Real Estate Investing Can Make You Rich. Here's How (IDEAL Factors)

Real estate investing can make you rich and grow your wealth significantly over time. But why real estate? Why not stocks, bonds, gold, crypto, or something else? Real estate investing is the superb investment all because of the I.D.E.A.L. Factors.

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Everyone knows that real estate can make people wealthy. But how? Simple put, there are five key factors that make investing in real estate so powerful. Those factors, the I.D.E.A.L. factors, are:

1. Income from rents
2. Depreciation tax benefits
3. Equity growth from mortgage pay down
4. Appreciation of your property over time
5. Leverage through cheap, long term mortgage debt

Let's break down the five I.D.E.A.L. factors of real estate here.

INCOME. (0:34)
Every month, tenants that rent our properties pay rent every single month.

While we have ongoing monthly expenses like property taxes, utilities, mortgage, payroll for managers, maintenance, and other items, the rent collected is more than the sum total of our expenses. Therefore, we have excess cash, and we can distribute that income.

We do not have to sell our real estate in order to start seeing a return on investment.

DEPRECIATION. (1:12)
Depreciation is an IRS-given tax loss that we can use to offset our income from rents. The IRS allows real estate investors to depreciate the value of your improvements of your property, meaning the buildings (and not the land). The net effect of this is that you can defer your taxation until later, helping you gain largely tax-free income today from your rents.

EQUITY. (2:31)
When we buy real estate, we use both our our cash (equity) and we borrow the rest through a mortgage (debt). Part of our monthly expenses include paying our mortgage debt. We, through the property's income, pay this month for years. Eventually, we will have paid down the mortgage balance significantly, and our equity will have grown over time.

APPRECIATION. (3:19)
Real estate generally goes up in value over time. Of course, this is all market dependent. Robert Shiller, an economist, determined that real estate values generally go up with the rate of inflation over time. That means we can expect our property to, over time, generally increase 2-3% per year.

But we can also force appreciation. We can do this by increasing the value of the property by increasing the income by renovating and repositioning the asset.

All property is value based upon its net operating income (NOI) and the market capitalization rate (a.k.a. the cap rate). So if I increase the NOI by renovating the units and increasing the rents, the value of the property will increase. (5:12)

LEVERAGE (6:50)
Real estate debt is generally the cheapest form of debt available. Mortgage debt allows us to borrow up to 80% of the value of the real estate when we buy it, which means we only need to put down a portion of the property value.

Now why is real estate leverage great? First off, it means we can buy more property than we could otherwise. And secondly, it means the total real estate return we can get will be much higher than normal.

For example, if we bought a $20,000,000 property with $20,000,000 in cash, and we drove value and it became a $40,000,000 property, we would have doubled our money. But if we borrowed $16,000,000 to buy that original $20,000,000 property (having $4,000,000 of equity), and the property value increased to $40,000,000, our original $4,000,000 of equity would have increased by 5x ($4,000,000 to $20,000,000).

Real estate investing is the best investment you can make, at least that is what I think. My wife and I have a substantial amount of our net worth invested in real estate and it's all because of the IDEAL factors.

What do you think about real estate investing?

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Видео Real Estate Investing Can Make You Rich. Here's How (IDEAL Factors) канала Kevin Conway