What is the number one way to build wealth? If you answered investing, then you’re on the right track. The oldest and best way to build wealth is through real estate.
The wealthiest people I know have all built their wealth primarily through real estate. Some of the most successful franchises, such as McDonald’s, own most of the buildings they occupy. If a location closes, they can sell or rent the property to recoup their losses.
One of my six rules of investing is to invest in good times and invest more in bad times. The real estate market is the perfect example.
Those who lost money in the real estate market as a result of the Great Recession lost this money because of bad investment decisions.
Let’s talk about how you can make good investment decisions to use real estate to kickstart your net worth.
Why is Real Estate so Lucrative?
Another of my six rules of investing explains how to make use of leverage. Leverage allows you to invest more than you have, similar to credit. Those who build wealth through real estate often make use of leverage.
Say you want to buy a $100,000 home. Depending on your credit score, you can buy this home with a 15 to 20 percent down payment. Let’s say 20 percent for the sake of argument. This means the home only cost you a $20,000 cash investment. You are essentially betting the value of the home will exceed the initial leverage and generate a profit when it comes time to sell.
Leverage is a risky strategy, but in reality, real estate hardly ever loses value in the long-term.
Most people get too wrapped up in short-term peaks and valleys in property value. On a longer timeline of 20 or 25 years, the value almost always goes up.
How to Make Real Estate Work for You
The first step in making real estate work for you is to own the house you live in currently. If you’re already there, congratulations. If not, do some soul searching to figure out what is keeping you from homeownership.
Most of my clients think they don’t have good enough credit to own a home. If this is you, then make a plan to pay down your credit cards. Ruthlessly cut expenses and put the newfound money towards your payments.
Giving up luxuries to save money can feel depressing at first. Think of it like this. If you can commit $500 a month towards paying down your debt, you’ll be able to easily transition into saving this $500 for a down payment once your debt is paid off.
Once you own your own home, the next step is to buy homes to rent out. This is where things get fun…and lucrative.
Research emerging housing markets around the country and look for good deals. It is easier if at least your first purchase is within driving distance of your current location, but you aren’t limited to this area.
If you need guidance in creating a sound real estate investment strategy, or to get your finances in order, then schedule a session with Arman today.