A: Did you know that most millionaires either hold their money or make their money through real estate?
It is proven that real estate investing can provide a great ROI (Return on Investment) and is a great vehicle for long term wealth creation. When done right, it can provide;
1. Control - Increase cash flow and/or value by fixing it up, raise or lower rents, advertise and pay off to lower your risk.
2. Monthly cashflow -Extra money above all costs
3. Appreciation - Increase in land values over time
4. Mortgage paydown - Build equity through a forced savings plan
5. Tax benefits - Materials, maintenance and depreciation write-offs, capital gains (only taxed on 50 % of the gains when selling)
6. Leverage – Make money using the bank’s money. You only have to contribute 1/5 of the purchase price and the banks loan you the rest. The bank is a great partner as they just want a small return for lending you the money, and they do not ask you to pay them any of the appreciation.
Many people do not realize that real estate has an internal rate of return other than what you read in the paper such as, real estate prices went up 3% this year. Remember that you realize the gain of 3% on the entire purchase price, not just on your down payment. Ex: if you have a property worth $200,000 and you put down $40,000 to buy it and then the property goes up 3%, the appreciation is $6,000. $6,000 appreciation/$40,000 of your money = 0.15 x 100 = 15% ROI. But that’s not all, since you have tenants paying you rent above your costs every month, you can also add in mortgage paydown, cashflow and tax savings. So when real estate goes up 3% you have a much higher ROI due to the internal rate of return.
