Using property as an investment is certainly a controversial topic these days. With housing markets in Canada drifting into unchartered territory and causing no shortage of fortune and frustration for a spectrum of folks, the future is as uncertain as ever. For private realtors who, for the most part, facilitate the sale and purchase of a property between third party individuals, the rate of risk is reasonably low. In this day and age, there is such a wide variety of financial instruments to help ambitious young realtors get off the ground that a savvy professional could quickly make a killing on a few hot listings. Commission advances for example – a maneuver you can read about on the AccessEasyFunds Blog – is a way to leap frog over naïve competitors who are doing things the old fashioned way, and set a course for the stars.
Of course, for those of us who don’t have a realtor’s license and have no desire to work in the stressful field of real estate, the question of how to best manage your property is an extremely important question. In such a heated market, even people with savings and reliable income are reluctant to buy a house, because there is a huge potential for value to drop in the coming years as the market cools. People with this outlook may be happy renting for the time being and waiting for the appropriate moment to start surveying the landscape.
Others who already own property, on the other hand, in addition to those who believe that the market will never cool, may try leveraging their property in order to increase their net worth and open up revenue streams to pay off their mortgage. Some people may simply leverage their property to pay off medical bills or send their kids to college – you never know.
When leveraging your property, there are a couple things to keep in mind. Leveraging can be a great way to make money, but it can be stressful and extremely risky if you don’t know what you’re doing.
The market could cool off, and if it does, you might be in big trouble. If you put the minimum of 20% down on a property and a lender covered the rest, you are on the hook for a significant mortgage. If the market cools, your net worth drops – even worse; if your property is divided into rental units and the rent drops, the income you’re using to make your mortgage payments may dry up. This can lead to big trouble.
Don’t overextend yourself, it’s not worth it. Some people who get a little too comfortable managing several properties run the risk of getting burned. There are so many variable factors involved with leveraging property investments that it is often more prudent to stick with more traditional investments such as equity or bonds in order to minimize your risk. when your money is in bonds and equity, there is also less to worry about in a logistical sense.
This post is not meant to frighten people from leveraging their property – provided that they understand the risk involved. If you’re passionate about real estate, getting your realtors license may be a more responsible option so that you don’t end up in debt and ruin your credit.
Michael Sanduso lives in Toronto, Canada. He is a freelance writer and editor, tech geek, and stay at home father.