After years of looking into and trying different types of investments, I’ve come to believe that real estate is the best investment for the average Joe. As far as return and how to make money, real estate investing is weighted with advantages. And knowing those advantages can give you keen insight into becoming a better real estate investor and accumulating the wealth you need to be financially free!
In his book “Think like a Billionare,” Donald Trump states, “Real estate is at the core of almost every business, and it’s certainly at the core of most people’s wealth. In order to build your wealth and improve your business smarts, you need to know about real estate.” I completely agree. I write these weekly blogs on real estate investing so that you can in turn start to be financially free.
During my time in real estate investing, I’ve found eight reasons behind why it’s such an awesome investment. Here are the first two:
- Demand: This is a beautiful thing about real estate investing: real estate has built-in demand. From running franchises like Great Clips to trading stocks, I can tell you that in other business, you have to fiercely market your particular product to get it out there. But in real estate you don’t really have to sell to get customers. The demand is already out there. You don’t have to go searching under rocks for customers. Now you do have to post it online and get your name out there, but the work is so much less—and this includes holding and flipping! The inherent value of a place to live is there. And as long as you’re working to make it a decent space, sprucing things up, you’ll always have customers. Any time a new business is started, the question is always: “Will anybody want this product or service?” And with real estate, that question has already been answered. Everybody needs a place to live!
- Leverage: Leverage is one of my favorite reasons to get into real estate. Here’s how it works: Say you have $10,000 to invest. In the stock market, you could use that to buy $10,000 in stock assets. If you receive a 10% return at the end of the year after the stock increases in value, then your return on those stocks, would be $1000. Now let’s take that same $10,000 and invest it in real estate. Because of leverage, in real estate you can take that $10,000 and purchase a $100,000 asset: a property. Now say it also increases in value by 10% over the year, but that increase is not on the $10,000 you invested. That increase is on the whole asset: that $100,000 property! So at the end of the year, your return on that investment is $10,000! Translation? You get a 100% return. In other words, the advantage is that when that $100,000 property goes up in value, your 10% return is on the $100,000, not the $10,000 you put in. In simple terms, leverage allows you to own a $100,000 house when you only have $10,000. This is possible because the bank (FHA) will loan you the rest of the money ($90,000) to purchase the house, whereas in stocks, you can only purchase the worth of what you currently have. Now leverage works both ways. It can magnify your winnings or your losses—so as always, invest carefully.
Stay tuned next Thursday for another reason why real estate investing is awesome!
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