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Financial Advantages of Real Estate Investing
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People today are more interested in real estate investing than ever before. It’s hard to find a waiting area or hotel lobby where you will not see some kind of show that focuses on finding the right property whether it will be a lake house to vacation in or a dilapidated shack that will be rehabbed and made like new. It’s commonly known that owning real estate apart from your home is one of the key ingredients to growing significant wealth. In fact over 90% of those who are millionaires or better have real estate as part of their wealth strategy.
Wealthy people own real estate. It might surprise you but Ray Croc the owner of McDonald’s built his massive fortune not by selling burgers and fries – it was by owning and controlling the real estate that the McDonalds restaurants were built on. Wealthy people also know that real estate can radically reduce their income taxes – they know that LOSING MONEY (by paying taxes) is just as important in wealth building as MAKING MONEY.
But how do you get started and why should you go to the trouble? Maybe you have no interest in taking a sledge hammer and smashing some drywall like you see on TV. Or maybe you don’t have the time to drive around and make offers on houses (heck, maybe you don’t know what a good offer on a property is!). This ebook is designed to lay out the reasons why investing in real estate could be a wise decision for you.
1INCOME
More income solves almost every financial problem“ ”
Real estate can create additional monthly income for you. Who doesn’t want that, right?
In fact, if you think about what ‘retirement’ is for most of us, retirement involves income. Why wait until you are in your late 60’s to generate monthly income to live on and enjoy? Why not start now?
When you purchase a property – let’s say a house with 2 bedrooms, one full bath and one half bathroom – and rent it to a tenant it creates income. This is commonly known as ‘cash flow.’ Cash flow is the total income you make from your tenant after you subtract payment of mortgages and other operating expenses. Moreover, the goal of cash flow generated from rental property is for it to cover taxes, insurance, mortgage and repair of the property. So tenants pay rent each month and that income flows to the owner.
Income - expenses= cash flow(every month!)
So why wait until you are in your late 60’s to enjoy a ‘pension for life’? Why not let real estate generate a paycheck every month for you right now AND in retirement. Why build a nest egg for later – crack the egg and start enjoying it now and later with the income ‘cash flow’ that real estate can create?
2TAX RELIEF
It’s not how much you make, it’s how much you keep“ ”
Maybe you have heard that is one of the keys to becoming wealthy. Taxes are one of the biggest (if not THE BIGGEST) expense we have throughout our lifetime. Real estate can create significant tax relief. Real Estate investors can take several advantages of tax breaks that states and the government have created just for them.
These tax breaks can save you a lot of money. Real estate investing comes with several tax advantages depending on what type of real estate strategy you have – whether it is buy-rehab-sell (called flipping), buy-rehab-rent (sometimes referred to as ‘buy and hold’), buy-rent (this skips the need to rehab and repair a place before it’s ready for a renter), or even buy-short-term-rent (when you offer the property as an AIR BNB or VRBO).
$150k $30k $30k $30k$30k $30k
Buy 1 House in Cash
Buy 5 Divide Into 5 Down Payments
Most rental property expenses, including mortgage insurance, property taxes, repair and maintenance expenses, home office expenses, insurance, professional services, and travel expenses related to management are deducted in the year you spend the money. Lastly one of the most prized aspects of tax savings real estate investors enjoy is depreciation. Click here to better understand how depreciation works.
3APPRECIATION
Real estate investors can grow their wealth through owning rental property - whether that property is a condo, a house, or an entire apartment building. Real estate value tends to increase over time and you can turn a profit when it’s time to sell. You can also increase rents over time. So not only does real estate investment gives us passive income, it also gives the promise of appreciation.
Compared to investing in stocks and bonds, real estate can offer a better return without much volatility. When markets improve the value of your property also increases. In short, your rental income can increase as you raise rents making your cash flow increase AND your net-worth increases as the value of the property increases.
4LEVERAGE
What is leverage? Leverage is using other sources of money (like a bank’s) rather than your own money in order to make money. It is using debt strategically to increase your wealth. When someone gets a mortgage on their house they are using leverage – they are using the house an their down payment as collateral to get a loan (debt) on their house.
Real estate investing allows you to use leverage over and over and over again. You get to use other people’s money (called OPM) to make money for you! So if you do not have $150,000 to buy a rental property, but you do have $20,000 you just have to use that as a down payment to get 100% access to owning and then renting out the property! When buying property investors have more leverage over money enabling them to buy more properties.
Most of us have been trained to invest our money in stocks and bonds – what I call Wall Street. You can’t typically use leverage to buy stocks and bonds. You have to buy them for what they are worth – period. So a bank will loan you $150,000 to purchase a property that you only have $20,000 to use as a down payment but they WON’T loan you $150,000 to purchase bank stock if you only have $20,000. That is how real estate can be far superior than Wall Street.
5LESS RISK
Investment in real estate diversifies your investment portfolio – rather than having all of your future wealth tied up in ONE PLACE (Wall Street), you can also own real estate so you are not 100% exposed to the rises and falls of the stock market. This allows you to, reduce risk and maximize your return. Real estate has much less risk than Wall Street because it tends to go up in value, never becoming worthless. It is a hard asset – it can never disappear. Stocks can disappear. Stocks can plummet in value and even go to zero if the company fails and goes bankrupt. However, by purchasing property at the right price, you can protect yourself from bad times as well as in good times.
6RETIRE EARLY
You can invest in real estate even if you have a full-time job. Realtors can bring you the kind of properties you wish to buy and property management companies can take care of making that property get rented and cashflowing. This means you can also make money in both up and down markets (people will always need a place to sleep). If you invest wisely, once real estate can provide you financial freedom and allow you to live off the passive income you no longer have to go to work. You can retire early.
7TANGIBLE
Real estate has a tangible asset value – this means there will always be value in your land or your home. In fact, most of the time real estate value increases with the passage of time. The longer you keep that property the more wealth you will have. It is what financial markets call a ‘hard asset’. It is a physical thing you can visit or touch. No matter what happens with market ups and downs, real estate will never go away. Stocks and bonds can disappear if their companies fail.
8PROFIT
Real estate investing can generate large capital gains, or profits. Capital gains can also be a significant source of income. This is what a lot of investors do – they will purchase a property when the market is down (they buy it really cheap) and then sell that property when the market is up. In this way they increase their profit – capital gains.
9NO AGE LIMIT
Real estate investing does not discriminate based on age, background, education etc. Now to be sure you have to be old and mature enough to understand contracts and deeds and such. However you can be a teenager and invest in real estate. And because you don’t have to have a lot of money to begin real estate investing, this means it would be possible for all kinds of young people to get started.
10IT BEATS WALL STREET
So how is real estate investing better than investing in Wall Street?Real estate is a different asset class from stocks and bond and so they offer cash flows, tax breaks, equity building, competitive risk adjusted returns and other benefits – stocks and bonds have little to none of these benefits.
Also when you buy real estate, you get the physical property or land – a hard asset. It’s value increases with the passage of time. The longer you hold that property the greater its value. Real estate can also be leveraged as we saw earlier – Wall Street does not. The stock market returns can often be lower than we expected but in real estate we often get more than expected.
Stock market investing is also uniquely subjected to different kinds of risk: Market risk, economic risks, and inflationary risk. Stock values can be extremely volatile, their prices are fluctuating in the market. Company’s stocks may suffer and policy can be changed in which tax revisions or changes in interest rates but this is not in real estate investment. It minimizes the risk factor.
Selling stocks can trigger big taxes but in real estate we have tax advantages, sometimes to delay paying taxes to death and then the taxes dissolve. Unfortunately if a company fails, the stocks will no longer have any value. Your investment will be wasted. Not so with real estate.
CONCLUSION
Real estate investment has a ton of benefits and if you have the right coaching and guide, the time, energy and money that go into getting started need not be overwhelming. Finding the right property, negotiating terms, getting financing, then managing property is a lot of work but all of this can be delegated and outsourced. At MORE WITH DAVID, we can put you in touch with great resources for coaching but we also help our clients find, finance and manage their property so they are free to do other things.
An investment in real estate can be not only a much safer financial investment, it is also an investment that can provide happiness, memories and fun as well. You can stay in your short term rental at the beach but you can’t take the family to stay in your 401K right?
So how much time will I need?“ ”
You can be as involved as you want. Some people enjoy being completely passive – they have an agent sell them a property and a property management company take care of all of the fuss involving finding renters, fixing toilets, and collecting rents. You can also do real estate investing full as your career. It allows for all kinds of time commitments. At More With David we advise our clients to remain as passive as possible so they don’t have to trade time freedom in order to have more money freedom.
It can be overwhelming thinking about real estate investing strategies. We at Drive Planning would love to help get you off to a good start.
MESSAGE ME for a free one one one consultation to figure out what it will take to get your started into real estate investing.
