Hey, why bother investing in real estate if you can get a GIC at a bank that pays 5%.

Why bother? This is a question that I was approached by a client the other day, and her question was "ash, the media is calling for a 5% appreciation, a 5% growth rate on real estate for the foreseeable future. Why bother buying real estate to make 5% when I can take my money and go put it in a bank which is also paying 5%, and I don't need to worry about any of the headaches and guaranteed investment?" It's a great question, and you know what, it's a very fair, a great question, but this is a roadblock that prevents many real estate investors from going forward, so let's run the numbers in parallel. Assuming you had $200,000 to invest, and you take that $200,000 and go and put it in a bank, today the bank will pay you 5%, guaranteed investment certificate. 5% of $200,000 you're making $10,000 every year guaranteed, no questions asked, great. Now, let's take that $200,000 and let's go buy a one million dollar property. so, with any investment property, you need 20% as your down payment and that's why I'm using these numbers. It's also easy for me, mental math. So, you've got a million dollar property, you've invested your $200,000 to buy that. So, let's say you know the media is correct and in the end, the property goes up 5% after the year one, your property is now worth $1.05 million. 5% increase in value, you invested 200,000 and you made $50,000, you just made a 25% return on your investment, okay. So, this is far better than the 5%. Now, this is not the end of the equation. You need to also factor in mortgage paydown as you continue renting. Your tenants pay down your mortgage which gets added to your return. if there's any cash flow, this cash flow is defined as any excess cash left over after all your expenses are paid off. If there are any tax, write offs as a result of this investment and you know the biggest thing that we see a lot of clients, where they make money is in renovating the property or changing its use and thereby increasing the value of the property or forcing the appreciation, which can add a lot of value to the property and a makes you a lot of profit. So, 25% based on these numbers is your minimum starting return on your investment. So, guaranteed investment $5,000 no risk, but it's guaranteed. Or 25 to 35, 45% and you need to do a little bit of work to make this happen. So, that is how you compare GIC's versus real estate investing. Who you work with matters .