Finally Someone Is Talking Some Sense!

[Collin Hays]

I was contacted by a potential investor in the Smoky Mountains asking my opinion on the earnings potential of a cabin.  One of the keys in any investment is "What are your goals?"  I was delighted to hear that this investor said "Break even."  Whoa!  That doesn't sound very appealing, now does it?   Well let's think about that...

Let's say you buy a $500,000 property, put 20% down, and only "break even" in the early years.  You've spent $100K on the deal.  But in a decade, that property is now worth $1 million for your $100K investment, even if you never made a dime on monthly cashflow!  Your money has doubled more than THREE TIMES in 10 years, or about a 24 percent annual return.  And even if you never make a dime and the cabin doesn't go up a dime in value, you still will have a $500,000 asset in 10 years for your $100K investment.  That's still a 14% annual return!  

THAT is the beauty of real estate my friends!  

[Kevin Sobilo]

@Collin Hays, that's the beauty of Vegas my friend! lol

You mentioned NOTHING about why or how someone could choose a property they felt confident would appreciate in value at a rate that exceeds inflation.

So, in order to really "invest" in real estate for appreciation without VERY good ways to vet investments for appreciation, you would need to buy LOTS of real estate in different markets and of different types to diversify more like buying a mutual fund of stocks. Otherwise, it sounds more like gambling than investing.

In addition keep in mind there are 3 basic ways you make money with real estate investing:

1) Cashflow : Something you can vet well, work to maximize, and costs nothing to put in your pocket other than taxes and its tax advantaged (depreciation, etc).

2) Mortgage paydown : Something you have some control of because you can shop loans, refinance, etc BUT its expensive to put your hands on through a sale or refinance. It can also disappear if the market softens.

3) Appreciation (forced or market) : With forced appreciation you have some control over the ROI but with market appreciation you have none. The money isn't tax advantaged but you can defer taxes (1031 exchange). The money is expensive to put your hands on and it can disappear if values drop.