3 Reasons Why Buying an Investment Property Is the Best Way to Build Your Net Worth
Whether you have recently graduated from college or are getting close to retirement, it’s likely that you have given some thought as to how you can grow your net worth.
You might have invested in stocks, picked up a few bonds or have a 401(k) plan set up to help fund your retirement. But have you considered buying real estate as part of your portfolio?
In today’s blog post we’ll have a look at three reasons why real estate investing is one of the most effective ways to grow your overall net worth.
Reason #1: Real Estate Generates Passive Income
One of the best reasons to hold real estate as part of your investment portfolio is that it can generate passive income in the form of rent. You’ve heard of the phrase “Cash is King”? Well, in our case, cash-flow is king! Whether you buy a single-family home or a multi-family apartment, you can almost certainly find interested tenants who will live there and pay their rent on time.
Part of the rent you receive each month will cover the costs of owning and operating the property. The rest of it is income which you can use to grow your real estate empire.
The reality is that rental income is a “semi-passive” opportunity for you – Any real estate deal will require effort…weather you are managing a building yourself, or renovating with the thought of eventually renting or selling, the real estate game will require effort on your part.
The thought of “Set it and forget it”, (such as with your 401K) doesn’t normally apply to real estate. However, most folks will agree that this isn’t as much effort as a normal 9-5 job – and, therefore, it is referred to as ‘passive income’.
In addition, (I’m not a CPA and I don’t play one on TV!) however, one of the MAJOR benefits of Real Estate cash-flow is that you can take advantage of an expense called depreciation…this allows you to claim a write-off against your income (in most cases many thousands of dollars) when in reality you didn’t expense any money for that depreciation write-off. The result is 0% tax paid on a chunk of your rental income. (Again, not a CPA – please consult one to verify!)
Reason #2: Real Estate Increases In Value Over Time
Another great reason to invest in real estate is that in most cases, it increases in value over time. As long as you are maintaining the property and investing in its upkeep you have a excellent shot at it being worth more in the coming years, should you decide to sell. History has shown us that Real Estate values grow at a rate equal to or a bit above (depending on who you talk to) the typical stock portfolio focused on the Nasdaq.
The difference between stocks and Real Estate is that Real Estate is tangible, and you can have a profound impact on the value of your property over time…with additional investment or renovation, often times you can increase the market value dramatically – Show me a 401K plan in which you can have that type of dramatic impact on the value of your assets…!
Keep in mind that real estate is cyclical and that it’s not always going to be the right time to sell and realize your gains. However, over time it is very possible to understand the market trends and where you are within that market trend….are we moving up, or down? Once you are in the game long enough, you’ll be able to see the signs and prepare accordingly for the future. Again, not something you can do with your 401K.
Reason #3: You Can Leverage Equity To Buy More Properties
This is my favorite. Your assets can buy new assets!
Our third reason that real estate is the best way to build your worth is your ability to use it as leverage to buy more real estate. For example, say you decide to purchase a house valued at $100,000 as an investment property.
Once the mortgage on that home is paid off, you have an asset valued at $100,000 that you can then borrow against. So you can go out and acquire another $100,000 home without having to sell the first. As you can see, this can scale quite nicely over time. To learn more about scaling with Real Estate – please see my other blog post and videos!
If you are interested in learning more about real estate investing and how you can partner with us – please contact us here to speak directly to us! We are happy to share our insight and expertise as well as advise you on a plan for the best ways to help reach your financial goals.