Why Should You Be Investing In Real Estate?
There’s five reasons that most people invest in real estate:
- Cash flow: You buy a property because it’s going to generate cash flow on a monthly basis for you.
- Equity capture: Meaning you bought the property for $X, but it’s worth $Y. The difference in between is what you make, and that is called equity capture.
- Debt pay down: You have a tenant living in that property, and they are the ones that are paying that mortgage for you. In ten, twenty, thirty years from now, you have a property that has been paid off by a tenant, and you own that asset that is still producing the cash flow. It is still giving you the benefits and someone else paid that off for you.
- Depreciation: You get to depreciate the property for tax purposes. Obviously you want to discuss this with your tax accountant. The ability to depreciate your asset over time helps offset W2 income or any other income. It’s called the phantom laws.
- The big one – appreciation: Cash flow, debt pay down, and all those other things; nothing will out pace appreciation if you buy it correctly in the right market.
Appreciation is amazing
It goes up on the East and West Coast on average every seven to nine years. In the Midwest, it’s every twelve to fifteen years, and it will double in value minus the depreciation of the structure. Think about the town that you grew up in. What was that house worth thirty years ago? If you had bought it back then and owned it now, you’d probably be very wealthy!
To recap, the five reasons people invest in real estate are cash flow, equity capture, debt pay down, depreciation, and appreciation.
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