Somewhere in the back of your mind, you may think that investing in real estate is a good idea but it seems too darn complicated and you just don’t want to really think about it. If so, you may be missing out on one of the most solid strategies for creating personal wealth. After all, most of the world’s wealth has been created this way. Maybe 2012 is YOUR time to get started!
Most people start with the basic idea of looking at rental income versus expenses to see if there is a positive cash flow. That would of course be nice but is also a very limiting view of the true hidden value of owning income properties. The real value is in leverage – that means you are getting a return on every dollar you invest by borrowing money and then having someone else retire the debt thereby creating a financial gain for you. As your mortgage gets paid down, your equity increases and therefore, so does your return on your investment. In simple terms, if you invested $50,000 in an income property and the value never increased a single cent, you would still have doubled your money at the point your mortgage principal has been paid down by $50,000.
This is a rather simplistic view and there are many other factors to look at. Last year, I posted an article by David Larock that I think explains it very well. Dave points out that one of the keys is low interest rates. We’ve all heard for the last year that interest rates are poised to go up and while I don’t think that is in the next few months, I do think we’ll start to see that over the next year so 2012 may really be a good time to look seriously at starting your real estate investment portfolio.
John and I own income property and the experience has been good. There have been learning curves and some bumps along the way however, it is something we would and will do again. It would be my pleasure to assist you by sharing those lessons learned.