REALTORS® serving Calgary and area

Dec. 10, 2014 | Nolan Matthias

Adding much-needed balance to portfolios

Revenue properties more stable than the stock market

nolanWhat would you do if you could wake up every morning and have enough money to do  whatever you wanted to do that day?

What if you didn't have to punch the time clock, or head to the office for 9 a.m.?

What if you didn't have to let your boss determine your destiny?

Over the last couple of weeks, I've focused on revenue properties – how one client received 17 per cent returns on her first rental property, as well as three rules for buying rentals. This week the focus is on why you should add revenue properties to your portfolio.

If 17 per cent returns before appreciation are not enough to wet your revenue property appetite, consider the alternative: the stock market, which is experiencing its fifth longest bull market in history, typically averages returns around 10 per cent. And do you know what happens at the end of a bull market? It ends with a bear.

With interest rates at all-time lows, and it looking like they are going to stay that way for the near future, the bond market doesn't seem like it will be returning the reliable income it was once known for anytime soon.
Gold and precious metals have also been declining for the last couple of months, and cash – which is a necessary part of any portfolio – doesn't earn a return at all.

So with stocks soaring, bonds underperforming and precious metals declining, adding revenue properties to your portfolio makes more sense – perhaps locking in some of those stock market gains.

The good news is the barrier to entry is low, given anyone can become a landlord with as little as $15,000 down. And with interest rates and vacancy rates at all-time lows, most properties produce a reliable flow of income.

For example, take the case of a 30-year-old buyer who purchased one property per year until he or she was 40. Assuming the buyer set the amortization period at 25 years, the last property would be paid off when he or she turned 65.

Let's also assume the average rent on the properties was the equivalent of $1,500 in today's dollars. That would provide our hypothetical 30-year-old with a monthly income of $15,000 per month, or $180,000 per year.

As the properties generated more cash flow, the buyer could then pay off the mortgages even faster and allow him or her to retire 10 to 15 years earlier.

And even if this buyer's stock portfolio took a beating, their rental portfolio would still thrive – people still need food, water and shelter.

Shelter is one of the best investments money can buy. That doesn't mean it should make up your entire portfolio, but it should definitely make up a portion of it.

If you would like to know more about investing in real estate, consider joining our Cash Flow Club. Membership is free.

Nolan Matthias holds a bachelor of arts in Economics, is the co-founder of Mortgage360 and the author of The Mortgaged Millionaire. Call Nolan at 403-615-6132 with your questions or to set up an appointment with an Accredited Mortgage Professional (AMP).

Tagged: property | revenue | Sponsored | stock market

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