Retirement strategy may include rental properties

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Don’t buy and sell, just buy.

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Owning an investment property or two can be a game-changer in retirement.

Imagine you bought two rental properties in Alberta 25 years ago for $150,000 each. Your initial investment would be the 20% down payment, or $30,000, for each property.

Today, that $60,000 investment would probably be worth $700,000. It’s a pretty effective way to supplement or build your retirement nest egg. And in my opinion, real estate is one of the most secure, predictable and reliable investments.

Let’s say you are planning a move this year. Your real estate agent suggests that you keep your house and rent it out. Since you’re buying a house that you’re moving into, you’ll probably only need to put down a 5% down payment on your purchase. And you may be able to refinance your existing home to take out the 5% down payment.

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Since you only pay a 5% down payment, your return on investment can be up to four times greater than a 20% down payment. Let’s say you buy a property for $400,000 and put 5% or $20,000 into it.

Let’s say that in 25 years this property is now worth $800,000 and is mortgage free. That’s a pretty good return on $20,000. And maybe you still live there or it’s also now a rental property.

Depending on your lender’s rules, your mortgage on your existing property may not affect your ability to qualify for your new home, as the net rental income can fully service the mortgage.

I’ve encouraged hundreds of homebuyers to consider doing just that. I believe this can be a life changing decision for you and your loved ones. Imagine having a million or two more in retirement. What would you do? Would you travel, give more to your favorite cause or charity? Would you like to help your children buy a home, would they own the investment property(ies)? Would you move your parents into a new home?

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I have a feeling that over the next few decades we could see a further erosion of middle-class wealth. I don’t think we can rely on our Canada Pension Plan to cover our retirement expenses.

You might wonder why not everyone does this. The reality is that almost all will not. And it’s all about mindset and belief. The most common reason we don’t do this is fear that the tenant will destroy our property. Then we don’t want the hassle. We imagine the difficult tenant, not paying his rent, having to be evicted.

Do you see what I see? These thoughts prevent us from creating wealth in real estate. A change of mentality could radically change our future and that of our family.

When I look at everyday people like you and me who have been doing this for 20 or 30 years, I don’t see all of us stressed or homeless or worried about our tenants or our financial future. I see us traveling the world, I see our children going to the school they want and our parents living in a beautiful house.

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A good friend of mine served tables and invested in real estate while I was in college.

Today, he owns about twenty properties, travels the world and makes private loans. Poor man.

The reality is that the first five years of investing are likely to be the toughest. You work out your systems, try to buy properties to attract the tenants you want, and figure out how to maximize the return on your rental properties. It’s after the first five years that the fruits of your labor really start to pay off.

And there are ways to accelerate the growth of your real estate portfolio. There are local and national Facebook investment groups you can join and some are free. Find a trusted, investor-focused real estate agent who can mentor and advise you on how to attract and keep the right tenants.

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In these Facebook groups you will find all kinds of real estate investors. Some will be passive investors looking for a working partner to manage and grow their investment. There are many people who have created wealth in real estate who did not have the money to invest. They have partnered with investors and are co-owners of the rental properties.

With home values ​​in Edmonton either the same or lower than they were 14 years ago, I believe we have a timely opportunity to invest in real estate and potentially experience unusual growth.

Millions of investment dollars are flowing into Alberta right now. Investors are taking advantage of our positive cash flow on rental properties while hoping to catch the next boom. Why aren’t more Albertans taking advantage of these opportunities in their own backyards?

I recommend that you find an investment-oriented realtor to work with and create your own personal real estate wealth building plan, and maybe do it as soon as possible. It might be the best decision you’ve ever made.

Dennis Faulkner is an active real estate agent with Re/Max River City. He can be contacted for all your real estate questions at [email protected]

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