For the month of September, we will be focusing on one of my favorite areas: real estate. I know some of my readers will agree that real estate is one of the best investments you can make. However, I also know that there will be some readers that don’t think real estate is for them.
If you haven’t invested in real estate yet, 2018 is your year. No one ever got rich by earning and saving, did you know that? We are taught to get a 9-5 job, save some money in a 401k and use that money to enjoy life after we retire. It doesn’t have to be like that, though. There is a better way, and it is to invest in real estate
4 Reasons to Invest in Real Estate
The biggest reason most people invest in real estate is that you can make extra income. There are many ways to “do” real estate, like fixing and flipping, where you buy properties at a low price, fix them up and sell them for a profit. I like to buy and hold, which means that you buy properties and rent them out.
I have a lot of tips and information on how to vet renters, and contracts to have them sign. For now, I will just tell you that you should aim to make at least 1%-1.5% in rent for each property that you have. This means you could have at least $300 more per month. If you had 30 properties, you could be making $100,000 a year, tax-free!
Another reason I like to invest in real estate is leverage. If you were to invest $10,000 in the stock market, you would have $10,000 in assets. However, if you invested $10,000 as a down payment on a house, you would then have a $100,000 asset. If you receive a 10% return on your $10,000 in stocks, you would have an additional $1,000. If you had a 10% return on your $10,000 that you invested in real estate (a $100,000 house), you would have an extra $10,000. That’s a 100% cash-on-cash return.
While you will make a lot of money via the cash flow from your properties, the most money you will make is with appreciation. This is because you are controlling such a large asset when you invest in real estate. I will insert a chart here because appreciation can be hard to visualize. However, to sum it up, if you bought three houses that were worth $300,000 you would have $15,000 in appreciation that year, and an equity buy-down of around $2,500. This means you’d have around $17,500 in total equity at the end of that year. That may not sound like a lot, but that is just the appreciation and equity buy-down!
When figuring returns on real estate, a lot of people fail to factor in the tax benefits. One of the tax benefits is depreciation. You can deduct approximately 1/27th of the value of a property, not counting the land, on your taxes. Then, there’s what’s called a 1031 Exchange. You are able to pay no capital gains on properties when you sell them by putting them in a 1031 exchange.
There is so much more I could go into detail about, but I think you get the idea.
Finally, when you invest in real estate, you can use other people’s money. If you don’t think you can afford to invest in real estate, you have so many options! You can bring in a partner to help put up the money, and you share profits. You can also utilize lease optioning to lease a property from someone that is trying to sell it. You can also do wholesale flips where you find properties and flip it over to another investor to get a finder’s deal.
I hope this has helped you understand why real estate is so important to invest in, and that it is possible for everyone and anyone! Are you currently an investor? Let me know what got you started in the comments below!