When you invest in real estate, you are investing in an asset that makes you money in 6 different ways. On top of making money, you are investing in yourself and creating your own business.
This is a business that you control, can provide for your family with, and pass down to your children to create generational wealth.
Here are all the ways you can make money with buy-and-hold investing:
Monthly Passive Income
Each of these ways to make money investing in real estate are amazing on their own. When you add them all up together, you have an amazing asset!
6 Ways Real Estate Investing Makes You Money
Before you go out and buy a property though, you must learn how to invest in real estate the right way.
Here is the definitive guide how to invest in real estate that will show you exactly how to do it. Everything from building the business, finding the right deals, funding the properties, and making it an automatic business.
Now, let's look at the 6 ways real estate makes you money.
Passive Income and a Continuous Cash Flow
Your investments will replace your working income, becoming the source of the money you make.
The main difference between this way of gaining money and a job is that you don't have to work hours to make a living. Investments will be doing the work for you.
You get cash flow when your rent is more than your expenses. For example, if the monthly rent of a tenant is $1,000 a month and the monthly expense is $800, then you will be making $200 every month.
An inflow of cash flow is constant without you working at all. You can have plenty of time to do other things and still make money.
When rent exceeds your expenses, there is an inflow of cash:
Monthly Rent = $1500
Monthly expenses = $1200
Monthly profit = $300
Now if you had more than one property, you would be making $300 per property a month.
If you owned more than one property like this, and the same calculations apply, then you could make even more. The amount of cash flow you receive is limited to the number of properties you own for this purpose.
Making money when you purchase something is called equity capture. This doesn't mean that you can make money immediately after you buy something.
It means that when you buy a property for lower than its true market value, you are able to capture the excess amount in equity.
When you invest in a property, it's not like buying a car or buying other things. When you buy a car, you spend money.
When you invest in property, you capture the value excess to your spending.
Property price: $100000
Market value: $115000
Capture equity: $15000
So a property's market value is $115,000, and you buy it for $100,000. Then you captured $15,000, which you can use to purchase more properties and invest your money to make more money.
The market is ever-changing. When it crashes, it eventually goes back up.
Various factors can affect the value of a property, whether it's demand or interest rates or even inflation.
Knowing your market well allows you to identify what improvements should be made to the home to bring up its value.
You can be sure that when a market crashes, it's temporary and it always comes back up. The market always appreciates.
The value of homes will always go up, even if it is just for inflation.
Consider you bought a property for $100,000 and its market value is $115,000.
You put $7000 to repair the property and the market value is $130000.
This is known as forced appreciation.
Appreciation on the property can turn into a profit when you either sell it off or refinance.
If you are wondering where to invest, rural, city, or suburb, there are deals in every market. You just need to know how and where to find them.
Forced appreciation means you are creating ways for the property's value to grow.
Assume you purchase a property for $105,000 when its market value is $120,000.
By putting in $5,000 to repaint the property and fix up some of its features, the property's value can grow by 10–20%.
If the property's worth goes up to $150,000, then there is a $40,000 gain that comes from forced appreciation.
Purchase price: $105,000
Rehab investment: $5,000
Total investment: $110,000
New market value: $150,000
Forced appreciation gain in value: $40,000
To learn more reason to invest in rental properties, check out: 16 amazing reasons why you should invest in rental properties.
Mortgage Paid by Tenants (principle AND interest )
Another thing I LOVE about real estate is that your tenants will be paying off the mortgage for you.
If you decide to rent out the home for the same length as the loan, then you won't be the one paying the balance because your expenses are accounted for in the monthly rent your tenant pays.
Let's say you buy a property for $100,000 and you use an FHA loan which is 3.5% down payment. That is $3,500 you have to pay to buy the property.
After you have lived in the home for 1 year (FHA Requirement) you move out and place a tenant in there.
Now, you only owe $96,500 on your mortgage plus interest.
You do not pay the rest of the $96,500 OR the interest from the loan. Your tenant does.
So, you buy the property for $3,500 and your tenant pays off the entire property for you!
If you take out a mortgage loan after buying the property and rent it out for a length of loan time, then you are not paying the mortgage and interest amount.** Your tenant is** paying all those for you.
Tax advantages refer to the ways of getting out of paying taxes legally, which can also be used to make money.
Every penny you save in taxes is another penny to buy your next property. Here are some amazing ways real estate offsets your taxes.
Inheritance to your children
By owning real estate, you get business write-offs, which you can use to offset how much of your income gets taxed.
You can also depreciate the value of your property. The period of the depreciation will offset your income from the property for the same length of time.
You can use tax deferment when you defer your tax to the next property.
Tax advantage doesn't mean tax evasion. It means using the tax code already in law to make money.
Real Estate Investing Is An Automatic Business
You can gain a profit from a rental property without having to do anything.
The tenants who stay in your property are those who generate the income for you. They will be the ones who manage the house and bring you your income, which leaves you with little to no work left to do on the property.
I personally work 30 min a month on my business. You read that right. 30 min a month.
Real Estate Gives You Financial Freedom
The income you get from rental properties can vary based on the value of the homes and the number of properties you own.
Eventually, you will be able to quit your job once the properties start making you enough money to become your main source of income.
You would be able to travel or go on vacation and pay your bills without a worry because you still have an income every month.
A different approach you can take is doing real estate crowd funding. This type of investing does not have all the 6 ways real estate makes money but it does make you money.
6 Ways to Make Money Investing in Real Estate Wrap-up
Real estate is the only investment that will allow you to make so much money and amass so much wealth. Because of real estate investing I and my students have quit our jobs in our 30's. I was 37 years old when I quit my job.
The best time to start investing was 20 years ago.
The next best time to start is today.
Don't put it off any longer. Start investing in real estate and in yourself today.