I think every person should consider investing in real estate at some point in their life. I’m going to explain why I invest in real estate and why you should at least consider doing the same. There are countless reasons to invest in real estate, but here are my top three reasons – freedom, leverage, and helping others.
FREEDOM
Every person has their own expenses they have to deal with. Every month, you likely pay for your mortgage or rent, car, food, gas, etc. And all those expenses add up to a number at the end of each month.
Let’s say it takes about $6,000 per month to fund your lifestyle. What if you could passively earn $6,000 per month by owning rental properties?
This means you would be earning $6,000 every month without trading your time for money. It takes a lot of time and effort upfront, but the income stream could last you your entire life. Let me show you my perspective.
Imagine you're earning enough rental income to cover your living expenses. You no longer would NEED to work. And if you did choose to work, you’d only work on the things that you are truly passionate about. You’d be able to spend more time with your significant other, your kids, and your family and friends. You would have the freedom to travel more, or do whatever it is you love doing, all because you no longer rely on a job to fund your basic living expenses.
In my opinion, that is what I call being free – being able to earn enough income passively to fund your lifestyle. And THAT is what I’m after. To me, freedom is not about being a bajillionaire. It’s about being free to spend my time exactly how I want to spend it. I want to work on the things that make me happy without worrying if I have enough money to pay the bills. And I think every single person deserves that same freedom.
LEVERAGE
Another reason I invest in real estate is that it allows me to leverage, or utilize, other people’s money to help me become financially free. Leverage basically means using borrowed money to help fund your investment. One way you can do this is by purchasing a rental property using a loan.
Let’s say you buy a rental property for $200,000. You put 20% down ($40,000), and your bank covers the rest (ignoring closing costs for simplicity). Over the next year, your home appreciates, or goes up in value, by 3%, so it is worth $206,000 after one year. Even though your home appreciated by 3%, your return on investment (ROI) is much more than that because you used leverage.
You invested $40,000 and earned $6,000 in equity over one year, so your return on investment would be 15% ($6,000 / $40,000), not including the rental income you’d earn by renting out the home.
Of course, appreciation is never guaranteed and there is a risk to this, but I just wanted to show you the power and possibility when using leverage to invest in real estate.
Owning rental properties also allows you to leverage your tenant’s money. Let’s say the monthly mortgage on that same rental home is $1,000, and you’re renting it out for $1,400. This means your tenants are paying off your mortgage for you, plus an extra $400 for you to keep.
To recap, you used your bank’s money to purchase the home, and your tenants are paying off your debt for you. To explain this in a smaller, more understandable context, imagine you just borrowed $10,000 from your parents but your friend offered to pay them back for you. Do you now understand how powerful the concept of leverage can be?
HELPING OTHERS
I also invest in real estate because I see how much it can help people. It's a good business model. Owning a rental home allows me to generate income for myself, but it also provides a home for another person or family. And it doesn’t stop there. Investing in real estate helps so many other people than just you and your tenant.
It helps your real estate agent earn his or her commission. It provides interest income to your lender for years to come. It benefits your attorney when you use him or her for legal advice and for drafting your lease. It helps your insurance broker or agent by using their service for homeowner’s insurance. It helps your property manager when you use them to manage your properties. And it benefits your contractors when you use them to make any repairs to the home.
Simply put, investing in real estate benefits more people than just yourself. By investing in real estate properly, you are helping other people put food on the table for them and their families. And that’s what I love about the business. It’s never just about yourself. It’s about providing value to others.
If you have any questions about real estate investing, or if you or someone you know is looking to buy or sell a home, please contact me. I would be more than happy to chat.
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Justin Yurong