’s assume you put $400 away monthly into an RESP, RRSP, TFSA, mutual fund, or savings account.
First, here’s what $400 a month looks like in an RRSP, RESP, or mutual fund after 15 years.
$400 × 12 months × 15 years × 4% annual return = $98,436 total savings
Real estate investment
$400 a month would be around how much it would cost you to borrow a $100,000 down payment, which would qualify you for a $400,000 mortgage. This would allow you to buy a $500,000 investment property.
$100,000 down payment + $400,000 mortgage = $500,000 property
After 15 years of ownership, assuming an annual appreciation of 4%, your property will be worth $900,471. By this point, you’ll have about $246,189 left to pay on your mortgage, giving you $654,282 in gross equity. Take away the original down payment, and you’re left with $554,282 if you sell your property after the 15 years.
$900,471 value – $246,189 mortgage outstanding = $654,282 gross equity
$654,282 gross equity – $100,000 down payment = $554,282 net equity
Which would you rather have after 15 years: $98,436 or $554,282?
That’s, of course, assuming your property would appreciate at 4% and that the mutual fund or RRSP would grow at 8%. What if the property increased in value at only 2%? What if the mutual fund grew by only 4%.
$138,415 (investments) vs. $326,795 (real estate)
You’d still be further ahead if you invest in a real estate property.
Obviously, investing in real estate may not make sense for everyone, but it does for most. If you want to see if this is possible for you, just drop us an email.