6 Ways Real Estate Makes You Money

6 Ways Real Estate Makes You Money

Real Estate investing creates wealth. Period.

 

“90% of all millionaires become so through owning real estate”- Billionaire Andrew Carnegie

 

Real estate investing is incredibly lucrative because it makes you money in more than one way.

 

Here are 6 ways real estate investing makes you money:

1. Cashflow– it’s the amount of money you make each month after all of the expenses are paid. It’s the money that hits your bank account quarterly. 

2. Equity Pay down– when you buy a property with a loan, your renters are paying down the mortgage, thus creating equity for you!

3. Property Appreciation– your investment property will gain market value over time. Have you ever seen a $20MM property worth less in 5 years?

4. Rent Appreciation– this is the organic rent growth in your market which is the amount of rent rate increases per year. This is usually between 2-3% a year, but in 2021 some markets saw organic rents go up 15%. Check out this article in MultiHousing News talking about it.

5. Forced Appreciation-this is when the property’s value increases due to improvements made to the property and tenants paying more for the upgrades and added amenities.

This raises the net operating income and, ultimately, increases the value of the property.

6. Tax Savings-with depreciation and bonus depreciation, you’re creating phantom losses that shield your money from taxes. Don’t forget that taxes are your greatest expense!

Affordability Gap

Affordability Gap

Did you know that the average American can’t afford to buy a house? 

There is a HUGE affordability gap between renting and owning real estate, and it’s growing every year.  

And, not surprisingly, the rising interest rates only made matters worse!

Let’s take a look at this example of a 3 bedroom/2 bath home- 1,585 SF that was sold in 2020 and then sold again in 2022.

Let’s compare the affordability of the same house 2 years apart for 2 different owners.

 

Not only has the house appreciated in value, making the purchase price more than $100K more, but the interest rates are much higher now, making the monthly payment higher. The new buyer not only has to come up with a more substantial down payment, but the monthly payments are higher due to higher taxes and a higher mortgage interest rate.

This is pushing renters into apartments longer and preventing many people from purchasing their own homes, which in turn drives the demand for apartments.

 

We all remember from Economics 101 that when there is a high demand  of anything and a low supply, this drives prices up. This same principle applies to apartments. There is a huge housing shortage that is predicted to continue for the next decade.

 

This supply and demand imbalance makes investing in apartments a no brainer. As long as this affordability gap exists, we will always have tenants which de-risks this asset class making apartment investing a safe one!