You've seen the headlines, you've listened to the news, and everything is doom and gloom.
But is it really? Not for the real estate investor that wants to create long-term wealth through buying, holding, and renting.
This strategy means you are doing something today that will continue to produce income in the future.
Investing in real estate now and holding those properties as rentals will continue to produce an income stream for as long as you own the properties.
The amount of money you want coming in every month will determine the number of rental properties you will need to accumulate.
Investing in multi-unit and commercial properties will speed up the process.
So here are the top 10 reasons to invest in real estate: 1.
Appreciation - This is the least important reason to invest in Real Estate in my opinion.
As we all know, historically, real estate appreciates over time.
However, if you are one of the unlucky Investors that bought property in the last few years in California, Florida, Nevada, or one of the other states that had sky rocketing appreciation, you might be in a bad way right now.
You probably are stuck with property that you owe more than its worth and the rent payments don't cover the note.
This is why I don't really factor appreciation in to the equation when I decide to buy a property.
If I buy a property and it has positive cash flow of $200 a month and I own it for 10 years before selling it, then I have made $24,000, without doing anything else.
If you buy correctly, then more than likely there will be some appreciation when you sell.
To me, that's like having your cake and eating it too!!! 2.
Predictability - How many of you predicted the down turn in the Stock Market or that the economy was going to take such a nose dive? Well, real estate is very predictable, if you know what you are doing.
You have to have a good team in place, and you have to buy the right properties in the right areas, then you can safely predict that your properties will all perform well over a given period of time.
You will have vacancies and repairs, but if have done your homework; these should be kept to a minimum.
People will always need a place to live and if you are buying in areas that are stable and people want to live in those areas, you can safely predict that you will always be able to rent out your property.
3.
Expandability - As you begin to buy property, you will see that certain properties perform better than others.
When you start looking for the next property, you will probably buy in the same vicinity as your better performing properties.
There is no limit to how many properties you can buy.
As your portfolio begins to grow, you will eventually want to expand to multi-unit or commercial property.
Instead of having $200 month cash flow off of one property, it suddenly becomes $2,000 off of one.
How much faster could you reach your goal? 4.
Depreciation - When you buy and hold real estate, you can depreciate the value of that property on your tax return.
So even though you own an asset that more than likely is going to appreciate over time, the government allows you to depreciate it every year that you own it.
If like a lot of Investors, you also work a full time job, you will be very surprised at the amount of money Uncle Sam will refund back to you because you were able to use the depreciation of your rental properties to offset the income from your job.
Now I am not a CPA and there are limits on the deductions, so be sure you use an accountant that is very familiar with real estate, preferably, one that is an Investor themselves.
5.
Creativity - There are so many ways to buy real estate even in today's doom and gloom economy.
You can use a HELOC, funds from a self-directed IRA, hard money lender, friend or family member, credit card, line of credit at a local bank, commercial loans, etc.
If you find a great deal, money will not be a problem.
Once you own the property, then you will want to refinance to a 30 year fixed rate loan.
6.
Amortization - I love this one!!! You buy a property, place a tenant in there and they pay your loan off for you.
You can go with a 30 year loan to keep your payments low and increase cash flow or you can go with a 10-15-20 year loan and have less cash flow, but get the property paid off sooner.
Either way, the tenant is covering the payments on the property, not you.
Okay let me really stress this point.
You buy an income producing asset, you get to depreciate it, reduce your taxes, increase your net worth and the tenant covers the payment for the asset.
It doesn't get any better than this.
7.
Leverage - The more properties you buy, the more leverage you will have when it comes to buying more properties.
If you buy a property, rehab it, and then refinance it at 75% of the ARV, then you have 25% equity in that property.
Keep doing that over and over and that equity can be leveraged to buy more property.
When you start dealing with commercial lenders, this equity is great leverage for them to do business with you.
8.
Net Worth - This reason is a result of the previous reason.
If you have 25% equity in every property you buy, it won't take long to increase your net worth drastically.
Let's look at the numbers: you refinance a $100,000 property at 75% or $75,000, giving you $25,000 in equity.
Let's say you do that 4 times in one year.
You have just increased your net worth by $100,000.
What if you bought 10 houses in one year, that's $250,000? What kind of return in the Stock Market would you have to get to increase your net worth by $250,000 in one year??? 9.
Cash Flow - By now you have heard this saying many times I'm sure, but CASH IS KING.
This is what owning rental property is all about, Positive cash flow.
For those of you that don't understand, let me break it down for you.
You refinance a property at 75% of the ARV and your note is $688.
24 including taxes and insurance.
You then rent the property for $995.
00 a month.
The difference of $306.
76 is the positive cash flow.
That money goes into your pocket every month.
If you have 10 properties that are doing the same thing, that's $3,067.
60 per month.
Of course, if you are using a property management company, then you will have to subtract out their part.
10.
Buy With No Money Down - My favorite reason! Let's face it; times are tough right now for a lot of people.
You may be reading this and thinking all this sounds great, but I don't have thousands of dollars to invest in real estate right now.
You don't need any money to follow this outline.
As long as you have good credit, 680 or above and a job, you can buy property all day long with no money down.
Go back to #5: Creativity.
There are many ways to buy without using your own money.
You can use a hard money lender to purchase the property, then once you own it, you can refinance it through a 30 year fixed rate conventional loan, with no money down! If you try to go to a bank and buy the property, they will want a down payment, but if you already own the property and are just refinancing, you don't have to put any money down.
These are just a few of the reasons to invest in real estate.
There are also many other ways to make money in real estate besides buying, holding, and renting.
But no matter what, it is a great time to invest!
But is it really? Not for the real estate investor that wants to create long-term wealth through buying, holding, and renting.
This strategy means you are doing something today that will continue to produce income in the future.
Investing in real estate now and holding those properties as rentals will continue to produce an income stream for as long as you own the properties.
The amount of money you want coming in every month will determine the number of rental properties you will need to accumulate.
Investing in multi-unit and commercial properties will speed up the process.
So here are the top 10 reasons to invest in real estate: 1.
Appreciation - This is the least important reason to invest in Real Estate in my opinion.
As we all know, historically, real estate appreciates over time.
However, if you are one of the unlucky Investors that bought property in the last few years in California, Florida, Nevada, or one of the other states that had sky rocketing appreciation, you might be in a bad way right now.
You probably are stuck with property that you owe more than its worth and the rent payments don't cover the note.
This is why I don't really factor appreciation in to the equation when I decide to buy a property.
If I buy a property and it has positive cash flow of $200 a month and I own it for 10 years before selling it, then I have made $24,000, without doing anything else.
If you buy correctly, then more than likely there will be some appreciation when you sell.
To me, that's like having your cake and eating it too!!! 2.
Predictability - How many of you predicted the down turn in the Stock Market or that the economy was going to take such a nose dive? Well, real estate is very predictable, if you know what you are doing.
You have to have a good team in place, and you have to buy the right properties in the right areas, then you can safely predict that your properties will all perform well over a given period of time.
You will have vacancies and repairs, but if have done your homework; these should be kept to a minimum.
People will always need a place to live and if you are buying in areas that are stable and people want to live in those areas, you can safely predict that you will always be able to rent out your property.
3.
Expandability - As you begin to buy property, you will see that certain properties perform better than others.
When you start looking for the next property, you will probably buy in the same vicinity as your better performing properties.
There is no limit to how many properties you can buy.
As your portfolio begins to grow, you will eventually want to expand to multi-unit or commercial property.
Instead of having $200 month cash flow off of one property, it suddenly becomes $2,000 off of one.
How much faster could you reach your goal? 4.
Depreciation - When you buy and hold real estate, you can depreciate the value of that property on your tax return.
So even though you own an asset that more than likely is going to appreciate over time, the government allows you to depreciate it every year that you own it.
If like a lot of Investors, you also work a full time job, you will be very surprised at the amount of money Uncle Sam will refund back to you because you were able to use the depreciation of your rental properties to offset the income from your job.
Now I am not a CPA and there are limits on the deductions, so be sure you use an accountant that is very familiar with real estate, preferably, one that is an Investor themselves.
5.
Creativity - There are so many ways to buy real estate even in today's doom and gloom economy.
You can use a HELOC, funds from a self-directed IRA, hard money lender, friend or family member, credit card, line of credit at a local bank, commercial loans, etc.
If you find a great deal, money will not be a problem.
Once you own the property, then you will want to refinance to a 30 year fixed rate loan.
6.
Amortization - I love this one!!! You buy a property, place a tenant in there and they pay your loan off for you.
You can go with a 30 year loan to keep your payments low and increase cash flow or you can go with a 10-15-20 year loan and have less cash flow, but get the property paid off sooner.
Either way, the tenant is covering the payments on the property, not you.
Okay let me really stress this point.
You buy an income producing asset, you get to depreciate it, reduce your taxes, increase your net worth and the tenant covers the payment for the asset.
It doesn't get any better than this.
7.
Leverage - The more properties you buy, the more leverage you will have when it comes to buying more properties.
If you buy a property, rehab it, and then refinance it at 75% of the ARV, then you have 25% equity in that property.
Keep doing that over and over and that equity can be leveraged to buy more property.
When you start dealing with commercial lenders, this equity is great leverage for them to do business with you.
8.
Net Worth - This reason is a result of the previous reason.
If you have 25% equity in every property you buy, it won't take long to increase your net worth drastically.
Let's look at the numbers: you refinance a $100,000 property at 75% or $75,000, giving you $25,000 in equity.
Let's say you do that 4 times in one year.
You have just increased your net worth by $100,000.
What if you bought 10 houses in one year, that's $250,000? What kind of return in the Stock Market would you have to get to increase your net worth by $250,000 in one year??? 9.
Cash Flow - By now you have heard this saying many times I'm sure, but CASH IS KING.
This is what owning rental property is all about, Positive cash flow.
For those of you that don't understand, let me break it down for you.
You refinance a property at 75% of the ARV and your note is $688.
24 including taxes and insurance.
You then rent the property for $995.
00 a month.
The difference of $306.
76 is the positive cash flow.
That money goes into your pocket every month.
If you have 10 properties that are doing the same thing, that's $3,067.
60 per month.
Of course, if you are using a property management company, then you will have to subtract out their part.
10.
Buy With No Money Down - My favorite reason! Let's face it; times are tough right now for a lot of people.
You may be reading this and thinking all this sounds great, but I don't have thousands of dollars to invest in real estate right now.
You don't need any money to follow this outline.
As long as you have good credit, 680 or above and a job, you can buy property all day long with no money down.
Go back to #5: Creativity.
There are many ways to buy without using your own money.
You can use a hard money lender to purchase the property, then once you own it, you can refinance it through a 30 year fixed rate conventional loan, with no money down! If you try to go to a bank and buy the property, they will want a down payment, but if you already own the property and are just refinancing, you don't have to put any money down.
These are just a few of the reasons to invest in real estate.
There are also many other ways to make money in real estate besides buying, holding, and renting.
But no matter what, it is a great time to invest!
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