We are back now, with our special “Retiring Wealthy!” Walking you step-by-step through the whole process of adding real estate to your portfolio.
We’re going to close out this hour of the show with the look at why. Why do people invest in real estate? There are so many choices out there, and yet again and again people line up to buy residential and commercial properties, and add those to their investment portfolio.
Ask any one of them, and they’ll tell you: there are two main reasons.
Reason number one: it generates income. You collect rent. And number two? In most cases, the property appreciates in value over time. Those two things combined can help a person grow their household wealth over the years. Let’s look at the rental income first, and then in our next hour we’ll look at appreciating property values.
Now obviously, when it comes to rental income you would hope to generate a profit when you begin investing in real estate. So that if you buy a condo, and the mortgage is 1500 a month…and the expenses, like taxes, utilities, insurance, and condo fees are 500? Then you’re on the hook for $2,000 every month. You would hope that you would make more than that in rent. So with that said there are two people you need to speak with before you make the jump.
Number One is your REALTOR®. Tell them what kind of investment property you’re interested in. And they’ll tell you, based on the current market data, what type of rents are being generated by those properties. That’s your starting point. Because your REALTOR® will know the market. They’ll know the rents. And they’ll know where those rents are headed.
Now the second person you should talk to, is your accountant. Ask your accountant what an income-generating real estate investment will mean to your financial picture, especially your taxes. Because if you do hit that goal of making a profit every month? Well, that’s taxable income. But it may be offset by your expenses. Also ask your accountant – what would happen to your taxes, if you had a small loss every month. For instance, say your expenses were $2,000, but you were only able to rent the property out for 1800. Your account can tell you whether that annual $2,400 loss would hurt, or possibly help your bottom line, at tax time.
Talk to your accountant about all of that because they know your situation inside and out. And you really want to be fully informed, and fully educated before you invest in any type of real estate.
But – say that it all works out! And you go for it. You’ll be using one of the most tried and true approaches to financial security – And that is? having multiple income streams. Just think about it.
Say that you have a job. That’s one income stream. And say that you have some stocks, which pay dividends. There’s another. And say that you do some consulting work from time to time. There’s a third income stream. And who knows? Maybe you’re getting a pension. There’s a fourth. And if you invest in real estate? Then you would have five different income streams.
Now of course, they would produce different amounts of money. But still, having multiple income streams is one of the smartest thing any investor can do.
Again if you look into the strategies of the most wealthy people in America, you’ll find it the vast majority of them have multiple income streams, and many of those include real estate.
But as I mentioned, income? Is only half of the equation. The other half? Appreciating property values! THAT, as the saying goes, is the big kahuna!