A team accomplishes far more than a group of lone individuals. For example, Wolves hunt in packs to take down animals 20 times their size. And for those of us who were children of the ’90s, we all remember Ducks Fly Together.
This brings up another team that can accomplish amazing things — not a team of people, but a team of benefits which, when combined, can help you achieve your greatest financial goals. Specifically, I want to talk about real estate.
I’m a real estate investor, and I firmly believe that real estate is the best traditional investment on Planet Earth today. However, just because you buy a piece of real estate doesn’t mean you’re going to make money.
4 Magics of Real Estate which can make you Rich
1. Cash flow
Cash flow is the extra profit left over after all of the expenses have been paid on a property. For example, if my rental property produced 2,000 in income and my expenses came to 1,700, my cash flow would be 300 that month.
Now, I know a lot of you are saying, “Three hundred is not going to make me a millionaire.”
Probably not. But remember, we are just talking about one of the wealth generators. There are still three more to go! Additionally, that 300 might be from just one property. If I owned ten similar units with the same cash flow, that’s 3,000 per month. If I owned 100 units, that’s 30,000 per month. This cash flow can go a long way toward helping you quit your job — or helping you save for a future big purchase, or retire wealthier.
When I talk about appreciation, I am not referring to how much I like you (though I do appreciate you!). I’m referring to the natural rise in value that real estate experiences. For example, if you purchased a property for 200,000 ten years ago, and today that property is worth 300,000, the appreciation made you 100,000 richer!
Of course, appreciation doesn’t cause values to increase every year (consider 2007!). However, historically, real estate prices have appreciated over the long term. So, again, appreciation alone is not likely going to make you a millionaire, which is why I don’t recommend that people purchase bad deals hoping that appreciation bails of them out.
However, appreciation is combined with the other “members” of the wealth generation team, powerful stuff can happen.
3. The loan pay-down
When you purchase a rental property with a mortgage, each month you make a payment to the lender. That payment includes two parts: principal and interest. Interest is the profit for the lender, but the principal is money you are paying down the loan with.
For example, if you purchased a house five years ago for 100,000 and obtained a 80,000 mortgage (we’ll say it was a 30-year mortgage with a 5 percent fixed rate), today you would owe only 74,000. Ten years from now, you would owe only 65,000. This means that every year your equity increased (equity is the difference between what a property is worth and what is owed on it), you’d gain value, as long as the property value didn’t drop.
Of course, if you paid all-cash for a property and didn’t obtain a loan, you would forfeit this wealth generator. This is something only you can decide.
4. Tax benefits
Not only Long Term Capital Gains are taxed at a lesser rate but there are numerous exemptions available under section 54 which will help you save tax legally.
Putting it all together: an example
As I mentioned, each of these wealth generators can be powerful in itself. However, putting the four together can make you exceedingly wealthy because of the synergy among them.
For example, you might purchase 1,000,000 worth of multifamily real estate with a 200,000 down payment. Let’s assume this property produced 30,000 per year in cash flow, but it also might be increasing in value at 5 percent per year. This means that after 10 years, it could be worth 1.6 million, and you would have earned another 300,000 in cash flow.
On top of that, after those 10 years, that initial property could be paid down so that you owe only 650,000, giving you 1 million in net worth on that one property alone.
And to top it all off, the tax benefits during that decade would help you keep far more of that profit than had you earned it any other way.
Now that’s a team I want to be a part of.
Real Estate has come a long way, from Unorganized to Organized Sector. It is no more is mere Buying & Selling of properties. It is a full Industry now. There are Rules, Acts, Governing Bodies, Development Authorities, and Organizations. Latest being introduction of RERA.
RMS’ team of experienced professionals train people in Real Estate- be it Compliance, Documentation, Lead generation, Customer Retention, Branding & Marketing, Sales, Negotiations, Deal Closing, Customer Service, Valuation etc. With manpower Trained & Educated by us, you can be assured of improved efficiency & productivity.
Realpro Management And Skill School is created with the vision to help the Indian youth solve its overcome financial stress and become wealthy by providing marketable and relevant skill development. Along with its ethics, its unique team prepares the candidates to face competition, by enabling them to become innovative and updated. To know more about their courses visit http://www.rmsschool.com/real-estate-courses