We believe in using real estate as an investment tool.
After all, it’s one of the only times where you can use mostly other people’s money (the lender) to build wealth.
Another party (your tenant) pays to carry most of the cost of your property. And if all goes well the buyer pays off any remaining debt when you sell the investment. Additionally, if you take a loss on the investment, you usually get to write it off as a tax deduction; check with your CPA for details.
In our opinion this power of leverage makes real estate investing extraordinary.
Before we get to real life examples, I’ll share a frequent example I use with financial planners who feel that stocks and mutual funds are the key to building wealth.
Imagine two people both invest 100k -- one in stocks and one in real estate.
|For the person buying stock, all 100k of that investment is cash or potentially on margin (yikes).||The real estate investor puts 20% down on a house & is into the investment 20k + taxes & insurance payments -- the cost of which is offset by a tenant paying rent.|
For the person buying stock to double his money, the stock has to appreciate 100%.
For the real estate investor to double his money, the house has to appreciate 20%.
Which one would you rather be?
IT HAPPENS IN THE REAL WORLD TOO
But it’s not all just hypothetical. This year we had several clients, who for various reasons, decided to cash in some of their real estate investments. Here are three real life examples of how you can build wealth through real estate.
We helped one couple buy a property in East Austin for $190,000 just three years ago. They sold it this spring for $365,000 -- netting a profit of $175,000! If you break it down, that property earned them around $58,000 a year or $4,861 a month.
This, of course, doesn’t take into account rent, vacancies, and periodic repairs, but that’s some math I can get excited about. A 92% rate of appreciation over the full three years they owned it (around 30.53% per year) outperforms any stock or bond I’ve ever owned…
Another long-time client of mine sold his house in Rosedale and moved out of state. He bought the house for $507,000 and sold it for $640,000 – netting a profit of $133,000. Over the five years he owned it, he made around $26,600 a year or $2,216 a month in additional income.
Last, I had client sell a small 2 bedroom condo in Allandale. When we helped her buy it less than five years ago, she paid $131,000. This spring our client sold it for $196,000. That’s a profit of $64,700. It appreciated around $12,940 a year or a little over $1,000 a month.
Sure, some properties don’t fare as well. And we have seen people lose money when they make a poor investment choice or put too much money into a property too soon. Even so, we personally like the odds of investing in real estate.
While each of these real world examples were investment properties, you can also accomplish a similar outcome with your primary residence. Buy it and move in, live there for several years, wait for the market to ripen, sell it, and repeat.
If you also like the idea of investing in real estate, we suggest you be prepared to:
- Buy at the right time, not the peak of the market,
- Be willing to hold the property for a period of time, and
- Try to invest close to areas of anticipated growth (like planned developments).
NOT SURE WHERE TO START?
We get giddy talking about real estate, and we will happily share our candid advice with you. It’s free, no obligation, and no BS. Just call, text, or email us to schedule your consult.
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