4 Key Ways to Build Wealth in Real Estate

Dusty Rhodes • December 9, 2019

I'm sure by now most of us have wondered, "Everyone tells me that I should invest in real estate, but how do is it possible to make money?" Well the good news is, there are ways, but there are a few things that you need to keep in mind to really be successful at it. From BiggerPockets.com, here are 4 Ways to Build Wealth in Real Estate:


There are so many reasons to invest in real estate! Talk to 10 investors, and you will get 10 different answers. Some will say that they appreciate the extra cash the investment brings in each month. Others will say that they appreciate the appreciation (see what I did there?) and like to see their properties double and even triple in value. Still other investors will tell you that they like to have control over where their money is.


The truth is, the list of reasons people invest in real estate is long. This is because there are many potential ways to build wealth through real estate investing. On the flip side, though, there are plenty of reasons not to invest and there is certainly risk to investing in real estate. While no investment is risk-free, and there are never any guarantees, there are many benefits to investing in real estate and ways to mitigate your risk.


4 Main Ways to Build Wealth in Real Estate

OK, so now that I’ve convinced you to go out and spend all your money on a rental property, let's talk more specifics. The four main ways to generate and build wealth in real estate include tax savings, loan amortization, cash flow, and appreciation. Not every investment will bring you all these benefits, but your particular investment strategy is up to you.


Taxes

Let’s start with the most boring topic on the history of the planet: taxes! I know, I know, but we have to go there. And honestly, I bet the more you learn about taxes, and tax savings, the more interesting this topic will become!

In my opinion, this reason alone is enough to buy one single rental property. This won’t make you rich by any means, but it allows you to tap into a whole new world of tax saving strategies. And on things you already use and buy anyway! Think: your cell phone, internet bill, your home office, the list goes on and on. These are all potential write offs!

Now, I am no expert, and nothing can replace the advice of your CPA, but check out this article written by someone who is much wiser than me on the topic. Oh, and did I mention that he’s a real estate made millionaire? The fact is the government wants you to buy real estate. It will incentivize you to provide housing for its citizens in the form of extra tax write-offs and 1031 exchanges, to name a few.


Loan Amortization

The next thing I want to talk about, and perhaps my favorite, is amortization. What does that even mean? In a good real estate investment, if you do it right, someone else will be paying down your mortgage. And your interest, taxes, insurance and other expenses. Hopefully even your property manager’s fee. Notice that I said in a “good” real estate investment AND “if” you do it right. This means that you must not only buy it at a price that makes sense, you also have to manage it effectively.

Both are do-able, but neither just happen. In many markets, rents can cover all these expenses, and you can automatically build wealth simply by keeping your property occupied.


Cash Flow

Now on to the real reason you are reading this article: you want to know how much money you can make. This is known as cash flow and is the money that an investor takes home after all expenses are paid.

A good investment cash flows most of the time. Notice, I don’t say always, because there will be times when your expenses exceed your income. My properties average around $300 per month. That is money in my pocket. When I am assessing a potential investment, I consider a good investment one that brings in at least $3,000 in income per year.

Again, this isn’t a huge number but when you consider that the value is likely increasing over time and somebody is paying down a mortgage for you, you can start to build some wealth passively. You can also duplicate this over and over again until you achieve your income goals.


Appreciation

The last topic I want to cover is the icing on the cake: appreciation. If you make a good investment, in the right area, you not only have someone paying off your loan and building you equity in your home, you also have a few hundred extra dollars in your pocket. On top of all of this, your property should increase in value each year. This is called appreciation. And a conservative appreciation rate for the average property in America is over 3%.

This is not a startling rate but let's consider a $100,000 single family home investment. You put $20,000 on a 30-year mortgage at a 5% interest rate. This $80,000 loan will be paid off in 30 years, by someone else, and in that time, you should make $3,000 per year in income totaling $90,000 over this term.

Furthermore, if your initial investment of $100,000 increased at 3% per year, after 30 years it would be worth $235,656. Now, let’s say you completed a $30,000 remodel that increased the total value of your investment by $45,000. The difference, $15,000, can now be added to your $235,656 home value and $90,000 in income.

All in all, your $20,000 investment could turn into $340,656. Now, you could sell the house and net close to $310,000 after you pay realtor fees and closing costs, or you could hold onto it and enjoy a significantly higher cash flow since your mortgage is paid off.



Source: BiggerPockets.com


 

Dusty Rhodes Properties is the Best Realtor in Myrtle Beach! We do everything in our power to help you find the home of your dreams. With experience, expertise, and passion, we are the perfect partner for you in Myrtle Beach, South Carolina. We love what we do and it shows. With more than 22 years of experience in the field, we know our industry like the back of our hands. There’s no challenge too big or too small, and we dedicate our utmost energy to every project we take on. We search thousands of the active and new listings from Aynor, Carolina Forest, Conway, Garden City Beach, Longs, Loris, Murrells Inlet, Myrtle Beach, North Myrtle Beach, Pawleys Island, and Surfside Beach real estate listings to find the hottest deals just for you!


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