Have you thought of investing in real estate? Great idea! Let’s talk about why you should make this idea a reality.
Investing in real estate could be the best investment of your lifetime. Now, I hate to pop your bubble, but we aren’t talking about buying a house for you to live in. We’re talking about buying a property that you can rent out to tenants and collect money from every month. Your personal home costs you money every month, and we are in this to MAKE money! See why your personal home is not an asset for more on this topic.
Now, the reasons you should buy a rental property:
1. Cashflow- Your tenants pay you monthly rent. You use this money to make your mortgage payment, pay for insurance, taxes, maintenance, and utilities (depending on your lease agreement). The money left over after paying all your expenses is your cashflow, and you receive that cashflow month after month whether you are in town or not! An easy rule of thumb to follow when looking at property to buy is the 1% rule. In other words, your monthly gross rent should be equal to or greater than 1% of the purchase price. For example, if you buy a $300,000 property, it should bring in $3000/Mo of rent. This is much easier to do if you buy a property with at least 2 suites in it. If you follow this rule of thumb, you will have a nice monthly cashflow.
2. Mortgage Paydown- Most people don’t realize the power of mortgage paydown when they are considering buying a property. This factor is my favorite part of real estate investing. Each month, part of your tenants rent payment goes towards paying down your mortgage. At the end of your 5-year term, you have a significant amount of equity built up that you can use to buy another property. All this equity is built up with no money out of your own pocket! Even if your property value doesn’t appreciate, and you were just breaking even on your cashflow, mortgage paydown alone makes rental property a worthwhile investment!
3. Property value appreciation- People often say that real estate only appreciates at 3% per year so it is not a great investment. The reality is that you only need to put down 20% of the purchase price to buy a property. So, if you buy a $300,000 property, it is appreciating at 3% or $9000 per year. But you only put down 20% or $60,000 of your own money, the bank put up the rest. On the money you put into the deal, you are making a 15% return! ($9000/year divided by $60,000 down payment) The power of leverage is amazing!
4. Tax advantages- There are many tax advantages to owning real estate. I recommend you talk to your accountant to find out what owning rental property could do for your tax bill!
So, as you can see, there are huge returns possible by investing in real estate. Don’t let the fear of dealing with tenants and toilets stop you from owning rental property. There are ways to make sure you never have to deal with these issues, such as hiring a property manager to deal with the property. Get out there and start earning real returns on your money! If you are not sure where to start, please reach out to us. We would love to help you get started!