Real Estate Investing
Why is investing in real estate rental properties where we began our wealth building journey and why we believe it is often the best place to start your journey, too.
“90% of all millionaires become so through owning real estate.”
~ Andrew Carnegie
Why Start With Real Estate?
Isn’t real estate is too hard, too expensive and too risky?
If you’re serious about taking control of your financial future (you wouldn’t be here if you weren’t), then you’ve probably done some serious thinking and research related to real estate investing.
Like anything you research, you’re going to find those that believe real estate is the #1 asset class as well as those that believe that it is too hard, too expensive and too risky.
Even those who are confident that investing in real estate is a great way to generate passive income and build generational wealth may have some unanswered questions such as:
- How do I know which property to buy?
- How do I know if it will rise in value?
- How do I know how to select a good tenant that will pay rent on time and won’t trash the property?
- Where will I come up with enough money?
- What if I need money for an emergency and it is “stuck” in my rental property?
- How do I know if I have enough expertise to buy a real estate investment property?
- How much time will I have to commit to my rental property?
- …and many more.
These questions are very important questions to consider to ensure you are truly making an investment and not simply speculating.
Although there is learning to be done to prepare yourself for your real estate investing journey, real estate is definitely the asset class the Invested Teachers believe to be one of the safest, accessible and secure investment options for those who are in a career with a predictable annual income. Not only are we huge fans and investors in real estate property, but we also think it is one of the best places to begin your wealth building journey.
Why Real Estate Instead of Stocks, Bonds or Mutual Funds
Imagine investing in something you couldn’t see or touch?
That is what it is like investing in stocks, bonds, mutual funds and other paper assets.
When we began our wealth building journeys, we weren’t comfortable taking our hard earned money to purchase paper assets that may go up, may go down or may go out of business completely.
Instead, we turned to investing in real estate rental properties not only because real estate typically appreciates in value over time, but your tenant would be paying down the mortgage and providing cashflow in your pocket.
The investment trifecta!
While most are trained from the stock market and paper asset world to think of appreciation as the main motivator for buying an asset, this is not the case in real estate investing. When buying a rental property, your goal is to collect monthly rent from a tenant as a means to cover all expenses including borrowing costs with enough left over to put some money in your pocket. In the real estate investing world, asset appreciation is simply the cherry on top.
Leveraging 3 Ways to Grow Your Wealth
Not only are there 3 ways that investing in rental properties can grow your wealth, but you also have the option of leverage to stretch the return on your investment dollar.
As mentioned, with each monthly rent payment that you collect, your net worth increases in 3 ways:
- Monthly cashflow (profit after paying mortgage & expenses);
- Principal paydown (the balance of your mortgage goes down with each mortgage payment); and,
- Appreciation (real estate typically increases in value over the long run).
While increasing your net wealth in 3 ways is fantastic especially when comparing to most other investments, these aren’t the only wealth buildig benefits.
Since real estate is such a stable asset class, banks are willing to lend you a portion of the cost of the property (usually 70-80%) if you are a qualified borrower.
While this might not seem like a big deal on the surface, this has a massive impact on your rate of return (ROI).
Here is an example using friendly numbers to drive home this point.
- Rental property purchase price: $100,000
- Down payment & closing costs (your investment): $25,000
- Mortgage amount: $80,000
- Monthly payment at 25 year amortization, 5.69%: $497.20
- Estimated monthly expenses (property taxes, insurance, utilities): $285
- Estimated monthly rent: $900
- Monthly cashflow: $117.80
Looking at these numbers on a monthly basis may not be super exciting, however when you consider what happens after year 1, things become more clear:
- Cashflow generated: $1,413.60
- Mortgage principal paid down: $1,505.86
- Property value increase (assuming 3% annual appreciation): $3,000
After 1 year with this property, you’re looking at $5,919.46 in your pocket with only $25,000 invested out of your pocket.
That is a 23.7% return on your investment.
THAT is the power of investing in real estate rental properties.
Not to mention that it is always reassuring to know that you own a hard asset that you can go see and touch unlike other paper assets like stocks, bonds or mutual funds.
This is why the Invested Teacher Team believe real estate is the best asset class to start your wealth building journey.
Grow Your Wealth Building Skills
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This fixed minset approach to managing money is limiting your ability to accumulate wealth and restricting your financial freedom. Break free from this deficit thinking habit and begin your journey to grow your wealth with us.
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