Investing your hard-earned money into other items is the only real way to create wealth that will last you a long time. Letting the cash that you accumulate sit in a savings account is better than wasting it on unnecessary purchases that are only good for a one-time purchase. However, most savings accounts don’t provide enough of a return for you to actually beat inflation. Real estate, on the other hand, provides multiple avenues that will allow you to improve your finances.
One of the easiest ways to create wealth with real estate is to become a landlord. Simply renting out multiple properties lets you create a new source of monthly income. Then, you can use those funds to invest in other things that you might be interested in. Or, you could take that money and use it to pay down the mortgage. Either way, rental income is cash you’ll get without having to take on another job. Of course, there are a few things you’ll have to do to prepare yourself to take on the role of being a landlord. But, compared to traditional work, it’s much more hands-off.
The most difficult part of being a landlord would be finding quality tenants that you can trust. We’d recommend screening all of your applicants first before jumping in and letting them rent your space. Take a look at their credit history, and you should ask them about their employment. Most of the time, if someone has good credit and a decent job, they’ll be reliable tenants.
Equity is the amount your property is worth minus whatever you owe on it. So, when you first purchase a property, you might not have much equity at all. But, as you continue making payments on the property, you’ll receive some of them back in the form of equity. You can then convert your equity into cash by selling the property, or you could access it by using a HELOC. This is known as a home equity line of credit that works a lot like a credit card. However, you’ll usually get much better rates. The longer you hold onto your property, the more equity you’ll build, too.
Appreciation is the amount your property value has increased over time. Historically, property values have almost always increased in the US. They’ve experienced a few slight dips during recessions, but they’ve always bounced back. Sometimes, you can generate a ton of wealth through appreciation. In Los Angeles, people were able to purchase homes for a lot less than a few decades ago. These people could sell those for much more than their initial purchase price today.
If you’re just starting out and learning more about real estate investing for beginners, you most likely will hear about all the tax deductions that take place during the process. You could use a 1031 exchange to defer your capital gains taxes. And, you can even use depreciation to reduce your taxable income. These deductions are only available to people who own property, though. So, there’s a ton of incentive to start investing soon.
Let’s say you’d like to take out a loan to start that business you have been dreaming of. Accessing the credit for such an endeavor might be difficult for a lot of people. However, if you’re a property owner, you can use your properties as leverage. Banks are a lot more willing to lend you money if you’ve got something you can use as collateral. Like we mentioned earlier, you could also open a HELOC. Simply owning property can make obtaining credit much more affordable most of the time.
Finally, real estate belongs to its own class of assets. Speak to any financial advisor, and they’ll tell you that you’ve got to diversify. Diversifying means putting your money into several different asset classes. By putting some of it in real estate, you’ll automatically diversify your overall portfolio. Real estate tends to perform well during times of high inflation, too. Even if other assets don’t perform well, real estate might perform a lot better.
Investing in real estate is the most accessible way for many Americans to build wealth. Over time, these investments will be more than worthwhile. Don’t over-leverage yourself, though. Start off by purchasing affordable properties that you can manage and make payments on. Then, as you accumulate the wealth that you are aiming for, you can then begin investing in more expensive properties. Plus, it’s a lot easier to get the financing for something more affordable in the beginning than just jumping right into something more expensive.