June 15th 2018
However, since our objective is to one day retire with a comfortable income, wealth accumulation in and of itself is not enough. We also want a vehicle which will produce an ongoing revenue stream for us. Therefore, it is important that we also invest in assets that will generate revenue.
If, for example, we were to put our savings into an interest bearing bank account, then our money invested would generate us an income stream. This would also be true if we purchased a Guaranteed Investment Certificate (G.I.C.).
The challenge, of course, is to find an asset to invest in that is relatively secure and risk free, but which at the same time will generate for us a substantial revenue stream so that one day we can live off this revenue stream rather than continuing to work, or being forced to sell our assets. That can be a bit of a challenge especially with monetary investments. This is because monetary investment returns are generally set based on and below the banks prime rate of interest. As a result most interest based investments don’t do much more than keep abreast of the rate of inflation.
There is one investment vehicle, however, that stands above the rest. This is because it accomplishes two goals at the same time. It provides a good solid rate of return while at the same time appreciating in value. I’m speaking about real estate investment. I think we all understand the growth potential that real estate has. We’ve seen it over the years with our 
own homes. They go up in value. Not every year, perhaps, but over time they will always increase in value at least at and generally beyond the rate of inflation. This is due to the additional factor called relative scarcity.
But there is another reason why real estate is so critical in our plan for wealth accumulation. And this is the fact that real estate has utility. You can’t live in a mutual fund. You can’t drive a piece of gold. These assets hopefully have growth potential, but they don’t generate revenue. They don’t have utility. Most appreciating assets don’t. But utility is important! Utility can be converted into cash flow. People will pay for the right to use (rent) assets that provide utility. And that’s what sets real estate apart from other appreciating assets. You, or a tenant can actually live in a property even while it is going up in value. It has the potential to generate substantial cash flow for you all the time you own it.
It’s harder to realize the potential when we’re thinking about our own principal residence, because it doesn’t generate revenue for us. At least not directly. But while we’re living there, we’re not paying rent which we would if we were living in someone else’s house. So it’s actually saving us that amount of money each month. It’s a little clearer however when we think of rental property.
If I own a piece of real estate which I rent out to a tenant, I’m essentially making money in two ways, First, the property over time is going up in value. That’s capital appreciation. It causes my net worth to grow. But at the same time, I’m receiving rent every month from the tenant in exchange for the privilege 
of living in the house. That’s cash flow. Once the basic expenses such as taxes, insurance and in some cases utilities are looked after, the rest is net to me. I can re-invest the money or use it to supplement my income, without ever having to sacrifice my investment.
Now, you may be thinking, oh yeah, what about the mortgage? Don’t you have to pay that? Well, that brings up an interesting point. You see, I can put a mortgage on a piece of real estate when I buy it. I don’t have to use all my own money. That principle is called “leveraging”, and it’s something that’s almost unique to real estate. You can’t put a mortgage on a stock or mutual fund when you buy it. And even if you could you would have to service that debt. With real estate you can purchase a property with a small amount of your own money invested and someone else (the tenant) will service and retire the debt for you.
In our next newsletter I want to pick up again this topic of leverage. I’m going to show you how, through it, you can invest in real estate and conservatively expect to see an annual return of at lease 20%. That’s not a best case scenario, based on wild economic speculation. Rather that’s the norm, and conservative at that. Stay with me. I think you’ll be pleasantly surprised.
Wayne Quirk, Author
“THE MONEY MACHINE”
wayneq@remax-gc.com