It’s the beginning of a new year. Goals to get fit, improve relationships, grow your career, and build wealth might be swirling through your mind. It’s no secret that my favorite way to build wealth is through real estate. Nothing says ‘new’ like moving into or buying a new property. This blog post describes 8 reasons why I love real estate— and why you should, too.
1. Demand: Everyone needs a place to live
Many things change, but humans’ basic need for shelter remains constant. The real estate market has built-in demand. Even in a recession, rents continue to remain constant or steadily tick up because everyone needs a place to live.
2. Leverage: You can control a bigger asset with a smaller amount of capital
Leverage allows you to magnify your returns on an investment. Think of it this way. If you invest $10,000 in the stock market, it would buy $10,000 in stock. You would have $10,000 in stock assets which, at a 10% return, would give you an added $1,000.
If you invested the same $10,000 in real estate, you could actually purchase a $100,000 property. The 10% return is not on the $10,000 you put in but on the $100,000 asset that you acquired with the $10,000. So your return is $10,000— literally 100% cash-on-cash return.
3. Cash Flow & Income
Rent from real estate is an income stream. When you buy and hold property, renting it out to other individuals, a tenant actually pays for your asset. You collect rent from them and they pay off your mortgage! Once the property is paid off, the value of the asset continues to rise. You essentially get to pocket everything your tenants pay!
4. Appreciation: The value of the home grows
The fourth of the reasons why I love real estate is because of appreciation. Appreciation is the increase in a home’s value over time. How much a home appreciates yearly depends on the local real estate market and any improvements made to the home. Historically, residential real estate increases by about 6% a year.
5. Tax Benefits
Whenever you are figuring your returns on real estate, you must include tax benefits. One of the tax benefits you get is depreciation. You can deduct ~ 1/27th of the value of the property, not counting the land. The loss of depreciation goes directly against any kind of profit or gains that you had on the property. You’re able to also deduct the interest that you’re paying on the home loan.
There is also a tax designation for real estate investors that classifies them as a full-time real estate professional. Basically, it says that if you spend 750 hours a year on your real estate investments and you own your real estate business, then you can receive the full benefit of your tax exemptions.
I always say that I don’t invest in anything where I can’t control the outcome. Real estate is easy to control because you can always buy it, sell it, and refinance it. Remember that with real estate, you make money when you buy— not when you sell.
One of the big reasons why I love real estate is that it can be insured. This brings a protective shield against losses or litigation. In addition, you can insure against natural disasters and other damages, which intensifies the security of your investment.
8. You Can Use Other Peoples’ Money
Another quip for this is ‘creative financing.’ The first way to do this is to bring in a partner who will put all the money into the deal. They will provide the down payment, costs for rehab, or whatever is needed, and then you both split the profits.
There’s also an option called wholesaling. This is when you find properties, and instead of having any kind of transaction with a title company, you can just flip it over to another investor and get a finder’s fee.
Finally, you can choose a lease option that allows you to lease a property from a person who is trying to sell it. You and that person agree on the lease payment, and then you tie an option with that lease so once you get control of the property you can start fixing it up. You can then lease option it to another person, or in some cases, lease option and then flip it to another investor. Once you get in the game, you can get to a point where banks will loan you up to 100%.
For more practical tips and reasons I love real estate, check out my real estate calculator, teachings, and free resources on my website! And be on the lookout– tickets for our February Real Estate Mastery Workshop will be out soon!