Welcome back, MoneyGram readers! Today, we are diving into one of the most effective ways to build lasting wealth – real estate investing. As a Money Athlete, you know the importance of financial fitness, and real estate has long been hailed as a top-performing asset class for creating sustainable prosperity.
Lets explore why real estate investing is one of the best ways to create lasting (and even generational!) wealth along with the various market factors, appreciation drivers, and other compelling reasons why buying and holding real estate and rental properties can be a total game-changer for your financial future.
One of the most compelling reasons for investing in rental properties is the potential for generating passive income. MONEY WHILE YOU SLEEP- one of the most important keys to becoming wealthy and financially independent!
Rental income from tenants (long term tenants or AirBNB short term rentals) can create a steady cash flow stream, helping you cover mortgage payments, property maintenance costs, and other expenses while building equity in the property… Let someone else pay down your mortgage while you own the property.
Reasons to Invest in Real Estate Properties:
Market Factors
Real estate investing is influenced by numerous market factors, making it an attractive option for wealth building. Here are a few key factors:
a. Supply and Demand: Real estate markets fluctuate based on the supply and demand dynamics. In areas with a growing population and limited housing supply, property values tend to rise, presenting lucrative opportunities for investors.
b. Long-Term Stability: Well-chosen rental properties tend to provide relatively stable and predictable cash flow over time. Unlike other investments, such as stocks, which may fluctuate dramatically in value, rental properties can offer consistent rental income, making them a reliable source of passive income for years to come.
c. Inflation Hedge: Real estate can serve as a hedge against inflation. As the cost of living rises, you can increase rental income, allowing you to maintain purchase power over your property.
Appreciation Factors:
One of the primary advantages of real estate investing is the potential for property appreciation. Appreciation refers to the increase in the value of a property over time. Here are some factors that contribute to appreciation:
a. Location: The adage “location, location, location” holds true in real estate. Properties situated in prime locations, close to essential amenities, transportation hubs, schools, and vibrant neighborhoods, are more likely to experience higher appreciation rates.
b. Renovations and Upgrades: Improving the condition of a property through renovations and upgrades can significantly impact its value. Upgrading kitchens, bathrooms, or adding modern features can attract higher-paying tenants and increase property worth.
So what does that mean for you? Lets say you buy a property for $250K in 2023, assuming a 3% appreciation rate per year, in 10 years, you could sell your property for approximately $400K!
Tax Benefits:
Real estate investing offers various tax advantages that can further enhance your long-term wealth-building strategy. Some common tax benefits include:
a. Mortgage Interest Deduction: Deducting mortgage interest from your rental income can significantly reduce your taxable income, saving you money on your taxes each year.
b. Depreciation Deduction: The depreciation of your property over time can be claimed as an expense, lowering your tax liability, again saving you money on your taxes each year.
c. 1031 Exchange: A 1031 exchange allows you to defer capital gains taxes by reinvesting the proceeds from the sale of one property into another like-kind property. So basically, if you sell one of your rental properties, you can take the profits and invest them into another property, without paying the taxes on your profits…this is a benefit many real estate investors use everyday!
Buying real estate investments can be a significant financial endeavor, especially for younger people who may have limited savings or income. However, there are several creative ways to overcome financial barriers and make real estate investing more accessible. Here are some suggestions:
Start Small with House Hacking:
House hacking involves buying a property and living in one of its units while renting out the others. This strategy can significantly reduce or even eliminate your housing costs, allowing you to save money for future investments. Check out this article from Bigger Pockets on getting started with House Hacking.
Partner with Others:
Consider pooling resources with friends, family, or other investors to buy a property jointly. By sharing the financial burden, you can enter the real estate market sooner and build equity together.
Explore Rent-to-Own Opportunities:
Look for rent-to-own or lease-to-own options where a portion of your monthly rent goes towards building equity in the property. This approach allows you to gradually transition from renting to owning over time. Investopedia does a great job explaining this process here.
House flipping involves buying a property at a lower price, renovating it, and then selling it at a higher price. While this can be a riskier strategy, successful flips can yield substantial profits that can be reinvested into rental properties.
Save and Invest Wisely:
Ultimately, the most fundamental approach is to practice disciplined saving and investing. Set aside a portion of your income specifically for real estate investments, and consider investing in other asset classes to grow your capital.
Change the Way You Think About $$ & Real Estate
My fiancé and I are getting married in September- everyone keeps asking where we are going on our honeymoon. Imagine the reactions we get when we tell them “we aren’t going anywhere, instead saving that money to invest in an AirBNB in Florida.” Friends and family look at us like we are crazy, but guess what? When we buy that AirBNB, let others pay the mortgage for us, have a free place to stay whenever we travel, and have an investment property, not going on that weeklong honeymoon is going to be worth it 1000 times over.
You gotta change the way you think about investing and real estate. Just owning your own home is not going to change your life or make you financially independent. Go deeper and think bigger. See the opportunities all around you to better yourself and your bank account. This is key to becoming a money athlete, and your future self will thank you, we guarantee it.
