One of my favorite hard assets is currently yielding 15%. I am baffled by people who I talk to everyday who have lots of cash, gold, and stocks, but completely ignore these cash gushing returns this investment offers.
They are a hard asset made up of cement, lumber, copper, silver, and plenty of man power. Think about it, would you rather have 50 ounces of gold that you can fit into the palm of your hand, or a 10,000 square foot piece of land with a 3 bedroom house and a tenant in it paying you $900 a month?
Gold of course is insurance, a rental property is an investment. I only compare the two because so many people are replacing investment capital with insurance (physical gold). I understand the need to load up on currency insurance, but I think a lot of investors are missing out on another hard asset that provides a very safe and reliable return. Demand for homes in good areas puts you (the investor) in a great position; you are providing someone with a home, and they are providing you with passive income.
The Paid Off Rental Vs. A Mortgage
A paid off house offers a safe reliable return that will give you peace of mind. A leveraged house puts you in a situation where you can control a large asset with 20% down and over 2 to 3 decades someone else will pay off the loan. At least in theory that will happen….
Think of the millions of people who lost their own home or rental properties because they had a mortgage obligation during the start of the current economic depression. The reality in borrowing is that it puts you at a much greater risk then if you are debt free. I can’t recall any stories in 2008 about people with paid off homes being foreclosed on, it just didn’t happen.
On paper Kiyosaki, Trump, and others will tell you to leverage up, but in reality this usually creates more problems and headaches then it’s worth. We always recommend that you get a 15 year loan or less and pay off your rentals. In hard times, you just don’t want to create income/expense volatility, this is not the 1980’s or 90’s, it’s best to stay on the defense when it comes to your wealth building.
The Big Advantages to Real Estate
- Passive income
- Tax friendly
- Providing homes for people
Be extreme when you buy a rental property. This is likely going to be a multi-decade investment, one that you may only make a handful of times, so be very picky about what you buy. Remember, one of my own life lessons that I love to share…If you feel like you need to rush an investment, it almost always leads to the loss of capital. Mistakes are made when greed or the fear of missing out takes over your mind.
I promise you…The deal of a lifetime occurs everyday if you are actively looking for it.
How to Buy
If you can do it locally, great; but if homes are too expensive in your area, look at out of state properties or out of country. Here are a few groups that help investors do exactly this, I have NO financial agreements with them, but I am friends with all of the people who run them.
Real Estate Education
Educating yourself is probably more important than anything, take at least 6 months to research the areas you plan to buy in and read a few books. One that I read about 10 years ago that was helpful was, The Millionaire Real Estate Investor by Gary Keller.
Income for Life
Real estate in my opinion, is a great way to retire young or retire period. Capital appreciation investments aside, the single family home is a great way to start increasing your income today and for life!
Have a prosperous week,