The Top 10 Real Estate Investing FAQ List - Part 1

Here is the Top 10 Real Estate Investing FAQ list to help, as it can be hard to decipher all the information out there.

Many investors I have spoken with are looking for the answers to some of the basic questions so the thought of putting them all in one place just seemed to make sense, right?

This wasn't supposed to be a two-part article but after starting the list there was just TOO much information for one article so it had to be split up. (You can also take a look at our Real Estate Investing Secrets here.)

Let's go!

Real Estate Investing FAQ Question 1 - When should I get started?

I figured we would start with an easy one :-) The answer is "Right Now".

There is no better time to start.

With each passing day, you are missing out on potential profits to be made. There is a ton of opportunity in many different Canadian markets and all over the US (Yes, even with what you hear on CNN).

The key to remember is to gather the facts on the market and type of investment you are looking to get into. But with the most common approach of 'Buy and Hold,' there is no reason to wait - you have to get yourself into the game.

There is money being made every single day in real estate, you have to decide if you want to be part of that or continue to talk yourself out of it.

Real Estate Investing FAQ Question 2 - Is Real Estate Really A Good Investment?

It may best to use a real life example for this one.

One of the investments I own is a student rental By McMaster University in Hamilton, ON.

I purchased this home as a power of sale a few years ago with a friend. And although he was extremely hesitant at the time I knew a cash cow when I saw one.

We did do some major renovations to this house. I forget the exact number but I know we spent more than we wanted to!

After all was said and done we were able to refinance the property and get ALL the money we spent on renovations plus our down payment back.

Did you catch that?

We now owned the house and every penny that we had taken out of our pocket to buy and fix it was now back in our hands!!

That's big, but wait, it gets better.

On top of the money that we had invested into the property we were also able to take a few thousand dollars each as profit.

Not big money, but in the matter of a few months it is definitely worth noting.

Plus, the home was still worth more than the mortgage on it. So we still had extra profit (as equity) sitting in the home because we STILL OWNED IT.

Now it was time to rent it out as the school year was approaching. We did that and even after the refinance we were making about $700 a month in positive cash flow.

So just to bring this all together.

I now owned a property that I no longer had money invested in, it was worth tens of thousands of dollars more than the mortgage on it, and it was making $700 a month in positive cash flow.

So from this, the answer to real estate investing FAQ number 2 is a resounding "YES, yes, and yes!"

Real Estate Investing FAQ Question 3 - What Is The Best Type of Real Estate to Invest In?

This is a tough one because there are so many good investments available. But it is a common question and deserves a spot on the real estate investing FAQ list.

Ultimately it comes down to your long term goals and risk level.

Yes I just used a four letter word "R I S K"

There is always risk involved in investing, you have probably heard the old saying "No Risk No Reward" Well I got news for you, it's true.

The key is to collect enough information so that you can minimize your risk. But we will come to that, let's stick with the question.

Let's use vacant land as an example.

Vacant land can pay massive returns but there are not too many people that have the finances to purchase large areas of land or the expertise to know how to extract profit through development.

There can also be some big hiccups along the way. For anyone in Ontario, you may remember when the Ontario government decided to protect the Greenbelt, which essentially stopped all development in those areas.

Now if you were an investor with some land there, that can be a good sized hiccup.

So although vacant land can hold some excellent opportunity you have to be a certain type of investor to maximize those returns.

Most beginner investors will invest in some sort of residential real estate. It could be a single family home or maybe a small building with 3 or 4 units.

Residential investments are easier to get into.

Usually, there is less capital required to get into the game, (which is important, remember real estate investing FAQ 1?) and your turn around time to see some profit or benefits is much quicker.

Focusing on your strengths, your risk tolerance, and your financial situation should give you an idea of what the best type of real estate investment is for you.

Educate yourself and set realistic expectations for your investment. Just like not every stock or bond is for every person, the same can be said for real estate.

In my personal opinion, if you are a beginner just getting started you may want to investigate the residential side of investments first.

The thing to remember when answering real estate investing FAQ number 3 is that there is definitely, at least, one type of real estate investment that fits your needs so be sure to find it and then do it!

Real Estate Investing FAQ Question 4 - What About Paying Taxes?

If only I charged for my time whenever I have explained how my tax situation works!

Taxes are complicated.

Taxes in Canada are even MORE complicated.

I use an accountant that is either an angel or a rock star depending on how you want to look at him. He's likely both rolled into one.

I can not stress enough that if you are investing in real estate you must use an accountant that knows real estate specifically. You are leaving money on the table if you are not.

Many people will try to cut corners because it cost money to use a professional, my experiences have taught me that paying the money will pay large dividends back to you.

My tax situation has a lot of moving parts and because of that I was reassessed by the Canadian government in 2006.

The peace of mind alone to be able to forward that paperwork off and let my accountant take care of it was worth the investment.

And that is what it is, an accountant is an investment into your real estate investment business no matter big or small.

I am going to refrain from giving any specific tax advice since I am not qualified and someone reading this that does not take responsibility for his own actions will try to hold me liable!! :-)

I will tell you that there are definite and absolute tax benefits to investing in real estate.

There are reasons why wealthy individuals all invest in real estate in one way or another. Yes, there is money to be made on the real estate itself but there are also huge tax benefits.

While thinking about the answer to real estate investing FAQ number 4, this comes to mind...

I have always been able to keep more of the money I made from real estate investments than any job that I have ever had.

Don't forget I live in Canada, we are world famous for our taxes......OUCH!!

But if there is a way to make money and pay less taxes then I'm all over it.

Real Estate Investing FAQ Question 5 - What If My Investment Doesn't Go As Planned?

This is a very common question. And the bluntest answer I can give is 'It Probably Won't'.

Only rarely do the stars align and everything goes exactly as you had envisioned before setting out on your journey.

You should look at realistic worst case scenarios to see if you are comfortable with them.

If I owned a rental property, I know that somehow, someway it IS possible that a gaping hole opens up in the Earth and the home is swallowed up.

Is that realistic? NO.

But you wouldn't believe the things I hear from people too scared to get into the game (again, remember real estate investing FAQ 1, it's a big one!).

A more realistic scenario is the property doesn't get rented out in the time you think it will.

And again we have to be realistic. One week is not a typical time frame to rent out a property.

This is probably the beginner investor's biggest fear when first investing in real estate.

"My plan is to rent out the property but what if......?"

You get the idea.

This is something that should be addressed before you buy the property.

There are some questions to ask yourself in addition to the real estate investing FAQ questions:

1. Is the property nice enough for someone to live in it?
   
2. Is it nice enough for people to genuinely be attracted to the place when they walk through the door?
   
3. Are other people in the area getting the same type of payment that you are expecting to get?
   
4. What is my plan to get someone into the home?

These are the questions that you should be asking yourself ahead of time so that you have an idea if your plan is realistic.

In this specific example, the worst case is that you'll have to lower the rent if you don't rent it out. Remember, there are always tenants looking for nice places to live.

Account for that in your planning. If you have to drop the rent $100 per month how does that change things?

1. Will you still get appreciation?
   
2. Will you still get tax benefits?
   
3. Will you still get all or most of your mortgage payment, and property taxes covered?
   

If you look at the big picture is this still a very worthwhile investment?

It will be difficult to find a case where it is not - especially if you are honest with yourself at the beginning

Things will rarely go as planned but account for the hurdles and have a plan.

The experiences of overcoming these hurdles are what investing is all about, it's what life is all about.

They will make you a stronger person, and looking back, those hurdles will become small pebbles that in the future you will walk right over. And that is where the fun begins because bigger hurdles mean bigger rewards.

We are halfway through our Top Ten Real Estate Investing FAQ list and it has been fun so far.

I can't believe how this list has grown. I think I was expecting the real estate investing FAQ answers to be short and sweet.

Stay Tuned for Part 2... Same Renegade time, Same Renegade channel... :-)

Here are the other questions we will be covering.

6 - So What Type of Investment Should I Start With?

7 - How Do I Time The Market?

8 - Where Should I Buy?

9 - How Much Should I Invest?

10 - Will I Make Money?

Update! It's ready. Click here to read Part 2 of this FAQ...

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