Many people believe that real estate investing is risky and takes a lot of time. However, if you buy suitable properties and manage them properly, owning real estate can get you rich. We will also advise you on how to avoid the common mistakes many new property owners make when they start investing in real estate.
This blog post is primarily directed towards those looking to invest in real estate aside from their primary residence, even though some benefits are translatable to your family home.
Owning Real Estate Makes You Rich Through These 5 Ways:
- Leveraging your equity to build wealth
- The Property Will Almost Certainly Appreciate
- Positive Monthly Cash Flow
- The Silent Power of Amortization
- Huge Tax Advantages for Real Estate Investors
1.) Leveraging Your Equity to Build Wealth
One of the main benefits of owning real estate is that you can leverage your equity to make money. For example, if you own a property worth $500,000 and you have a mortgage of $250,000 on it, you would have equity of $250,000. You can use this equity to borrow money from a lender and invest in other properties. This is one of the easiest ways to get rich in real estate because you use someone else’s money to make more.
Most of the time, you can get a loan of about 60% to 80% of the property value. You can purchase physical real estate with a 40% to 20% down payment. Some people worry about borrowing money because they think debt is bad. In many cases, they’re right, debt usually isn’t a good thing, but good debt does exist.
Good debt can be viewed as any debt that makes you richer. When used correctly, you can quickly service the debt with your property. The benefit to investors is more significant growth on initial investment versus buying a smaller property with 100% of your funds.
2.) The Property Will Almost Certainly Appreciate
Another significant benefit of owning property is that it will almost certainly appreciate. This means you can sell the investment property for more than you paid. In some cases, the property may even enjoy a lot more than you paid for it. This is one of the main reasons why so many people invest in real estate.
People get rich with real estate investing because they constantly leverage their assets to make additional income. You can use this appreciation to borrow money and invest in more properties. It’s not always a good thing if you leverage too much, but it can be a powerful tool when used correctly.
How to Spot a Great Real Estate Market
You’re on the right track if any given real estate market has continual population and job growth. Although you can never know for sure, there are a few key things to consider when trying to find a call with a high chance of appreciation. It would also be wise to look at the major employers and the education levels of workers.
There are a few other common-sense strategies, like buying real estate on or near the water of a vacation hot spot. The worst thing about purchasing real estate investments is that mistakes can be made very quickly if you don’t know what you’re doing. Unfortunately, no matter where you buy, a seemingly good investment won’t work out in your favor if you purchase the wrong investment or pay too much for the right property.
3.) Positive Monthly Cash Flow
One of the best things about owning rental properties is that you can get a positive monthly cash flow if you have the right property. This means that the rent from your tenants will be more than the cost of your mortgage payment, insurance, property taxes, and other expenses. Not all real estate will have positive cash flow, but an excellent real estate investment should. This is another reason why real estate investing is so popular it allows you to make money even when you are not doing anything.
Some real estate investors only think about how much they can make when they sell a property, but they forget to think about how much money they can earn while they own it. Rental income should always be factored into your decision-making process.
4.) The Silent Power of Amortization
When you buy a property and finance it, your payment is divided into interest and principal. The interest portion is the amount of money that the lender charges for lending you the money, and the principal is the actual amount you are borrowing.
Your payment towards interest will be higher in the beginning because most of it will pay off the interest. However, as time passes, more and more of your payment will go towards the principal balance on the loan amount, even though the actual cost remains the same. This means that slowly but surely, the total debt you’ve borrowed to buy the property will be reduced with each payment. The best part about this is that it’s not even you! Someone else or a group of people is paying off your rental property.
5.) Huge Tax Advantages for Real Estate Investors
One of the best things about being a real estate investor is that you get substantial tax advantages. This means you can deduct just about everything related to your real estate investments when it comes time to do your taxes.
You can write off your mortgage interest, insurance, repairs, and even the depreciation on the property. This can save you thousands of dollars each year, which is one of the main reasons, so many people invest in real estate. When you’re doing your taxes, keep track of all your deductions because they will add up quickly.
The United States has a fantastic rule known as a 1031 exchange. It allows investors to avoid capital gains taxes if they buy a property within a specific time frame of selling. Many investors use the 1031 exchange to keep rolling their profits into new real estate deals. This continual reinvesting without paying capital gains tax is a significant advantage to building massive wealth.
Real Estate Investor Risks
Just because you’re buying property doesn’t mean you’re going to get rich. A lot of math goes into figuring out how much you can pay for a property for it to be a good investment. You should be analyzing comparable properties to find out what your rental property can rent for or sell for if you had to for whatever reason. As everyone in the real estate industry says, “you make money when you buy.” You won’t be able to make sense of your investment if you pay too much, and there’s nothing you can do about it after the fact.
This is why buying property correctly is so important. There are also several profitable investment strategies that real estate developers and investors make that don’t work out because of unforeseen real estate market disruptions.
It would help if you also were strategic with the location of the real estate you buy. Location is an essential part of real estate investing because if you’re not in an area with people with money to spend, your property will sit empty, and you’ll start to lose money. In addition, you also need to ensure you properly screen the prospective tenants that want to rent from you.
If this isn’t done correctly, you increase your odds of damage inside the unit, which is a landlord’s worst nightmare. This leads many people to invest in the stock market, but that is because they don’t know that there is another way that lowers your risk and improves your real estate investment returns.
Invest in Real Estate Without Buying Property Through Real Estate Syndications
How do you make investing in real estate easy and profitable for any investor? It’s called a real estate syndication and a way for multiple investors to pool their money together to purchase significant, recession-proof, cash-flowing multifamily assets that have historically performed very well. You can also invest in development projects or other types of real estate investments through syndication, but they can be riskier.
Before investing in real estate, you need to factor in the time and energy you’re willing to put into a property. Always remember that you’re not just buying a property but also becoming a landlord and property manager. This means you have to be responsible for your tenants and any issues they come up with.
You also need to ensure you’re always available if something goes wrong. Investing in multifamily real estate syndications is a great way to invest in real estate without having to deal with all of the legalities of owning a rental property or the tenants that can make investing in real estate a horrible experience. If you invest in syndication, you can spend more time succeeding in your career or having more time for yourself.
Diversifying into Commercial Real Estate
Also, diversifying is the only natural way to insulate yourself from unforeseen risks. This is one of the reasons why commercial real estate is superior to residential property. Commercial real estate is intended for profit, and if the property has any structure on it, it will usually have many units. The best type of commercial real estate is multifamily apartments. Apartments contain multiple units, which represent numerous income streams.
Having various units equates to far more stability because you have more opportunities to collect rent which means that it would be very likely that you would be able to make all of your payments each month and have positive cash flow. Residential real estate does NOT do this.
Less Risk & Less Headaches
This is why we feel investing in syndications is the best real estate investment strategy for people looking to achieve financial freedom. It’s tough for most people to get the down payment together to buy multi-million-dollar apartments without the help of other investors and a knowledgeable and experienced General Partner (operator of the investment). Owning real estate won’t get you rich immediately, but if you know how to spot great real estate investments and capitalize on them, you’ll be well on your way.
Frequently Asked Questions About Owning Real Estate
The most profitable way to invest in real estate in terms of return on investment(ROI) is to flip properties. Many investors make more by investing long-term through rental properties, but it takes time. This is also the riskiest because many unforeseen events could disrupt your progress and your profit.
Yes, owning real estate can make you rich, depending on how much time and energy you’re willing to put into it. It requires hard work and dedication to be successful in anything, and real estate is no different. Many of the world’s millionaires created their wealth from real estate ownership.
You can either start educating yourself with books, meetups, join a real estate investment group/club or get your real estate license to get a solid foundation of knowledge you can use in the future. Once you’re ready, start getting involved in the industry as an entrepreneur and start making deals with other people who own properties and want to sell them off, be it residential homes, commercial apartment buildings, or farms for agricultural purposes.
Owning Real Estate - Conclusion
One last piece of advice is to avoid mistakes. If you want to get rich, then it’s time for you to start investing in real estate. Buying property can be risky and requires much work if not done correctly. However, as we discussed today, many benefits, such as passive income streams and tax breaks, come with owning investment properties. Hence, many new investors make when they first enter into this space by doing their research upfront and knowing what kind of investments will suit them best before diving headfirst into any decision without considering all possible outcomes.
Is now the time for you to invest in some real estate? We’re here for whatever help or guidance you need along the way! We invite you to join the Willowdale Equity private investor club to learn more and access our private multifamily investment offerings.
Interested In Learning More About PASSIVE Real Estate Investing In Multifamily Properties?
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about passive investing in multifamily real estate.
We’ll cover topics like earned income vs passive income, the tax advantages, why multifamily, inflation, how syndications work, and much much more!