Many people think that real estate is the old man’s way to invest, and some say real estate is not an asset. And they may be right. But, investing in real estate is a tried and true method, and if you make wise purchases and find quality renters you can really get rich and make some serious coin. Let me show you two very different methods for investing.
Ten Houses, Ten Years
There are many real estate gurus out there, that got rich through real estate, that believe in this model of buying one rental property each year for ten consecutive years. That’s a lot of real estate investing! For some of you, this might seems like a slow way to earn an income, but for others, this might seem extremely fast. Let’s dig into some numbers and decide whether or not this real estate investment style is right for you.
The Cash Flow
If you purchase these pieces of real estate right and put them on a 30-year mortgage, you can most likely earn $250 a month in cash flow (after factoring the standard expenses for maintenance and repair). After you purchase your tenth house, you’ll be pulling in $2,500 a month and you’ll have 10 houses that are appreciating in value. The very first home you bought for $100k might be worth $125k today (after the tenth year), so not only are you earning a consistent cash flow each month, but you’re also increasing your equity in real estate!
The Equity and the Debt
After 10 years, assuming that the homes increase in value at the historical average, you could have about $1.1 million dollars’ worth of real estate. You are well on your way to getting rich with real estate. The only real problem is that you have nearly a million dollars’ worth in mortgage payments that you still owe the bank. If something goes wrong with two or more of your properties, you could be sunk financially.
Debt Free Investing
Many of us aren’t comfortable carrying around a million dollars in debts, so here is a different plan for you. Buy one piece of real estate at a time, pay it off as quickly as you can, and then move onto the next one to get rich with real estate.
The Cash Flow
If you have an excess amount of money from your day-job, you could aggressively pay off a $100k property in just over three years. With this pace, you could easily purchase three homes and have them free and clear within 10 years. With no mortgage payments, instead of earning just $250 a month on each property, you could earn $750, which gives you a monthly cash flow of $2,250.
The Equity and the Debt
Since you poured a lot of your own money into this plan (whereas before, you simply paid the minimum payment on a 30 year mortgage), you were able to raise an equity of approximately $325,000 and you have absolutely no debt to pay anyone.
The beauty of this plan is that you can really start to pay your next investment properties off quickly. Since you now have a consistent cash flow of $2,250 and your day-job income, you can pay off a piece of real estate in less than two years. So after just two years, you could increase your equity by $100k and your cash flow by $750. Then your earnings will most likely skyrocket from there. Choose to get rich with real estate and you’ll be glad that you did.
This post was written by Derek from Life and My Finances. Stay in the know with updates from all of our contributors by subscribing to our RSS Feed
If you live in a great market for rentals and have the capital to buy, real estate is definitely the way to go. Once you own enough properties, you can truly retire on just rent income alone.
It’s definitely important to look at the market where you live though.
I find myself on the fence about investing in real estate. I know the rental income can be very good but things that might seem good on paper might not be good in real life. Finding quality tenants, repairs, maintenance can be very unpredictable and easily kill the returns.
I find that there is a lot more reluctance now when it comes to investing in real estate than there was before. I hear you.
I’ve thought a lot about real estate investing but, I’ve also thought of the initial cost, cost of repairs, cost of finding good tenants, management fees if I decide to hire someone to handle it for me and more. Now, I can’t afford to buy a house just to rent out now anyway but, when I can, I’m not sure if it’s a route that I would be willing to go personally. Thanks for the great read Daisy.