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Why Real Estate?
Bricks and mortar real estate is a solid way to build equity and cash flow over time.
- Technology change has minimal impact on real estate.
- Globalization has minimal impact on real estate.
Today, tomorrow, fifty years from now, people will still need a place to live, a kitchen, a bathroom and a bedroom. With a continually growing population, this means growing demand for residential housing.
A great retirement plan is to invest in one or two residential real estate properties every couple of years. The rents pay your mortgage and operating expenses. Twenty years later you have a portfolio of diversified residential real estate properties paying you monthly income plus a big equity profit.
Some benefits of real estate investing:
- With a small down payment, the property can carry itself, providing high investment returns through leverage.
- As the mortgage is paid down, the rental income continues indefinitely, providing you with stable income during your retirement years.
- You own it, you control it.
- You can save taxes with depreciation offsetting your positive cash flow.
- Its solid bricks and mortar.
Over the long term, real estate has created more wealth for people than anything else. Look at the equity you have built up in your home over the years. The best investment strategy is to keep doing what works - invest in residential real estate like your home.
How Real Estate Works
Consider this scenario:
You invest in a condominium for $100,000. With a 25% down payment, you can carry the $75,000 first mortgage for about $3,850 assuming a 5% interest rate. Add about $1,400 for annual maintenance and $1,000 for taxes makes your total yearly costs $6,250.
Rent out your unit for $9,600 per year ($800 a month) and your annual profit is $3,350 or a 13.4% return on investment which is excellent.
If you borrowed part or all of the 25% down payment, your return is dramatically higher. With a 10% down payment, your return on investment would be 26% per year!
Plus this does not include the steady increase in the value of the condominium. If it went up 6% in value during the year, that is an additional $6,000 in profit! An 86% return on investment.
Twenty years down the road when your mortgage is paid off by the rents paid by your tenants, your cash return is much higher as rents have increased and you have no mortgage payment. If property values have gone up only 3.8% per year, then your property has also doubled in value to $200,000!
Good, steady cash flow plus appreciation. The secret to long term investment success.
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