When compared to other investments, why is real estate one of the best investments a person can make? It’s tangible, it offers immediate returns if rented, you have local knowledge of the market, and best of all it can be leveraged with a mortgage. Let’s walk through the steps and see what the upside potential for your real estate investment would be:
- You’re buying locally and have a great real estate agent (or you are one). You tell them you’re looking for a short-sale or foreclosure for a steal in a good neighborhood with low crime rates and good schools. (Sound familiar?)
- They find several possibilities, all short-sales where the fair market value of the house is around $100,000, but you can purchase it for a little less.
- Recognizing that short-sales can take months, you submit $90,000 offers on multiple properties, with the option to rescind the remaining offers once one is accepted.
- You purchase a house for $90,000 with a down payment of 20% or $18,000, plus $2,000 in closing costs. Total cash invested = $20,000
- Because you live locally, you don’t need a rental management company. You run an ad yourself and find a good tenant that’s willing to rent for $750 a month. (The same amount as your monthly PITI Payments). On average you only have to do this once every 4-5 years, as that’s the national average for house tenants.
- Your rental income offsets expenses for PITI and begins about the same time as your first monthly mortgage payment.
- You’re able to depreciate the property for tax savings and each year the rental rate increases 3%, the national average, which you write into the lease agreement.
- You take the refund from tax savings and the profit from the annual increase in rent and set it aside to pay for future repairs and maintenance.
- Your total investment is still only the $20,000 you paid when you purchased the home.
- The home appreciates at 5% per year, which is considered average.
After thirty years, the home is now worth $432,194.24 and you’ve used your tenants’ money to pay off the mortgage. Congratulations you now have $432,000 in assets to use for retirement! It could be even more based on the fact that appreciation could be in the double-digits for the first few years as we recapture lost appreciation from the real estate market overcorrection. If you didn’t have a 401k or other money set aside for retirement, you can just buy a second rental home and voila! You now have nearly $1 million dollars to use for retirement.
What other $20,000 investment will pay out at that kind of rate? Why is real estate such a good investment? Because your purchase can be leveraged. The huge questions that still remain:
- Why haven’t you purchased rental property yourself?
- Why haven’t you helped your children and relatives purchase rental property??
- Why haven’t you recommended every past client, advocate and everyone else in your sphere of influence purchase rental property???
Get going! You have lots of people to contact before the interest rates start to spike!!