Besides investing in yourself, real estate is one of the greatest investments you can make. Like any investment, if you don’t do your homework, you can lose money. We want educated investors. Let’s discuss some reasons Real Estate is the greatest investment you can make!
The rich don’t work for money. They make their money work for them.
Robert Kiyosaki
Working For Money
Growing up, we are taught to work for money. My first job was mowing lawns. Stay in school, go to college, get a job, buy a house, start a family, maybe take a vacation once a year, and wait until you’re 65 years old to retire. Sound familiar? It’s drilled into us from an early age.
When I looked around at my parents, my teachers, almost everyone I knew, they were all working full-time jobs to earn a paycheck. Many were fearful of layoffs and other conditions that might lead to them losing their jobs, as that would mean loss of income, change in lifestyle, and a boatload of stress.
Making Money Work For You
How do the wealthy make their money work for them? Real estate is the greatest wealth creator out of any investments. Just one more reason that the greatest investment you can make is real estate.
Real estate really introduced me to passive income and a doable way to build wealth for my family. Our first passive investment in 2013 was AMAZING! It wasn’t until several years later, I realized for the first time that our money was working for us, and in more ways than one. I was amazed.
How do I work for thee? Let me count the ways!
Your Money
Real estate makes your money work, hard.
What I learned over the next several years was that real estate makes your money work for you in multiple ways. This makes real estate different than any other investment vehicle out there. And the core of why real estate is one of the greatest investments you can make.
Why real estate is the greatest investment you can make
- Produces Cash Flow
- Can Appreciate In Value
- Provides Massive Tax Benefits
- Uses Leverage
- Gives You Equity
- Provides inflation resistance
Cash Flow
First and foremost, let’s talk cash flow! Cash flow is perhaps the biggest benefit of investing in real estate. Anything that generates cash flow is the greatest investment you can make. Unlike other types of investments, real estate generates passive cash flow, which means you truly make money while you sleep. Sounds great right? Cash flow makes real estate really stand out.
When you invest in a real estate asset, you’re buying the asset to rent it out to tenants, who then pay you for the opportunity to live in, or otherwise use, your property. Once you pay all your expenses, the rest of that
rent check is yours to keep, aka, your cash flow. Robert Kiyosaki likes to point out that cash flow is what the rich aim for so that their lifestyle is maintained by that constant flow of cash, rather than a job, which could end.
How cash flow works
Let’s look at a simple single family example. Let’s say you put down $25,000 to buy a single-family rental for $100,000. On the first of the month, your tenant sends you a rent check for $1,000. You use $500 to pay the mortgage, $350 for expenses and reserves. The remaining $150 is your passive cash flow. The tenant is paying your mortgage on the property, the expenses, and you collect the rest. Real is starting to look a lot like the greatest investment you can make. But wait! There’s more!
Appreciation
Now we can discuss appreciation. No we aren’t talking about how you like your friends. We’re using the finance definition. Real estate values tend to go up over time, This means that, more than likely, the value of a rental property will go up during the time that you hold it. This is what’s referred to as appreciation and it’s one of the reasons why real estate is one of the of the greatest investments you can make. Are you sensing a theme here?
There are certainly exceptions to this, but in most cases, the value of real assets tend to go up.
This is very different from other assets you might own, like your car, which likely goes down in value over time.
While appreciation is a nice-to-have, it’s not a guarantee, which is why we always buy for cash flow, first and foremost.
Tax Benefits
Next are the tax benefits. Tax benefits are a huge way that your money goes to work for you in real estate and one of the most important reasons that real estate is one of the greatest investments you can make.
The tax code is written to reward certain types of endeavors, of which real estate is one. Tom Wheelwright, a noted CPA and tax specialist, says the tax code is written to reward people for doing what the government wants. People love to live indoors! The government needs help from investors and provides incentives to provide housing.
Tax write-offs
When you invest in real estate, you get benefits of depreciation and mortgage interest deductions, as well as a whole host of write-offs for a number of other related expenses.
The power of paper losses makes a strong case for the best investment you can make
In fact, oftentimes, because of all the tax benefits, you’ll show losses on paper, while you are actually making money
through cash flow. The paper losses can play a big part in helping to offset some of your other income (i.e., income from your job). This means that your overall tax bill will likely be lower, even though your income will likely be higher. Moving on to leverage to really see the power of real estate.
Leverage
Moving on to leverage next. Let’s take a closer look at that purchase for a second. In this example, you bought a $100,000 rental home, but you’re not paying $100,000 in cash.
Instead, you’re paying $25,000 for the down payment, and your lender, the bank, brings the other $75,000 to the
table. The bank is helping you buy the property!
Why leverage rocks
However, the cash flow you make is based on the full $100,000 asset, not the $25,000 portion. Stop and read the last sentence again. Are you starting to see how real estate is the greatest investment you can make?
Amazing isn’t it? Your mind is blown. Real estate tends to have that effect on people once they begin understanding it.
You reap the rewards
Put another way, even though the bank put most of the money into the deal, the $1,000 rent check you collect from your tenant goes directly to you, not the bank.
The bank doesn’t take their 75% cut out of those rent checks. Sure, you still have to pay your mortgage and interest, but you don’t have to split your cash flow or profits with the bank. This is the power of leverage. You partner with the lender to create your money machine, and you get all of the upside. Not a bad deal!
The power of leverage
Just try and get a bank to loan you 75% to buy stocks. Seems ridiculous, right? Yet again, real estate shows why it is the greatest investment you can make.
Equity
As those monthly rental checks roll in, you’re able to use those to pay your mortgage, and thereby increase your equity in the property. That means that you don’t have to pay your mortgage from your own income. The rental property generates income to pay for itself.
Imagine you bought a TV that generated money to pay for its own Netflix subscription.
Let me know when you get that one to work, will you?
Your tenants build your equity for you
Given that your equity in the property increases with each mortgage payment you make, your tenants are essentially building that equity for you.
One more step
Once you build up significant equity in your property, you can consider strategies like a cash-out refinance or taking out a home equity line of credit (HELOC), which essentially allows you to borrow against your own asset. You can then put some of those refi or HELOC funds into another cash- flowing asset, and now your money is not only working for you but it is starting to clone itself.
Real estate is unlike any other asset class. It makes your money go to work for you, not just in one way, but in multiple ways. Here is a quick recap of why real estate is one of the greatest investments you can make.
- Produces Cash Flow
- Can Appreciate In Value
- Provides Massive Tax Benefits
- Uses Leverage
- Gives You Equity
- Provides inflation resistance
We want to make sure that it’s accessible to everyone. If you don’t want to be a landlord, that’s okay, we can show you how passively invest in apartment complexes and reap many of the rewards we just talked about.
Inflation resistance makes real estate the best investment you can make
We all know nothing is inflation proof, but real estate is one of the many hard assets that tends to hold its value during inflationary times. Don’t just take my word for it. Check out this article from Investopedia. Or better yet, if you prefer a more scholarly based answer, read this paper from the MIT School of Economics that states, “Retail and Apartment properties are complete inflation hedges.”
How to get started in real estate multi-family investing
If you want to be a hands-on (i.e., active) investor, you might want to explore rental properties or fix-and-flips. Check out Biggerpockets.com.
If you want to be a hands-off (i.e., passive) investor, you should consider multi-family real estate syndications.
The first step in starting in your real estate investing journey is to decide how hands-on you want to be.
One thing we found helpful was to find a group of people that were already investing and syndicating. This allowed us to start many great discussions and begin our education. We love to share what we’ve learned, so don’t hesitate to reach out and ask questions. We’re Here to Help
Who are we? Visit our about page or reach out and contact us. Want to invest with us? The SEC requires that we have a pre-existing relationship before we can offer a property syndication to you. Reach out and connect with us, so when our next opportunity becomes available, you will have the option to invest or not. If haven’t had at least a phone call or two, we can’t take your money.
Reach out and schedule a call today. Don’t let opportunity pass you by.