Doing the real estate business is very financially rewarding. Just look at the real estate tycoons like Donald Trump, the Lefrak Family, the Rudin Family and many others. Wonder how real estate has brought wealth to them? Before you will ask how it is related to you and jump to the next article, let me say that this can work for everyone. Whether it is one single rental property or a block of apartment buildings, the concept is the same. Here I’ll highlight what Real Estate Investing can do for you:
How do you make money to pay for your bills?
If you work in a job, you work for a paycheck. Every 2 weeks or a month, your employer will give you a pay check. When you stop working, the paycheck stops.
When you buy a house and rent it out, your house works for you. Each month, you got a “pay check” because your house has diligently worked for you. You enjoy the fruits of your house’s “labor” by collecting rent.
When you buy cashflow properties, they work like ATM machines that print you money every month. Yes, as the boss of your house, part of it involves your hard work, especially at the beginning. You need to arrange for property maintenance. You need to find good tenants. You need to check that you have collected the monthly rents (Hopefully you find this part enjoyable).
Don’t let hard work scare you. You don’t have to do all by yourself. There are property managers, accountants etc. who you can hire to help you out. Coming from an old-school thought, I strongly suggest doing it yourself at the beginning to learn the ropes and tricks before assigning out to others. Face the challenges hands-on. Turn these so-called roadblocks as just stepping stones to a brighter path.
The good thing is that owning cashflow properties is a scalable business. A scalable business means a business that can double the output (ie. your profit) without doubling your amount of work. For example, boiling 1 egg takes 3 minutes and boiling 2 eggs still costs 3 minutes. That’s scalable. Choosing what floor to use in rental properties or choosing a property manager for your 1, or 2, or 10 properties takes the same amount of work. That’s scalable. Plant your seeds first, and once you go over the bump, the subsequent ones get easier and easier.
As your cash grows, now you have a new challenge: What to do with the extra cash? =)
Aside from generating extra income, buying real estate can save you money in the long run. Making money is good, getting to keep that money that you made is essential.
In United States, owning real estate is one of the most tax-efficient ways to invest. For example, do you know that if you buy a house and make mortgage payments on it, the payment is tax deductible, but when you rent the place, the rent is NOT deductible? It is still a payment for your right to stay in the place!
Tax laws change time to time, and depending on where you live, tax laws may be slightly different too. Don’t get bog down by the details. The key is to understand the general pattern.
Remember this. At the end of day, because governments tend to promote home ownership (to create a sense of belonging to the community), you will see tax laws are usually more favorable to the homeowners than to the renters.
Even if you decide not to do real estate as your business, I would encourage you to consider buying your own place to live. There are parts of the United States where it is actually cheaper to buy your home than to rent a place. Let’s use Philadelphia as an example. If you rent, you pay around $900/month. If you buy a property, mortgage, property tax, and insurance add up to roughly $700/month (I haven’t even counted tax savings associated with owning the property).
$200 difference may seem little, but don’t forget another, much bigger part. At the end of a lease, a renter leaves with nothing, but at the end of a mortgage, a homeowner will leave with a house that s/he can either sell for a large amount of money or rent out for monthly income. That’s a big bonus!
P.S. It may seem self-conflicting or even hypocritical that I encourage others to buy houses to live in while at the same time renting out to tenants (which indirectly encourages people to rent). In reality, it is not. As a landlord, my duty is to provide safe, quality housing to tenants regardless why renters choose to rent. In fact, even though I own multiple cashflow properties, I am currently renting because I have yet found a suitable home for my personal use. I am looking hard…
Would you want your life be controlled by someone else? Or would you want to be man (woman) who controls your own destiny?
When working in a job, your decision is basically your boss’s. Boss is always right. When you invest in stocks, unless you are a large shareholder, you have almost no control where the company is heading towards.
Buying real estate is completely different. You call your own shots. You have a lot more control how the business is run. You control how much rent is charged, where you want to invest in, what amenities that you provide to renters. You get to decide it all of your business decisions, if you want to.
For all control freaks out here ( you know who you are 😉 ), real estate a much more comforting way of making your money than in other investments like stocks.
The benefit of real estates, like other assets, is that they can be passed down to your loved ones easily. You can’t do the same with a job.
Here are two scenarios:
And you have a kid who wants to follow your footstep.
In Scenario 1, everything needs to start from scratch again. Your kid definitely won’t be able to start from big boss level. At best, you can probably find him an entry-level position job to begin.
In Scenario 2, with real estate, your kids can simply pick up where you left off with. The properties print out the same exact amount of money the very next day you decide to pass onto her or him. In fact, even if your kids do not want to follow your footstep, they can simply sell the houses and collect a large chunk of money to follow their own dreams.
By buying real estate, you can ensure your well-deserved success to not go wasted and be passed down to your heirs and your loved ones.
I have just highlights 4 compelling reasons why you would want to buy real estate. Each person’s circumstances is different, but I would definitely encourage EVERYONE to take a serious look into real estate and what it can do for you. After all, we all need a place to live right?