Friday, August 22, 2008
Buying real estate is the best, safest way to become wealthy
From the Desk of Bryan Bailey
Hello My Investor Friends,
Real estate has been a fantastic investment throughout history.
There are truly many advantages to investing in real estate.
More millionaires have made their fortunes in real estate than anything else. Here is what some of the wealthiest Americans have said:
"Real estate is the basis for all wealth." -Theodore Roosevelt
"Buying real estate is the best, safest way to become wealthy." - Marshall Fields
"90% of all millionaires made it through real estate." - Andrew Carnegie
"Remember this, boy! Real estate is the only thing they ain't makin' more of!" - My Grandpappy
Let's look at some of the advantages in more detail:
APPRECIATION- Over the past 80 years, real estate values have continually increased. Of course, there have been some periods where values decreased, but the overall trend has been up.
Like anything else, the value of real estate is determined by supply and demand. So what are the factors that have made real estate in such high demand over the years?
One of the main factors is that shelter is a basic human need. People need places to live, work, and shop, where they aren't exposed to the weather.
In periods of high inflation, real estate values go up. Real estate is an investment that benefits from inflation.
LEVERAGE- A great thing to learn about real estate is you can tie up a big asset with a relatively small amount of money. You can easily buy a $100,000 home with only 10% ($10,000) down payment and that's if you do it conventionally...
To illustrate the power of leverage, consider this example. Suppose you bought $10,000 worth of gold, mutual funds, or some other investment. Let's say that it goes up a modest 10% for the year. Your investment is now worth $11,000. So your return is 10% of $10,000 = $1,000.
Now lets suppose you take the same $10,000 and use it as a down payment to buy a $100,000 house. Again, let's say it goes up 10% for the year. Your property is now worth $110,000!
Your $10,000 investment increased by $10,000.
That is a 100% return on your money (not even considering the equity build-up resulting from the constantly decreasing mortgage - cash flow - or tax advantages)!
TAX ADVANTAGES- You can deduct, as an expense, all of the interest, property taxes, insurance, repairs, inspections, and depreciation on your investment real estate, no matter how much you own.
Do not confuse this with the rules for your personal residences. While you are limited to deducting interest on up to 2 personal residences, you can write off unlimited interest on investment real estate.
The IRS also allows you to take a paper write off (depreciation). You can depreciate the structure (not the land) as if it would be worth nothing at the end of 27.5 years! Of course we all know the property will probably be worth much, much more in 27.5 years than it is now, not less.
Nevertheless, on a $100,000 house, if we assume the structure is worth 80% of the total, we are allowed to write off nearly $3,000 in depreciation alone each year! That's $3,000 off your gross annual income!
Now that is tax planning!
FREEDOM- While there is some management and record keeping required, it is nothing compared with other investments. If you invested in a business such as a dry cleaners or a restaurant, you would be married to the place, putting in an ungodly amount of hours.
Real estate investing can be done without too much interference with your current job.
SOMEONE ELSE PAYS FOR IT- With real estate, the people who occupy your buildings are called tenants. They pay you rent every month that you use to pay the mortgage.
The tenants literally buy your investment property for you!
When you invest in stocks, bonds, or precious metals, you are the one who has to pay for it.
CASH FLOW- Real estate provides you with a monthly cash flow. This can result in some very significant income, especially after the loan is paid off.
SOLID ASSET- Real estate is widely recognized as one of the greatest assets to own. It will be looked upon favorably by anyone looking at your financial statements. Real estate is also easy to borrow against should you need extra capital.
Once you understand all of the advantages of investing in real estate, it is easy to see that very few investments can it. No wonder it is the favorite of millionaires!
If you want to be successful, do what the most successful people are doing...
INVEST IN REAL ESTATE!!
What Makes Single Family Homes A Powerful Investment Strategy?
We have discussed the value of investing in real estate, but why single family homes?
Why not invest in raw land, apartment buildings, shopping centers, or office buildings? There is certainly nothing wrong with these other types of real estate. I will be showing you how to invest in them in future issues of my newsletter.
Single-family homes have many advantages over other forms of real estate.
SMALLER AMOUNT OF MONEY NEEDED- The average person simply does not have the money to go out and buy a shopping center or apartment building, unless they build a financial base and really understand financing. As was discussed before, it is possible to buy a single family home with 10% or less down payment... ZERO down if you use my techniques.
This means you can buy a $100,000 house for only $10,000 down if you do it like most people (personally, I think it's downright stupid to make ANY down payment).
Single-family homes are great for the average investor.
PEOPLE ARE FAMILIAR WITH HOUSES- Most people are not comfortable with shopping centers or apartment buildings. They don't know what the rents are, what repair costs are, etc. On the other hand, most people do understand single-family homes. They probably have seen the value of their own home go up over the years. They know in their heart that it is a good investment.
They also know roughly what it costs for repairs. People buy what they are familiar with!
MORE FLEXIBILITY- Let's assume, that for the same amount of money you could either have 5 houses or 1 apartment building. If you needed money, with the apartment you would either have to sell the whole thing, refinance the whole thing, or bring in a partner on the whole thing. With the 5 houses, you could sell, refinance, or bring in a partner on just one.
It is comparable to having five $20 bills versus one $100 bill. If you buy coffee at the convenience store with a $100 bill, they might not take it. Like the $100 bill, the apartment building can be harder to get rid of. Houses are more liquid. In most areas, single-family homes sell in 120 days or less. Apartments can take much longer. More people can afford single-family homes and more people want them.
MORE CONTROL- With an apartment building, all of the tenants know each other, and they will know what they pay in rent. That means it is difficult to charge one tenant higher rent than another.
Plus, if one tenant plays the stereo too loud or causes other problems, YOU will get the complaints. With houses, they are generally scattered around the area.
You can raise the rents individually or offer lower rents to excellent tenants.
HIGHER EQUITY BUILD UP- There is usually more appreciation in single-family homes than in apartments. Apartment buildings are valued based on the income approach (how much money they bring in).
Single-family homes are valued based on comparable sales. This means your investment houses are valued according to what the others in the neighborhood are selling for. Owning your own home is part of the American dream.
A home is a psychological desire. There is certainly more demand for houses than apartment buildings.
LESS CHANCE OF RENT CONTROL- Rent control is where the government tells you how much you can charge for rent. In many big cities with rent control, buildings have been abandoned because the owners could not charge enough rent to cover their costs.
As a property owner, rent control is a very bad thing. Fortunately for the single-family home investor, most rent control laws only apply to buildings with 4 or more units.
LESS RISK- With single-family homes, you don't have all your eggs in one basket. The homes are usually scattered around the area. With an apartment building, if the area goes bad for some reason (i.e. a factory or freeway goes in across the street), you are sunk.
Single-family homes also tend to attract a better class of tenants than apartments. Apartment dwellers tend to be more transient, such as single people or young couples. They will soon outgrow it and want to move to a house.
Single-family homes generally attract a more stable tenant, such as families with kids in school who are less apt to move frequently. Additionally, most people who live in apartments won't do minor repairs and maintenance, like those living in a house will.
Other forms of real estate are fine, but they may require more money and sophistication than the average investor has. It is easy to see why single-family homes are a fantastic investment for just about everyone.
Get Educated and Get Your Investor Tools http://bryan_bailey.com/
All the Best,
Posted by Ask Bee at 9:22:00 AM