Quote:
Originally Posted by I-Hate-Hulse
Yeah but that assumes that:
1) Interest rates don't rise
2) Property values go upwards, not downwards.
3) Economy stays good enough that finding good tenants will not be a problem.
If these 3 things crater, a cash strapped guy is FUBAR. Over levered in debt as they can't service debt payments.
Better they leave a of margin of error in their budgeting. Doesn't mean they need to put 10% down vs 5%, but they really ought to factor in 6-8 months of not having rental income. Or if rates increase by 1%. Or if there's a 10% special assessment.
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But the investor isnt getting a second property without 20% equity in his prior and isnt getting a third until he has 20% in the previous 2.
1) Interest rates rise and I am now paying a extra $100 on each property instead of pocketing 100. I would never leverage myself to the point where $200 a month was going to break me.
2) Ill take my chances on property values based on historical data. I am also not buying a " this feels great I want it" home. I am buying a "this property will be easy to rent and I am not overpaying" home.
3) Again, I will take my chances based on Calgary leading Canada on the amount of people moving here.
Of course there is risk in any investment which has a high reward. The flip side is I have 3 properties paid off in 20-25 years and am collecting rent each month without paying the bank a single dime.
If someone is concerned about the risks out outlined, real estate is not the right investment for them.