The topic of building wealth is not just one reserved for those who wish to drive two-seater sports cars, take exotic vacations, and live the high life.
It’s important for every single one of us to consider how we plan to live in retirement.
With life expectancy rising, pensions plummeting in Social Security going bankrupt, it’s imperative that every single one of us carefully plan our investments based on the quality of life we want in retirement.
Retirement is quickly approaching for many. If you’re just 15 to 20 years from retirement then this is a big topic for you.
It takes most investment strategies 20 to 30 years to build up a sizable nest egg, but this amount of time may not be enough time to benefit from the compounding effect for most investors.
If you are winding around the corner towards retirement then you are probably considering the best of all investment options for creating wealth.
Indeed, there are a mind-numbing number of ways to invest for wealth creation.
You can invest in:
- Mutual Funds
- Bank Products
- Precious Metals
- Real Estate
- And more
Fact is, is commonly held that 90% of millionaires come from real estate investing. Real estate always has been and will always be creator and wealth management tool for smart investors.
There are several ways you can make money as a real estate investor – wholesaling properties, rehabbing or fixing-and-flipping properties, and buying-and-holding properties.
When you buy and hold properties, you essentially become a landlord.
This is probably the biggest roadblock to becoming a successful buy-and-hold investor.
You see, being a landlord requires skill and experience just like any profession. Making rookie mistakes can be costly.
The good news is you can eliminate the stress of this by hiring an expert and affordable property management company to manage your growing portfolio of properties.
Building a portfolio of investment properties may be one of the best ways to retire rich and with a stable positive monthly cashflow that allows you to enjoy a long and happy retirement.
But the question is, “Exactly how does real estate investing do all this?”
Let’s take a look at…
7 Reasons You Can Retire Rich With Buy and Hold Property Investing
Passive Cash Flow
One of the greatest benefits for investing in rental properties is the monthly passive income it produces. The truth of the matter is that if you can pay your bills with the monthly paychecks that you generate from rental properties, then you can sustain a great quality of living indefinitely into the future.
For instance, going into debt is not what destroys individuals or companies. As long as an individual or a company continues to bring in positive net cash flow on a monthly basis to cover all expenses incurred, then you can pay down debts and all other bills and survive.
So then debt, bills and expenses are not what room in one’s finances; failing to generate net income to cover these expenses ruins one’s finances.
When you get the point where you are generating enough positive monthly cash flow to replace your income from work and you can retire. That’s the entire name of the game as an investor – replace your active income with passive income.
This also means that wealth is not about achieving certain dollar amount, a certain number you wish to reach. More accurately, you are wealthy to the extent of time you can generate monthly passive income.
Buy-and-hold property investing should generate both short-term and long-term benefits.
The short-term benefit is what we just looked at – passive monthly cash flow. One of the long-term benefits is appreciation.
This is the increase in value of a particular real estate property over time.
In general, property values almost always rise over time. Sure, there are usually short-term fluctuations in price, but values in property generally rise significantly with time.
Property values can double or even triple over a 20 year period. This is easy to see then, how wealth is created by buying and holding for the long haul.
This is why you certainly want to invest in communities where new construction, appealing new amenities, jobs, better schools and more development is taking place. You want to invest in areas where the city is expected to rise. However, you can also see appreciation in areas that are currently stagnant, because these areas usually experience massive renovations.
There are many wealth protecting tax benefits to be gained with buy-and-hold property investing.
Depreciation – For instance, depreciation is a great tax benefit of real estate investing. Depreciation accounts for the hypothetical wear and tear that properties experience over time.
You may not always feel the financial impact of wear and tear but you benefit financially by being able to deduct these costs from the tax obligations.
Mortgage interest – points, loan origination fees, and mortgage interest are some of the forms of interest you can incur by investing in rental properties. You can deduct these interest payments from your taxes.
Property expenses – any form of insurance is considered a deductible experience, utilities are considered deductible expenses, maintenance and repair costs are deductible expenses as well.
So rental property investments have been long used as a way to shelter and protect wealth through tax benefits.
Equity Wealth Creation
Tenants pay down your principle, thereby building up YOUR wealth! In other words, with each passing month that your tenants make their payment owed to you, the principal on each of your properties is being paid down and therefore building equity in your properties.
This is why being a good property manager is so important – because you need great tenants who pay their bills on time. Many landlords don’t get the best tenants available because I don’t know how.
One of the reasons they may get subpar tenants is because they choose to sacrifice A+ quality tenants
for 100% occupancy.
Another tremendous benefit of buy-and-hold real estate investing as a means of wealth creation over other types of investments is that you get to leverage other peoples’ money.
For instance, you wouldn’t walk into a bank axing the banker to finance your stock investments with you only putting 5 to 10% down. They would probably laugh you wrap the building.
On the other hand, it’s standard procedure to put as little of your own money down for an investment is possible, financing the vast majority of any deal.
For real estate investment property, for instance, you may invest as little as 5% down and borrow up to 20 times your investment. With stock investing in only borrow up to around two times your investment.
That’s the power of leverage.
Higher Return on Invest (ROI)
The common practice of leverage brings me to the real benefit of leverage, which is higher ROI.
If you invest 5% of the cost of a property and finance the remaining 95% and generate monthly cash flow based on the full 100% value of that rental property, you will certainly generate higher return on your out-of-pocket investment then you would if you had invested the full 100% Internet property.
And we all know that the name of the game with any investment is maximum ROI. If in other words, you want your dollars to work as hard as they can to recruit as many new dollars in the shortest amount of time and with the least amount of risk possible.
That’s why leveraging the maximum amount of any investment property with other people’s money is critical to your success as an investor.
Hedge Against Inflation
inflation rate is about 3.22%, according to inflationdata.com.
Meaning that every year crisis rise by 3%, roughly. Real estate investing is not just for money hungry tycoons.
If you want the dollars in your pocket to keep their buying power 20 years from now you have to invest in things that provide a safe page against the rising cost of everything.
This same article written by inflation data.com shows how something that cost $100 back in 1914 with cost $2375 today.
That’s why it’s important for you to invest in rental properties that appreciate in value – rise in value along with the rise of inflation.
There are even more benefits that could be named buy-and-hold property investing, but these are some primary ones.
This risking everything to do to invest for future so it’s always a good idea to speak with your financial advisor about the best investment options for you. However, many people are living happily in retirement with wealth they built through rental property real estate investing and with a good plan you can to.
Share your favorite benefit to buy-and-hold property investing.