Build Wealth More Consistently With Real Estate

Gustan Cho Associates are mortgage brokers licensed in 48 states

This article on Build Wealth More Consistently With Real Estate was PUBLISHED On May 21st, 2020

How Build Wealth

If you’ve been an adult long enough to live through several recessions, then you might question the very headline of this content. The Great Recession as some call it was partly driven by the burst of the real estate bubble, and it shook the faith of millions in terms of the advantages of home ownership and real estate investing. For years, it felt like things would never be the same again. Yet, there are those now that are building massive wealth through real estate and property once more. Keep reading to learn the various reasons why and ways in which real estate can build your wealth far more consistently than nearly any other class of assets that you could put money into.

In this article, we will discuss and cover Build Wealth More Consistently With Real Estate.

Build Wealth More Consistently With Real Estate: Positive Cash Flow Possibilities

Cash flow is simply the money and funds you have remaining in your hands after you’ve collected rent but paid out all of the expenses. Most properties will have expenses including property taxes, a mortgage, maintenance, insurance, and possibly property management fees. You enjoy a positive cash flow when it pulls in more in monthly rent than it does in expenses to own it.

In many other asset classes, be it stocks and bonds or jewelry, art, and cryptocurrency, investors buy things hoping they appreciate in their value to be sold for a profit later. However, that can all be a form of gambling when it’s all said and done.

Smart property investors don’t count on the appreciation of property values though. They buy properties using good judgment, knowing there’s a reasonable chance that a property can produce more income than it has in expenses. Positive cash flow doesn’t care about market values.

Still, Appreciation Can Matter

Having said all that about positive cash flows, appreciation is certainly a way to build wealth in real estate. In fact, it’s the primary way. Prices fluctuate wildly; everyone’s seen that in the last decade or so, but in the long-term, they go up, and there’s no reason in the world to think that’s going to change soon.

Build Wealth More Consistently With Real Estate: Depreciation Can Be Deceiving

Even though it sounds like it, depreciation isn’t actually about real estate values dropping. It’s more of a reference to the tax terminology wherein you have the power to write off part of an asset’s value every year. Using this technique helps you reduce the tax burdens on any money that you do make, which is yet another way a real estate project can actually protect your wealth while also growing it at the same time. Rental income is another, obviously.

Build Wealth Through Leverage Investing

How to build wealth by investing leverage

Real estate is a very easy asset to leverage, if not the very easiest of them all. You can find real estate investment loans and mortgages spread out over periods of three decades, with only 20 percent down payments or less needed, and interest rates of 5 percent or under. No other asset class or sector offers that kind of flexibility and ease of entry.

You Don’t Have To Pay It Off

If you use a mortgage or a loan to buy a piece of real estate, you’re not the one paying it down. You’re responsible for making sure it gets paid down, yes, but you’re doing so with the rental payments that you get from your tenants. Early payments will go only to loan interest, but in time, you’ll start hitting the principle.

Build Wealth: You Can Force The Equity

Forced equity simply means you do the work to make a property worth more than it was. It’s different than appreciation, which relies on the market conditions because this is more like you buying a fixer-upper and then improving it. If you can find something that’s below market value and then give it the upgrades it needs, be it flooring, paint, or appliances, then you can create real estate wealth without a lot of risks.

Make Inflation Your Friend

Inflation isn’t talked about a lot in an economy of low-interest rates, but it’s a big reason why real estate can create so much wealth over time. Inflation generally means that the value of money goes down each year, so that the prices of services and goods goes up. However, while they can print more money, they can’t make any more land. Also, many of the expenses of property ownership are fixed, so what you pay for a mortgage now is what you’d pay in twenty or thirty years, and theoretically, inflation would mean that payment is a lot cheaper then.

Now that you’ve read this article, you should see at least a few of the ways that real estate can build wealth consistently and safely over time, when done right. It can far surpass the returns possible in other asset classes, be it equities, commodities, or collectibles. This also all holds true for both residential and commercial real estate, so look into homeownership for yourself and your family, as well as possibly flipping homes or renting them out to others.

Build Wealth With Appreciation And Cash-Flow

How to build wealth through recognition and cash flow

The possibilities of positive cash flow, when combined with appreciation can be a powerful force, but so too can using depreciation, leverage, inflation, and forced equity right, especially if you fill a property with enough tenants that you aren’t the one paying down the loan.

If you are attracted to the idea of doing all of this but don’t feel like you have enough resources to jump into the fray, look around your community for other like-minded investors. You might be able to pool resources together with a group in order to go into a project together. Once you get enough proceeds of your own, you can then go it alone to make money all by yourself.

Also don’t let the prospect of being a landlord scare you off either. You can always find a property management firm to do everything from handling tenant selection and communications to evictions, rent collection, and maintenance requests and responsibilities, meaning all that you have to do is enjoy watching the money roll in.