I regularly speak to a number of mentors and advisors in my life. All of whom are older than me and far more experienced both in life and business. Many of their opinions and wisdom have heavily influenced my decisions over the years. Some of which are distilled into the write-up below. My goals may vary to yours, which is great and wonderful – but the key to excelling here is to know what your goals are – these 3 real estate lessons will help a great deal. (I personally would like to have more time to do what I love…spending time with those I love about and playing in the mountains!)
Number 1: Leverage
If you were one of those people that was brave enough to take the big step of buying real estate in your 20s (first off, good for you!), then chances are you purchased a small home or a condo as your first real investment. If that’s the case, it makes sense to leverage that good decision you made to help you go ahead and buy 1) an investment property like a multi-unit property or a commercial space; or 2) the family home for your next steps in life (perhaps with a rental suite in the basement). Why? You’ll be able to put your downpayment to serious work and leave paying the majority, if not all of the actual operating costs, and ultimately the mortgage itself, to the tenants. Ultimately, that makes your cost of living cheaper in the long run, and your portfolio look a whole lot nicer.
Note: pay off the mortgage loan over a period of years or decades (my suggestion is to use a 30 year amortization but pay it like a 25 or 20 year am., depending on how quickly you would like to pay the remaining principle down), all the while getting to enjoy the use of the property (whether as an investment or personal). The moral of the story is that leverage is a common tool that works well, just be sure to use it wisely and according to your risk comfort level.
Number 2: Hold
There’s a time to sell, sell, sell, and there’s a time to hold. Throughout my early twenties, I owned a number of properties in this city, and even though I was fortunate enough to always sell them on an upward trend and make myself some money, if I knew then what I knew now, I’d tell my younger self to hold them. Back then, in each of those places I owned, I either rented them out fully or partially. In most cases, it was actually costing me very little to live there since I had tenants that were picking up the cost. Thinking back, while selling them seemed to make sense at the time, in the grand scheme of things, if I continued with renting them out, those properties would have been worth a lot more right now; somewhere in the neighbourhood of $1.7 million plus in appreciation alone! Wow. It may seem overwhelming to carry all those mortgages at a young age, but working with the right real estate agent and the right financial planner and mortgage broker can make it an easier process. If you’re smart enough to actually be thinking about your financial future in your twenties and seeking out the proper advisors, this purchase-and-hold strategy just makes sense.
Number 3: Location
Buy where you love, and love where you live; it really is that simple. When I was growing up in Toronto, I always loved The Annex; and when I was a University student, I spent a lot of time there too, which just added to my love of the neighbourhood. I remember first thinking about buying a house there, and looking at the home values at the time of around half-a-million bucks, and thinking about what people would say about me overpaying for a place in The Annex. Those same places are worth around 1.5 million now, so of course, that’s a pretty serious return on investment, and one that looking back, I probably should have made. I ended up buying anyways, in Dufferin Grove, and while I loved it there too, it still wasn’t my dream neighbourhood of The Annex (don’t get me wrong Dufferin Grove was great, I feel it’s just about 20 years behind the Annex, the neighbourhood I wanted to end up in). But knowing what I know now, about closing costs, lawyer fees, transfer fees, and most importantly, appreciation, buying in The Annex at the time would have probably actually saved me money in the long run. Who would’ve thought? Note: remember multiple moves cost far more money!!!
Have your own lessons that you learned? I’d love to hear about them in the comments below.