By: Steve Ezeude
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen
Most investments, real estate, stocks, bonds, gold, forex, mutual funds, etcetera have displayed some graphical peaks and valleys. With the volatility of stocks, one tends to be fearfully geared towards alternative ways of building net worth. But knowing that the risks are not for the faint hearted, only the bold tend to explore and blaze the trail to become wealthy. The risk averse may invest in a savings account or in a balanced portfolio but may not likely become millionaires by virtue of investing in areas of very low returns.
That being said, real estate investing, for most people, has become the place to be. Forget what Adrian Spitters, cited in Rob Carrick’s ‘Real estate or stocks – which will make you richer’ called the recency bias – “people look at where they’ve made money recently and think it will continue to be a good investment.” Historically, most people know that buying a home or investing in real estate is worthwhile with limited risks. They go for it either for the pride of ownership or to enhance their investment portfolios. Whichever is the case, dreaming about any of these becomes a first step in achieving a goal of real estate investing.
For any project, one needs to count the cost before it takes off. Often times when people want to embark on a project, they just dabble into it without first understanding the process involved, planning for it and determining what the cost will be like. This leads to delayed or abandoned projects. Although scenarios are different, caution needs to be exercised. Someone can have a long time goal which lines up with earnings/salaries while others may have cash already set out.
In this society even when you are not starting from the ground up and you are looking for a turnkey or finished home to buy or invest in, there is a need for due diligence. Due diligence here will entail asking yourself the basic question like: ‘are you ready to buy or invest’? Readiness does not imply having 100% cash. Cash is great but not the best alternative to utilize when you have access to credit facilities with the prevailing low-interest rates. Let foreign investors worry about the cash. However, access to credit facilities comes with meeting some set criteria mentioned below.
One of the major financial decisions everyone makes is buying a home or investing in real estate and this decision will be better taken when you fully understand your financial standing. This, no doubt, will lead to buying or investing within your financial means.
In order to buy within your financial means, it is important to get a pre-approval from the bank or a private lender. According to the Canadian Mortgage and Housing Corporation, CMHC, to get a mortgage pre-approval, the following are needed (https://mail.google.com/mail/u/1/#inbox/1572a6114a1aff6c?projector=1):
- Your personal information, including identification such as your driver’s license;
- Details of your current job and proof of your salary;
- Information about your bank accounts, financial assets, current loans and other debts
- An indication of how much your down payment will be and where the money will be coming from; and
- Proof that you have enough money to cover the costs of closing the sale (usually between 1.5 and 4% of the cost of the home.
Readiness also implies having a good credit rating. The importance of one’s credit rating cannot be overemphasized. The mortgage lender needs to be satisfied with your financial history which includes your ability to pay your bills and debts in a timely fashion. Bad credit history needs to be avoided but if in that situation already, be smart and fix it right away.
Have questions or request on topics you want to read about in this column, please email Steve Ezeude at steveezeude@yahoo.ca
