Investing in dividend stocks is an awesome way to generate ongoing income. I chose real estate as my vehicle and today we’ll talk a bit about the pros and cons of going this route.
While many areas in the U.S. are still recovering from the devastating crash, here in Canada things are much more stable. Although there’s constant talk of an adjustment, we’d be looking at probably a 20% correction at most.
I love real estate because you can generate immediate cash-flow via rental income as well as watch your asset appreciate over time. As long as you have a long enough time horizon for selling, you’re pretty much guaranteed to make money on your home, at least in terms of selling it for more than you paid for it.
Some would argue that if you live in your home it’s a liability instead of an asset, and this can certainly be true, but so far hasn’t been my experience. I recently did a quick tally of the repairs and maintenance we’ve put into our home in the last 4 years and was shocked to see it came to about $20,000. There were no major repairs involved, but that did include finishing our basement, which we now rent out for a fantastic monthly rate.
You Make Money When You Buy, Not When You Sell
If you’re looking for a rental property or at least a house you can live in and rent out, you have to approach your purchase as a business decision. Falling in love with the garden in the back and paying 20K over market value for the privilege is romantic, but bad business.
Consider the structure, wiring, foundation, etc. when evaluating. Cosmetic upgrades like re-doing a bathroom are cheap and child’s play compared to repairing a faulty foundation or replacing a leaky roof.
You’ve heard that you should buy the cheapest house on a street. It’s easy to add some upgrades to quickly bring the value up to the street average, but buying your dream home on the same street will make it much harder to generate a solid return.
Pros And Cons Of Renting
With the income you receive, you can pay off your mortgage faster or use the money to invest in something else (like dividend stocks). This really is having your money make more money and is a step in the right direction for living the good life.
Always be careful with tenants, as a bad one can easily wipe out every dollar they’ve given you. Damaging property, either intentionally or unintentionally, or simply not paying will cause you no end of headaches and lost time and money. You CANNOT slack off when choosing tenants.
Low Interest Rates
Take advantage of historically low interest rates right now. In Ontario mortgage rates are right around 3%. Check out MortgageRates.ca for the best rates and other calculators to help you figure out what you can afford.
Readers, what’s your take. Do you make money from rental income? What’s been the pros and cons?