We’re back again now with our special “Investing in the Spring Market!” An in-depth look at you, your future and your investment portfolio. And what real estate might mean to all of it!
We’re going to wrap up today’s show with a look at how real estate can help grow your household wealth over time.
You probably already know about how your house does that! When you own a home, and it grows in value, your equity also grows. So if you buy a home with 20% down, you start out? With 20% equity. And then ten years down the road….if its value has increased by 15%? Well the simple math would indicate you now have 35% equity. Nice!
But – in most cases it would be more than that. Because for those 10 years you would have paying down the mortgage every month. Now at first, most of your monthly mortgage payment goes towards interest. But over time that changes. And at around 10 to 14 years in, you start to pay much more principal than interest every month. So over time, you’ll be knocking down that mortgage balance.
So. Say that over 10 years you reduce your outstanding balance on that mortgage by 15%. That’s awesome.
So having started with 20% equity….and adding in the rising value of 15%….and now paying down the mortgage another 15%? Again, using simple math that would indicate that by the end of 10 years you would now have 50% equity in the property.
So that’s how it works with the house you own. But when you add more real estate to your portfolio, more than just your home, then that wealth-building process isn’t just happening on just one property. It’s happening on multiple properties. And just like your home as you pay down those mortgages, the balances get lower and lower over time. And that’s the whole idea.
In the same way that owning a home can help a family generate wealth in the long run, adding real estate to your portfolio could very well multiply those results in your favor.
One other component to this, is the 1031 like-kind exchange. That helps you make moves in real estate investing, while deferring the taxes on those moves. So say that you buy a 4-unit rental. And after 5 years you sell it and make a nice profit. Using the 1031 like-kind exchange you can pour the entire profit into another investment, and defer the taxes on that profit. And you can do it again, and again, and again. And so if you’re in your 20s and you start investing? And you buy and sell investment properties for 40 years? You would have paid no taxes on any of those sales – yet.
You will of course have to pay taxes when you finally sell all your Investments. That’s when the tax bill finally comes due.
But until then the 1031 allows you to leverage your investments, to help grow your portfolio over time….without losing a big chunk of your investment capital – to taxes.
So. In our first hour, when we talked about rental income, I suggested you discuss it with your accountant. Well, when it comes to owning real estate investments for the long run, you will not only want to talk to your accountant, but also to your financial planner. Ask them how much real estate would make sense for your financial situation. Ask them whether or not brick-and-mortar real estate is the best option for you, or perhaps real estate investment trusts, in which you own stock, in real estate holding companies, instead of owning the actual buildings themselves.
But here’s the bottom line. Investing in real estate can help you create multiple income streams. And over time it can help you accumulate substantial wealth.
And the fact is it’s not that hard to do. You need some money to get going, but if you jump in, and invest in real estate… chances are in the long run it will prove to be a solid investment.
Of course, like any investment, there’s no guarantee. But talk to your accountant. Talk to your financial professional. And talk to your Realtor about joining the millions of Americans who made that jump and learned how to Invest in Real Estate.