Second Half of Why to Invest In Real Estate

As promised, here is "the rest of the story"...

3. Appreciation

The third main benefit from owning rental property is appreciation. Not all debt is bad debt. In fact, real estate debt is great because the asset (property) is appreciating, or gaining in value, while you own it. Your property may not appreciate at 10%, or even 5% every year, but over time real estate has historically been one of the surest ways to generate wealth. There is no reason to believe that conventional wisdom will change in the Charlotte market. This is the area where most real estate investors build their long-term wealth. They buy the properties, and then hold them, allowing them to gain in value as they do.

Another quick example: say you buy two rental homes totaling $400,000. Now let’s say those two homes appreciate 5% over 10 years. You now have homes that are worth $651,557.85. You have made $251,557 in equity by simply buying the houses and holding onto them.

4. Paying down debt over time.

The last benefit from owning rental property is achieved through the paying down of the principal balance on your mortgages. The rent you receive from your tenants will go towards paying those mortgages. Most of that money goes toward interest the bank charges you, however, some will go toward paying down the debt you owe. Over time you will build equity through paying down the loans as well.

However, you can see with the previous example at #3, if you merely pay interest only on your loans, you will still gain considerable equity. In fact, the majority of your equity you build will be through appreciation, not through paying down the loan. For this reason, we are firm believers in doing interest only types of loans. It allows you to cash flow more, so you are putting more money in your pocket now. What’s more, the home appreciates at the same rate regardless of if you are paying $1,000 a month, interest only, or $1,800 a month, principal and interest. Cash flow is a wonderful thing that will allow you to continue buying properties.

What kind of real estate investing?
There are countless people out there who are looking for that one in a million, get-rich-quick type of property. They want to find a property at $80,000 below market value. As a result, they make multiple offers on multiple properties. The end result: no properties purchased, a mountain of frustration, and of course, no benefits gained.
While we are always searching for properties that are priced below market value to put you into a good equity position from day one, some great investment properties are available in the Charlotte market at or very near true market value.

As investors, we need to leave ourselves open to the true benefits of owning investment property: cash flow, depreciation, appreciation, and principal pay down. The investor that focuses only on equity purchases will miss out on MANY fantastic investment properties. If a homes true market value is $175,000, and it is priced at or near that but it is in a great area for future appreciation, let’s focus on the financing to figure out how we can get that home cash flowing for you. Forget the get rich quick approach. It simply isn’t the best way to build substantial wealth long term.

FIX AND FLIP?
This is an area of real estate that has a huge potential. But first you should focus on long term wealth generation through buying and holding….building your investment portfolio and long term net worth.
The bottom line is if you invest in real estate, not only are you paying less tax, you’re building your net worth, and giving yourself and your family more financial freedom. As an active investor, you make money in a passive way. Go on vacation with your family, you’re still making money. Take the night off and see a movie, you’re still making money. Investing in real estate puts your money to work for you, by creating revenue streams and building wealth for the future.

Remember, today’s first time investors are the millionaires of tomorrow!

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