Halloween has come and gone, albeit a little different this year. We now have Remembrance Day coming up quickly, then it is the stretch to Christmas. This is on top of the day-to-day stuff that we all need to take care of.

Real Estate in Saskatchewan is still very active. Since coming out of the imposed lockdown earlier in the summer, Saskatchewan’s real estate market has been on a recordsetting pace. The real estate market is currently leaning more to a sellers’ market. If you are thinking about selling a property, it is still a great time to do it.

Are you looking to purchase a property? Ensure that you have everything lined up with your Realtor and lender prior to putting in your offer to make it as appealing as possible to the seller.

Let’s continue our discussion on the profit centres of real estate investing. We are using our ELCPTAR model.

• Equity

• Leverage

• Cash flow

• Principal Pay Down

• Taxes

• Appreciation

• Reinvestment

So far, we have covered Equity, which is the difference in what you owe against a property, compared to what that property is worth. Leverage is controlling a property with a small down payment, and borrowing is the balance from somewhere, or someone, else. Most recently, we discussed cash flow. Cash flow is the money that is left over from the rent after all your bills are paid.

This month’s topic is Principal Pay Down. As I mentioned last month, Principal Pay Down is subtle, but can be extremely powerful. It works like this:

When you have a mortgage on a property, you make a payment every month. That payment is made up of two components: principal and interest. The interest portion is money that goes directly to whoever holds the mortgage, usually a bank. That is their profit.

The principal portion of that mortgage payment is used to pay down the mortgage. This is very powerful in real estate investing, because your tenant is covering your mortgage through their rent.

For example, last month we talked about having a mortgage payment of $600. Of that $600, approximately $300 will go to cover the interest on the mortgage and $300 will pay down the principal.

This is fantastic, because it is like another $300 straight to your bottom line every month. Over the course of 12 months that is another $3,600 in profit.

Here is the breakdown:

* Rent $1,000

* $600 mortgage payment: $300 to principal pay down (this is your portion); $300 to interest (this is the bank’s portion)

Because your mortgage payment is covered by the rent, you get all the benefit. Principal Pay Down is a subtle profit centre, but over time it makes a big difference in your bottom line.

Next month, we will cover how we can save some money on our taxes through real estate investing. Have a great month.

(Brad Chisholm is a Realtor and real estate investor based in Saskatoon Sk. You can find him at bradleychisholm.exprealty.com or brad.chisholm@exprealty.com.)

-Brad Chisholm