Ever thought about investing in real estate?
We did about 4 years ago. Today we own 10 units, and we expect that to grow exponentially in the next 2-3 years.
Do you hear a lot about the benefits of real estate investment? Maybe just want to grow your net worth? Maybe you’re tired of only making money when you work and wouldn’t mind some passive income?
There are Three main reasons that investing in real estate is THE BEST form of investment (unless you count building a business) – not including that it’s fun!
We call it the real estate trifecta
This one’s straightforward. You charge X in rent. You have Y expenses. After subtracting Y from X, you get Z – and that’s your cash flow (aka profit). Yes, you can make money every month with rentals. We look for about $300/month per unit with our investments. $300/month doesn’t seem like much, but it sure adds up! And the effort’s minimal. About 1 hour/unit/month MAYBE. That’s a conservative estimate. So you’re making at least $300/hour with our rentals (because we self-manage).
You should buy real estate with loans – leverage, that is. You don’t have to be leveraged incredibly high (maybe 60-70%). Here’s the deal: You buy a duplex and you have a loan for $100,000. The tenants pay every month and you did a good job estimating expenses so you’re making CASH FLOW of $600/mo. That’s benefit #1. Benefit #2 is debt paydown. Your tenants, each month for the next forever, will be paying down your mortgage (that $100,000). At the end of your loan term, you’ll have made $600/month X however many months (maybe 360 with a 30-year loan). That’s $216,000 in cash flow. PLUS you own the building free and clear now, so add $100,000 to that total benefit -> $316,000.
Average annual appreciation is 6.5% over the past 50 years. While you rake in $216,000 in cash flow and your tenants pay off the $100,000 loan, your property also appreciates in value faster than inflation. Inflation is about 2%/year. The increase in your duplex’s value is a NET gain of about 4%/year, on average. Over 30 years your asset will outpace inflation and be worth at least double in today’s money. That’s another $100,000, bringing your total to $416,000.
Now, you probably bought this incredible asset for 25% down, so maybe you had $30,000 cash into the property. You bought the property with $30,000 and in 30 years you could sell and make (via cash flow, debt paydown, and appreciation) OVER $416,000. Or you could not sell and own it outright, increasing your cash flow by 60-70% to about $1,000/month for as long as you own the asset. Let your kids enjoy the generational wealth of a paid-off property. You live off the cash flow ?1