7. Inflation Hedge
Inflation means the increasing cost of buying a product or service. In other words, it is the decrease in your purchasing power. For example, if something cost you $5 five years ago, and is now priced at $10. People on fixed incomes who are not indexed (through their pension plans) for inflation are very aware of the eroding purchasing power of the dollar. The inflation rate in Canada varies at different times of the year, and in different regions of the country, and for different commodities.
Example: Naturally, the appreciation of the value of property over time includes an inflation factor. Historically, land appreciation value for residential properties has been approximately 3-5% greater than the inflation rate. Another benefit of real estate is that you are paying off the mortgage in inflated dollars. That is, you are probably getting more money now, in terms of salary increases or rental revenue, to pay off lesser value money when you took out the original mortgage.
8. Increasing Demand for Land
Land is a finite commodity. Due to property demand as a consequence of population increase through birth and immigration, and decreasing supply of land, real estate prices go up. Also, the boomers are creating or inheriting wealth, and wanting to buy investment property, hence additional demand. Depending on geographic shifts of population as a consequence of buoyant economies and job opportunities in certain regions of the country at any given time, there can be further demand.
Example: Many communities have slow growth or no growth policies, due to rapidly expanding needs for community services. Other communities have extensive red tape or other bureaucratic delays. This restricts land availability for new development, causing existing land to go up in value. Real estate is a commodity that the public needs. Other investment commodities are not so reliable or predicable, because they don’t constitute a public need and therefore demand. In addition, many people want to have a second home as a retreat, vacation property or place for retirement. This creates further demand on land.
9. Part-time Involvement and Flexible Options
Investing in real estate does not require more than part of your available time. Once you learn the proper techniques and have a written investment plan, you will be more efficient, selective, and confident. This will save you time. An investor should determine at the outset how much time is available for researching the market, negotiating, buying, managing and selling. There are many types of real estate options available, some which would take more time than others to manage.
Example: If you don’t have the time or interest in personally investing in real estate yourself or feel it would be too stressful, there are options. One could keep it simple, and just invest in one property that is nearby and requires little personal maintenance, eg a condominium. Alternatively, one could be involved in a group real estate investment, eg with family or friends or other investors. However, there are many pitfalls of group real estate investing that need to be understood and avoided.
