You must always think real estate if you want to build unlimited streams of passive income.
That’s right! Real estate is “king” when it comes to building passive income. In fact, there are 8 key wealth building benefits to owing real estate property.
It’s a true cash cow for generating for earning passive income.
1. Real estate is accessible & easy to finance. There are many sources of public and private financing for every type of property and for almost every type of buyer. From no income to low income. From poor credit to no credit. Little down to nothing down. They are typically no insurmountable financially barrier to entry.
The biggest reason for this is that real estate provide significant insurable collateral for any mortgage. It’s doesn’t matter who the lender is. When loans are secured by real estate lenders feel secure. This is what you see when you look at the big picture of investing. And that is the reason why real estate remain accessible to all.
2. Real estate is appreciable. It increases in value over time for two reasons. General inflation drives up the replacement cost of housing from construction materials and the cost of labor. Next is the influence of supply & demand. As the population increases, so does the demand for housing. Research has shown that real estate has consistently increased in value at a rate of about 6.1% per year. This has outpaced inflation by an average of 33% per year.
3. Real Estate is Leverageable. The 6.1% appreciation rate mentioned earlier may not seem like a lot. But this figure is deceiving. It doesn’t take into account that practically no one pays all cash for a home or real estate investment. In reality almost everyone finance most if not all of the price through a mortgage. As a result, people get the benefit of the appreciation on the full value of the property while having to invest only a relatively small proportion of the purchase price.
For example, you may put down only $30,000 on a $150,000 house. If the leveraged property appreciates 6.1% to $159,150, the $9,150 gain should be measured against the $30,000 invested, not the $150,000 price. A gain of $9,150 on $30,000 translate to a 30.5% rate of return on your investment.
You can also leverage the equity in your property for tax free cash in one of 2 ways. You can secure a secondary loan against the increase equity. Or you can refinance the original loan amount plus the increased equity.
The leverage advantage can work two ways. You can buy a property for dimes on the dollar and you can convert any equity gains into tax free cash without selling the asset.
- Real Estate Is Rentable You can purchase a property then turn around and rent it to a person who will pay down your debt in exchange for living there. Renters pay your mortgage which builds you equity. And if they pay more than your monthly expenses, you will get unearned income in the form of cash flow.
Renting is an investing “triple play:
◦ Debt paydown
◦ Positive Cash Flow
Over the long haul, rents have increased over the past 30 years at an annual rate of 5.3%
- Real Estate Is Improvable
- Sweat equity- You can improve the value of any property with repairs, renovating or upgrading the property.
- Zoning – change zoning or use can improve the value of a property.
- You can find hidden value and improve it.
- Real Estate Is Deductible, Depreciable, Deferrable
- The Government wants you to own real estate.
- Two kinds of taxpayers:
◦ Avoid planning for taxes
◦ Plan on avoiding taxes.
- Three D’s are about reducing taxable income.
- Deductible – expenses such as property upkeep, maintenance, improvements, and interest paid on a mortgage. You can use these deductions to offset your investment income and in some cases, your personal income. This will reduce your overall taxes
- Depreciable (this is the most important one) – Not only does tax laws allow you to depreciate your investment, it requires it because things wear out over time. The government expects you to account for that wear & tear whether it’s actually happening or not by claiming an annual decline in the value of the building, its contents plus any improvements. This tax break will allow you to reduce your taxable income through depreciation, even when your property is increasing in value through appreciation.
- Deferrable – Tax law allows you to use IRA and 1031 exchanges to buy and sell investment real estate while deferring the taxes to a more advantageous time. IRA funds can be invested in real estate as long as any profits from rental income and from property sells remain in the IRA where the profits are tax deferred.
The 1031 exchanges gives you a choice at the moment of sell. You can either realize the gain and pay taxes on it or re-invest the gain in another property and defer the taxes. And when you choose to re-invest, the transaction is treated as if you simply exchanged equity in one property for equity in another property. You can reinvest real estate profit without having to pay taxes till later. Taxes deferred tomorrow is always better than taxes paid today.
With these programs, you can preserve your profits as you go to give you more to re-invest in order to accelerate the growth of your real estate portfolio.
- Real Estate is Stable It’s slow to rise. And slow to fall. It doesn’t surprise you. And it doesn’t shock you. The real estate market is predictable.
Low standard deviation. Economist rate the volatility of the market through a method called standard deviation. Standard deviation is the percentage of an investment value that will go up or down on average in a given year. From 1973 to 2003, the standard deviation for real estate was 4%. In other words real estate values have fluctuated up or down by only about 4% each year. In contrast, the stock market had a standard deviation of 16.8%. It looks like an erratic EKG rhythm in the diagram below. Real estate is more stable.
Likewise, in the figure below, you can see different portfolio mixes. When real estate is included in the mix, the standard deviation in minimized. This is because of the remarkable stability of real estate prices.
- Real Estate Is Liveable
Real estate is the only investment vehicle where you can put a roof over your head. That means the home you live in is an investment the second you start thinking of it as one. It’s more than just shelter. It’s a foundation piece of your financial wealth-building program.
Points to Remember
Money is a spiritual journey. Money reflect your innermost values and has the power to reveal you. Money is also about choices. The more you have, the more positive choices you have. True financial wealth is a place of security and abundance. Where you are finally free to stop working for a living. And start living form your work. Your life’s work.
Understanding money will pay dividends in your life. Understanding the Money Matrix is imperative to your education. Are you an investor? or a consumer? Investors build their financial life on Capital. Consumers build theirs on Consumption. In the end, either you work for your money or your money works for you.
The best and most definitive measure of money is net worth. So in the game of financial wealth building, keep a score card. Track your net worth over time to see which investments have the greatest positive impact on your financial wealth.
No other investment has had such a consistent and powerful effect on the average person net worth as real estate ownership.
Real estate investment thinking follows a process that saves time, reduced risk and keeps you focused. Simply put….you must know VALUE to recognize OPPORTUNITY. And you must find opportunities before you can do DEALS.
You need to always have the mental habits of an investor. It will show up in how you manage your money, how you look for opportunity each and every day. So here’s what I want you to start doing.
In the grocery store, at the gas station or anytime you find yourself using your debit or credit card, I want you to do 2 things:
First say, “I’m an investor and not a consumer.
Second, ask yourself, “Is this the best use for my money? Am I using my money like an investor? Or like a consumer?”
When you find yourself comparing prices are you hunting for the best buy? And being willing to walk away if you don’t find it?
If you make a habit of doing these things, you will begin to think like an investor.
You’re a shopper, not a buyer. You’re treating your small financial decisions the same way you treat your big ones.
This will not only apply to your spending habits, but it will help you to build the mental habit of always being on the lookout for investment opportunities.
This is not going to be just a once a month or once a week activity. It’s an everyday habit. It’s always being alert for investment opportunities. And consistently letting others know that you are.
It’s about top of the mind awareness. It’s about the everyday habit investor. Your financial habit will lead to financial wealth.
However, there are 5 key models that standout in the world of real estate investing.
Knowing these proven models will allow you the benefit of learning from the mistakes of other people without having to make them yourself.
In the next lesson, I’m going to share them with you.
You also get to build on their successes. Models inform your activities, help you get the most out of your efforts, and accelerate you towards your goals.
It is now 8 week and 5 days since you began your quest to eliminate your $300 to $500 monthly debt.
If you followed my recommendations….
You are using The 1-Minute Messenger as your keystone habit.
You are taking advantage of your surroundings to make it easy to invite others by making copies of your bill, along with your daily affirmation, and taping it to a table where you like to sit and drink coffee in the morning or a room you like to hangout in daily.
You continue to be the type of person who can achieve the things you want to achieve with identity-based habits.
You are employing the 1 Percent Rule to maintain a 1 percent advantage over everyone else by working just a little bit harder.
That means you are performing 120 to 240 1-minute invites weekly using the 1 Minute Messenger to grow your wealth-building network of partners.
You are using automation to work in your favor to make your good habits inevitable and your bad habits impossible, rather than relying on willpower in the moment.
Continue to use these same strategies to do a reset. Pick another bill to eliminate.
By now, you should have built a significant size network of followers. So that mean your next bill to eliminate should be larger. Let’s say $1,000 to $1,500 bill to eliminate.
After each goal you accomplish, repeat this process of eliminating all of your monthly bill until you achieve financial independence.
IMPORTANT: Make sure to join our Facebook Group: Building Generational Wealth for Everyday Working-Class People to read what other people are saying about our network and where you can join the conversation.
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- What was the problem you were having before you discovered The 1-Hour Workweek?
- What did the frustration feel like as you tried to solve the problem?
- What was different about The 1-Hour Workweek?
- Take us to the moment when you realized The 1-Hour Workweek was actually working to solve your problem?
- Tell us what life look like now that your problem is solved or being solved?
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See you in the next lesson,