Real Estate
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Property Selection
Property Mgmt.

Land is always a good investment, they ain't making any more of it.

Will Rodgers

Real Estate

Before there were stocks and bonds, there was land.  Until the 19th century, land was the key definition of wealth.

Real Estate is the one great way to target a future net worth.  If you want a million dollar future net worth twenty years in the future, leverage into a million dollars of rental real-estate over a five year period.  Apply the rent to the loans and your tenants will make you rich.  Of course there is more to it than that: Finding good property, buying it right, securing financing and good tenants, maintenance, accounting, tax planning, but it is not that hard - once you make the decision and start.

The benefits found in investment real estate can be remembered by the acronym:


L-leverage,  The use or borrowed money to increase your returns on your out of pocket   money,  see the illustration below.

A-asset build up, your property is, hopefully, worth more over time because of your labor, and general upward trends in the market place.

D-depreciation, the tax code lets you write off a percentage of the value of the rental property each year you own it.  If you sell the rental for more than its new depreciated base, you will have to recover this money in the future.  But you can decide the timing on when to sell. 

I-income, rents hopefully increase each year in the right properties allowing you more income over time.

E-equity buildup,  your loans are paid off by your tenants.

S-shelter from taxation - Real estate depreciation, interest from your mortgages, real estate taxes and recapture of capital improvements help to shelter the rental income from the rentals.

In my opinion the most important of the above Ideas is leverage, or to put in another way- the use of other peoples money.  Real estate allows the investors to borrow eighty, ninety percent or more that can give the investor a much higher return on their investment than they could by using all cash.  Example - suppose you wanted to purchase a $100,000 investment property.  Now suppose you had the choice of paying $10,000 and borrowing $90,000 to purchase the property of you could pay $100,000 cash. (One big advantage of leverage is that most beginning investors don't have $100,000 cash).

Now lets say that you purchased the home properly, i.e.. below market value, as you were closing escrow another investor offers to purchase the home for $110,000.  If you had purchased the home for cash you made a quick ten percent profit on your investment, $110,000/$100,000.  If you purchased the home for ten percent down you would have made a one-hundred percent return on your money! ($110,000-$90,000 loan = $20,000) $20,000/10,000 =100% return on your investment.

Selecting good tenants-

You must do every thing you can to insure that you only rent to responsible people.

Property Selection

Property Management

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