Real estate will always be an excellent alternative investment. There are many ways to invest in real estate that don’t involve ownership. We can break real estate investment into two large sub-categories: mortgage investment and physical real estate investment.
You may be wondering, “Which is better?”
We don’t want to be biased, but we’re going to be. Our opinion has nothing to do with being a mortgage investment corporation (MIC). We genuinely believe that mortgage investment is far superior for investors.
There are numerous ways to invest in real estate, such as
One of the key benefits of investing in real estate is the long-term nature of the investment. Owning property has paid off considerably for owners over time. The average single-family home in 1990 was around $170,000 vs the current average, which is $1.085 million. Imagine having purchased a home in 1990 and selling it 20 years later for over five times the home’s original value! This growth is what makes ownership so appealing.
If you didn’t own your home, you’d still be paying for housing—only you’d get nothing for this money. When you rent, you’re helping someone grow their investment rather than your own.
For many savvy investors, homeownership quickly turns into real estate investing as they begin to purchase investment properties in addition to their primary residence. Rental properties are an excellent long-term investment as they’re still benefiting from increased property values. Still, someone else is paying the lion’s share of the mortgage.
However, real estate investment and ownership come with their drawbacks. The most significant disadvantage of real estate investment is the hidden cost of property ownership and maintenance. Another negative to real estate investment is the risk of crashes like in the early 1980s, early 1990s, and the 2008 housing market recession.
The question is, “Is there a way to invest in real estate with more protection from these risks?”
No dealing with tenants, broken appliances, increasing interest rates, property taxes, etc. Need we go on?
The real estate industry is one of the best alternative investment markets that consistently has growth despite the occasional dip (no investment type is without risk). However, when you invest in real estate through ownership, many hidden costs detract from your investment gains.
Mortgage investing avoids all these hidden costs. Instead, investors can benefit from the real estate market without taking on the responsibilities of property ownership. .
In addition, the return from a mortgage investment is seen more immediately. Real Estate investment provides gains to an investor upon the sale of the property or the rent with no mortgage. However, this takes time. Mortgage investments start to benefit investors immediately as the gains come from the interest charged. As borrowers pay off their loans, investors see growth.
Another critical benefit of mortgage investing is the added security. As we mentioned above, dips and recessions have impacted real estate in Canadian history. Mortgage investments are affected by these market swings as well. However, there is more protection thanks to diversification and the shorter termed nature of this alternative investment strategy.
Overall, Canadians are good at paying their mortgages, and the default rate is low. However, in the event of default, the property is seized and used as collateral against the loan (mortgage). For investors in a mortgage pool through a mortgage investment corporation (MIC), that means some protection to pay off the money borrowed and shelter the investment. A mortgage pool is also diversified between multiple projects, further protecting the investment. If you physically own the property, these drops in value can be a lot more stressful. There is no protection against loss, and to recoup your losses, you must sell before the value drops too far or hang onto the property until things improve.
Are you ready to invest in real estate through a mortgage pool and start seeing the benefits this year? Being the property owner can seem more enticing simply because you’re in charge and have more control. However, the security, reduced stress, and flexibility of mortgage investing make it the superior alternative investment out of the two.
Get in touch with Jordan on our team today to learn more.
19 Sep, 2024
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Since 1994, Cooper Pacific Mortgage Investment Corporation has been helping communities and investors across Western Canada grow and prosper. As real estate experts, our goal is to offer investors outstanding mortgage investment opportunities with an attractive rate of return. We do this by offering short-term construction financing and interim mortgage funding to help builders and developers take projects from planning to completion.
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