I always like to ask financial planners what their best clients did to become as wealthy as they are and 9 times out of 10 the response I get is that they're heavily invested...in Real Estate!
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We've recently been car shopping, and it blows my mind how much people are paying for vehicles!
I saw someone paying $80,000 for a Cadillac Escalade (and hey, if they can truly afford it then more power to 'em!). Regardless, all I could think about is how that's a LOT of money for something that goes DOWN in value because for that same $80,000 one could buy TWO investment properties that would go UP in value.
In the greater Tacoma area you can buy a rental property for around $200K with 20% down. That comes out to a $40K down payment. From there, you're using other people's money.
The mortgage you get will be around $1,100/month, but you can charge that same $1,100 for rent in the home + more! Historically speaking, home values have increased by an average of 5% per year since World War II. Based on that, the fourth year you own the home, the value would likely rise to about $243,000. By year 10, the home would likely rise to $325,000!
You can greatly increase your net worth.
So you purchased the home for $200,000. It has appreciated by $125,000 and your tenants have simultaneously been paying down your mortgage by $30,000 over 10 years. Based on that, between the appreciation and the debit that is paid off by your tenants, your net increase is $155,000 in 10 years!
But wait...there's more! You'll save even more money with TAX ADVANTAGES! You can write off the property tax and mortgage interest that your tenants have been paying for you, which will add up to nearly $100,000 in tax write offs over 10 years!
You've now got the $155,000 increase in equity from the property plus another $100,000 in tax savings. That's $225,000 of value in just 10 years! That's over $25,000 per year of other people's money that you are making off of your initial $40K investment. And that doesn't even include the full extent of tax advantages, but I promised I'd keep things simple so we'll leave it at that. You'll continue to enjoy increase in values over time and passive income until the day you decide to sell.
Oh, and as a reminder, the above example is only based off of ONE rental property, so if you want to really set yourself up for financial success...why not buy TWO!?
You decide...$80,000 for a Cadillac Escalade OR Two Rental Properties.
This is a simplistic approach to the secret behind real estate investing, and we hope it was eye opening. If you have any questions, feel free to give me a call or send me an email. My team & I look forward to hearing from you!
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