006: Why Real Estate – Fundamental Friday

Hi and welcome to the Real Estate Way to Wealth and Freedom Podcast.

As I mentioned last week, I want to give a shout out to a couple 5 star reviews from iTunes.

5 Star Review from ChrisM003. Chris says “Fantastic show right out of the gates! Can’t wait to hear more on REI and creating freedom through investments!”

Another 5 Star review for Stev_Smith_86. Steve says “This podcast is exactly what I was looking for. Jacob is a fantastic host who really dives deep into educating the li   steners on the benefits of creating wealth through real estate. Highly recommend!”

Thank you all for the great reviews and I’m glad you all are getting value out of the show. If you like what you’ve been hearing and are getting value from the show, please let me know by leaving a review. I would love to give you a shoutout next week.

Previously we had the opportunity to discuss the Power of Partnerships with Joe Fairless. Joe is a great guy, and really knows his stuff. He’s been able to grow and has had tremendous success through his partnerships. If you missed the interview with Joe, I recommend you go back and listen to episode 5 after this.

This week’s Friday Fundamental

Why Real Estate?

Many people ask Why Real estate? Everyone has a unique answer, and here is mine.

Real Estate is a tangible asset, and to me it is easily understood. I can wrap my head around rent, mortgages, insurance, repairs, etc.  I can look at a property and ballpark estimate what it’s worth, and what it will rent for. I understand the transaction process – from renting to buying or selling. Real Estate is a relatively simple subject. There are no complex schemes, trades, or transactions. It’s up front and widely understood, at least to some extent, by almost everyone.

Real estate investing has always appealed to me for several reasons.

  1. You have direct control over the asset. If you want to increase the property value with renovations or upgrades, you have the ability to do that. In multifamily properties, if you want to force appreciation by increasing income or lowering expenses, you can.
  2. The property value will never go to 0. While you’re property value may depreciate over time, you’ll likely never see that property value be worth nothing.
  3. Your financial investment is secured by an asset.
  4. While certain types of real estate, like commercial or retail, may not be in demand forever due to changing consumer trends, residential real estate will always be in demand. People might be able to do away with brick and mortar stores, and order all of their products online, or work from home, rather than going into an office, but at the end of the day, everyone needs a place to live.
  5. The power of leverage. The true power of real estate lies in the debt that can be placed on real estate. By using other people’s money, like a bank, you can put a small down payment on a property and then control it.

Real estate investing provides multiple income streams.

  1. The most obvious one is rental income. The cash flow you see each month is the rental income minus your expenses. Your expenses include the Principal, Interest, taxes, insurance, vacancy, and management.
  2. Appreciation of the property. Historically, property values have increased 6%.
  3. Loan pay down. My favorite kind of debt, is the debit that someone else pays for you. That’s exactly what residential real estate debt is. The tenant pays rent, and part of that goes towards paying down your principal.
  4. Tax benefits. The tax benefits of real estate can prove to be the most valuable. The IRS will allow you to depreciate your asset over time, regardless of the market value. This is a phantom deduction that is extremely valuable to real estate investors. We’ll have an entire show or two dedicated to the tax advantages of real estate by someone much more knowledgeable than I am.
  5. Hedging against inflation. In an inflationary economy, locking in a long term, low interest loan will hedge against inflation. Think of it this way, your $500 mortgage payment will be worth more today, than it is next year. That is to say that $1 today is more valuable than $1 in the future. While inflation will erode the purchasing power of your dollar, it will not erode the value of your mortgage payment. That mortgage payment will remain the same.

It’s easy to see why so many people earn passive income from real estate investing.

Now just like every other investment, there are both advantages and disadvantages to real estate investing. I want to be clear on the disadvantages

  1. Real estate is illiquid. That is, it’s not easy to sell. It takes time to put a property on the market, find a buyer, and close the deal. However, this illiquidity is also what makes real estate stable and keeps the price from fluctuating as much as other asset classes.
  2. Real estate can manage you, if you’re not careful. Yes, there are things that will require your attention. But if you have a property manager to take care of the day-to day operations, these will be minimal.
  3. It can take a lot of capital to get started, with traditional financing. Traditional financing often requires a 20% down payment. This can hinder some people from getting started as soon as they want. However, there a lot of different loan options out there. And Traditional Bank financing is just one of the many way to finance a property. We’ll get into creative financing strategies in a future episode dedicated to exploring those in more depth.

As you can see, real estate has the ability to create massive amounts of wealth, with the help of leverage, appreciation, principal pay down, tax deductions, and monthly cash flow.

I’m much more interested in the lifestyle that real estate can provide. The wealth and passive income from real estate investing can allow you the freedom to life a life you want, and that’s my ultimate goal.

So get out there, and start your real estate investing journey by learning and taking action. If you have already starting taking action, great! If you haven’t yet started, continue to learn and grow and when the time is right, you’ll be well prepared to take action.

I hope you find the value in real estate investing. If you work diligently, and study your trade, real estate investing can prove to be a valuable instrument to building wealth.

If you’re getting value out of this show, please let me know by leaving a rating and review in iTunes. Please subscribe to the show to be notified of new episodes! We have some great guests lined up! I’m going to continue to give shout outs to people who have reviewed the show starting next week! I look forward to reading your reviews!

As a thank you, I want to give you a gift! I would like to give you a free audible trial and a free audible book of your choice! All you have to do is click the link in the show notes!

And also, please let me know what you think about this format! After all, I’m here to help you and that’s where I want the focus of the show to be. So please, if you have any questions or comments or just want to drop me a line, I would love to hear from you. You can contact me at www.JacobAyers.com or email me at info@JacobAyers.com.

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