Well let us cut to the chase my friends. Why should you invest in real estate? There are dozens of investment vehicles that people use to accumulate wealth including: stocks, bonds, savings accounts, precious metals, etc. What makes real estate so special? There are dozens of reasons why real estate is the most powerful investment vehicle that exists. We will explore several of these reasons throughout the book but for now I want to focus on what I call the Big 3.
Without a doubt the most powerful attribute investing in real estate brings to the table is the power to leverage your money by a wide margin. The primary reason that you are able to leverage real estate is the loan is backed by the real estate asset. Historically speaking real estate is a relatively stable asset that appreciates with time. I understand that the real estate market has been more volatile over the past few years but fully expect this to fall back in line with historical trends in the near future. The chart above details the power of leverage. With $10,000 and the right approach you can easily obtain control over a $200,000 real estate asset. Think this isn’t possible? I assure you that it is. I have personally leveraged to 95% of my contribution on several occasions both with and without banks involvement. I plan to do this several more times (potentially several hundred) over the coming years.
I hate to be the bearer of bad news by if you currently house a majority of your savings with the bank you are actually losing money. The average inflation rate for the US is approx. 3%. This means that if you aren’t making at least 3% return on your money that your actual spending power is being depleted year after year. If your goal is to be financially independent (a very worthy goal) then you need to receive well above 3% to get there. The below chart details that difference in investment returns over time. The difference in total value of an investment that earns 5% per year vs. an investment that earns 20% per year over 25 years is a staggering $460,049. I can assure you that returns in excess of 20% in real estate are very possible. Obtaining these types of returns consistently over years will make you wealthy. The opportune word in the previous sentence is will. This is not my opinion. This is mathematical fact.
3. Ability to obtain a high return
Dare I say that with the proper training your ability to obtain a return on investment higher then 20% is relatively easy. I am quite sure that certain people will scoff at the previous remark. Please do not misunderstand. I am not suggesting that anyone can go buy a real estate investment without the proper knowledge and without doing the proper work and come out with a gold mine. In fact, if you do this there is a good chance you will end up broke. What I am suggesting is that in real estate most of the variables that attribute to an overall return are not educated guesses or assumptions. They are either already known or can be determined with a very high degree of accuracy. For this reason, a skilled investor can expect to receive high returns on a consistent basis. By the end of this book we will develop your investing skills so that you to can enjoy these types of returns.
4. Protects your most precious asset – Time
There is one last important variable that draws me to real estate and that is the fact that you can manage a substantial real estate business while not consuming all of your free time. Every investment takes time to properly build. I have thought about opening several different businesses over the years and the one large negative always staring me in the face is the amount of time that it consumes. Many entrepreneurs work endless hours day after day, month after month, year after year. This was always a major deterrent for me. Once you reach a solid base with your properties, you can very easily outsource the property management and the maintenance of your properties. These are the two items that not only take up most of your time but they are also the least enjoyable part of managing a property. I am not suggesting that you don’t have to put any time into it. You are entrusting a property manager with millions of dollars in assets and only a fool would let them run wild unchecked and you know the old saying – A fool and his money are soon parted. I am however suggesting that it is possible to correctly manage millions of dollars worth of real estate on a very part time basis and to me this is what it is all about.