Get in ASAP! (For the MAGIC of Appreciation)

I was in London a couple years ago and we stayed with an older couple that lived in a 3-story townhouse with a small backyard. They had purchased the property for about $60,000 back in the 70s, raised their children there, and then renovated the kitchen and some bedrooms. When we were there, (2014), the place was worth about $1.3 million! The couple was delighted with all that appreciation, and upon retirement, they cashed out and moved to a cheaper area in the countryside to live off the equity and enjoy their grandkids.

Here’s the thought that kept swirling around in my mind: “What if they’d bought TWO?”

Now I’m sure $60K was a lot of money back in the 70s, interest rates were higher, and no doubt this couple were tight on cash as they started their family. However, if they had somehow scraped together the downpayment and bought a cash-flowing property on their street…the tenants would have paid down their mortgage and they’d be left with another $1.3 million before taxes! Even if you borrow the downpayment, getting into the market and seeing appreciation over the long-term can result in HUGE equity gains.

When it comes to real estate, forget about timing the market – you make money by time IN the market. The longer the timeframe, the more certain appreciation will be. This idea has certainly proven true in my experience.

We bought a small condo in Oakville in 2004 – paid $160,000 for it. We didn’t have any money, but my parents loaned us the 10% downpayment from their line of credit, and we paid them back with interest over the next 18 months. I wasn’t thinking like an investor, and had no idea what the place would rent for and whether it would cash flow after we moved out. At that stage of my life, I was just looking for a nice place for us to live with transportation options for work. We lived there for almost 2 years, and then began renting it out when we moved overseas. All of a sudden – we were landlords!

The condo did NOT cash flow…the expenses outweighed the income nearly every month of the year. However, we kept the property because we could see it slowly appreciating, and we were ignorant of the better investment options that existed. After 5 years it was time to renew the mortgage: the property was valued at $197,000 and we were able to withdraw $32,000, with another $39,400 of equity in the property (20%). I was amazed! We’d made $37K in 60 months – a lot more money than we were saving from our incomes. (It actually works out to about 4% appreciation). We quickly decided to reinvest the new equity into more real estate.

Even though we had very little money and small incomes when we started, we bought a property we could afford, and let TIME work its magic. We started out with a condo worth about double our annual household income, and have seen that grow to a portfolio worth about 7x our annual income. We still have low incomes, and qualifying for mortgages can be a big challenge, but real estate allows us to LEVERAGE our resources into big gains due to the fact that we can borrow up to 80% of the value of the investment property from the bank, yet enjoy 100% of the appreciation!

Over the years I’ve learned not to count on appreciation, and I now buy properties that generate monthly cashflow even when ALL the expenses are included in the calculations. Yet I still believe that money is made in real estate by time spent IN the market. Real estate is an investment vehicle that should be top priority for anyone looking to build long-term wealth, and the sooner you get started, the faster you’ll watch your wealth grow. As the saying goes: ‘Don’t WAIT to invest in real estate, invest in real estate and wait.’