Build Wealth by Buying Rental Properties
So, you’ve got a little bit of extra money built up, and you’re trying to figure out the best way to turn it into long-term wealth. Or, maybe you don’t have that extra money yet, but you’re trying to figure out how to change that. Whatever financial situation you find yourself in, there are ways to get yourself out of it and improve your situation. And one way that’s been proven to do just that is by investing your money in rental properties.
We know what you’re probably thinking: “Rental properties? The last thing I want to do is to be someone else’s landlord!” We get it. But, you know what? As much work as it might be in the beginning, the truth is it’s hard to find any sort of investment out there that’s as sure-fire as owning real estate.
Why is that? Well, there are a number of factors that come into play, but it basically boils down to two main forces: income and appreciation.
This is the obvious one, but it bears talking about: you are buying a rental property for one sole purpose: to collect money from renters. As people move in, they pay you for the privilege of living there. The great news about this system is that, when it all works according to plan, this is basically a no-cost situation you find yourself in. You set the rental price, so you can make sure that you are bringing in enough from your renters to cover your expenses, which include mortgage payments, taxes, insurance and maintenance. Ideally, of course, you are also bringing in a little bit extra — a profit that can be put towards many things, including improving your properties or looking for new ones.
Of course, you have to also make sure that you are charging a fair amount for how similar properties are going for in the area, which means it involves a little bit of homework first. Otherwise, your potential renters will just go elsewhere. But, once you’ve calculated how much rent you need to collect each month to break even, you can start to look for properties for sale that will allow you to stay in that competitive price range without losing money.
The other main factor that works in your favor when it comes to rental properties is appreciation. In most situations — once you buy something, it tends to lose value. Most people are familiar with this when it comes to cars; once you drive it off the lot, it’s not worth nearly as much! Most goods obey this same rule.
However, real estate is different. It’s a well-established fact of investing that most real estate properties only go up in value. The longer you hold onto a property, the more it will be worth. “Ah,” you’re thinking. “But if I never sell the property how does that help me? It will only make me have to pay more in taxes every year.”
Remember, though, that we are not talking necessarily about only making money here. We are talking about building long-term wealth, which is measured not just in the available cash you have on hand, but how much of all of your assets are worth. So, it stands to reason that owning more valuable properties increases your overall wealth.
There is one other benefit to this, though: as the property value grows, but your initial investment (in other words, your mortgage) doesn’t, you end up owning larger and larger amounts of equity in each property. So, if you buy a property for, say, $250,000, but after ten years it’s actually worth $400,000 — guess what? You have all of that extra money to play with. You can borrow against that extra money (in this case, the $150,000 plus whatever you’ve already paid off) and do whatever you want to with it. Buy more properties. Improve the ones you have. The point is — that extra value is yours to turn into cash if you need to.
And then, of course, you can always sell your property if you want to, and reap the benefits of that appreciation. Of course, most investors advise against doing that, as once you sell it you can never make any more money off that property, ever again. Still, if you need some quick cash, or the property just isn’t working for you anymore, that extra value will make a sell seem even more attractive.
To Sum Up
While there are other factors that you should look into, the fact is that owning one or more rental properties can be a great way to build long-term wealth, without much of the risk that other investors take. So, before you just take that extra cash you have and just put it in the bank, why not see what your money can do for you?
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