February 16, 2017
Real Estate has always offered a top pathway to building wealth. Sure, tehnology, music and oil have produced some major winners, but they do not offer repeatable wealth building systems. Owning income producing real estate is a repeatable process that anyone can learn and build upon. The real estate sector offers a multitude of strategies that can be used in growth as well as in stable or declining cycles.
There are always opportunities that can be used to the investor's advantage. The key is to adapt and pivot, taking advantage of buyer or seller market conditions.
A July 2016 Gallup survey reported that 35% of respondents favored real estate as the best source for long term income. Stocks were favored by 22% with gold another commodities at 17%. The balance chose savings or other fixxed income instruments.
So why is real estate viewed so favorably?
Control - You own it, you can understand it. You may know how the stock market works and can study a company, but ultimately unless you own the company, your future is in the hands of the marketplace.
Cash Flow - A wise investment can provide immediate cash flow and long term growth through increased rents. Rental returns continue independent of market corrections. Price appreciation is a bonus, never the reason to purchase. Rents should always be reviewed. Get as high of a rental rate as possible but be careful that it does not increase your vacancy rates. That extra $25 per month would be nice, but could cost you a month or more to find. You are better off forgoing the extra $300 a year if you can rent it today.
Safety - As a tangible commodity, real estate will always have value. Whether you own a tree farm, grazing land, single family rentals, an apartment complex or a mall, the property itself will always have value and have the ability to generate income.
Leverage - A small down payment can be leveraged to purchase a substantial property with the rental income paying the mortgage while simultaneously building equity. What you do with the property matters. Always look for ways to add revenue. Depending on the type of property, you could raise revenue by adding coin laundry, vending machines, billboards as well as a few simple upgrades that can greatly increase the value of your property, and greater returns.
Diversification -A key term and strategy for any investor, spreading your money across several asset classes offers protection against a failure or market downturn. Should a fire disrupt your rental return, your oil well will still produce and your utility stock will still pay dividends.
Inflation hedge - With savings rates and CD's offering next to nothing, it is very difficult to save your way to financial independence. A well-structured rental can yield above average returns, increase with inflation and have tax advantages, such as depreciation, that other alternative investments do not offer.
Courtesy of BizNow
By Alan Dooley and John Maurer