So many people wish to be rich, but very few act on this emotion and do what it takes to actually become rich.
Can real estate investing actually make you rich?
The answer is: absolutely yes.
All wealth in the world is either made or held in real estate and real estate happens to be one of the best ways to store wealth.
So why can real estate make you rich?
Real estate can make you rich because when you participate in a real estate investment you are making money from 6 income streams:
Equity on day one: When you make a good real estate investment, you can purchase under market value and essentially buy equity in your purchase. Today as I write this, I purchased a property for $160,000 that is worth $270,o00, yes it needs $50,000 of repairs to get to $270,000 but I have essentially purchased equity in the buy. This is one of the best ways to make money in real estate – buy right.
Leverage – Leverage is one of the main reasons why people get rich in real estate. You can control $100,000 of real estate with only $20,000 down so when your property appreciates at 5% a year, you are making $5,000 which turns out to be a 25% return on investment on your $20,000 down. If you invested $20,000 in stocks and made 5% you would only make $1,000 so the return is much different with leverage. Real estate is one of the best vehicles for borrowing OPM – other people’s money at cheap rates and this is why so many millionaires are created in real estate.
Cash Flow – Cash flow is one of the most attractive aspects of real estate and that is the passive income generated from the rents and leases that most investment real estate has. Since many good properties generate a positive cash flow, the tenants pay for the building and you can make a modest profit every month. When you compare real estate to gold, gold costs money to store every month, whereas real estate pays you every month. Investing in investments that pay you every month is the key to getting very rich over time.
Mortgage Pay down – Mortgage pay down is one of my favorite reasons to invest in real estate, when your tenants pay you every month a portion goes to mortgage pay down which creates equity every month. Over time, your entire mortgage is paid off and you own he building free and clear. Mortgage pay down is one of my favorite ways to make money because it is essentially guaranteed profit every month and the larger the mortgage you can borrow, the more money you make every month.
Appreciation – Most people know that real estate generally appreciates over time because the government is always printing more and more money. Since the government prints, prices go up for commodities and hard assets like real estate, gold, oil, food, energy etc. You can typically assume that real estate will appreciate at 3% per year over time and the actual numbers are usually much higher than 3%. If you are using leverage in your purchase, 3% leveraged creates a much higher return and this is how you make double digits in real estate.
Depreciation – The government allows you to write off 4% of the value of your building every year for depreciation which allows you to shelter a portion of your earners from tax. This is one of the reasons why the rich don’t pay taxes. Real estate is a great way to lose money on paper and defer taxes almost indefinitely through refinancing your buildings in the future.
So can real estate make you rich? The answer is yes. Any time you are getting paid in more way than once passively, over time, you have a great opportunity to be making large gains in equity and cash.
Respect The Grind,
Stefan Aarnio
