Friday, August 26, 2011

How, Exactly?

It's great to start a blog with the stated purpose of building your non-job income to the point that it allows you to leave your daily job.

But then pen meets paper.  The rubber meets the road.  The cars revving at the stoplight have to throw into  "drive".  You get the point.

How, exactly, will I accomplish my stated goal?

For me, it will involve real estate.  I love real estate and have since I was a kid.  My dad owned real estate. My grandfather owned real estate and so did some uncles.  Eventually, I started a career in real estate.  My journey will involve real estate.

And that's great, because real estate is one of the most powerful wealth builders around.  Most of the super-rich in America - and indeed the world - own real estate.  How, exactly?

1.  Cash Flow:  This is the most important, but done correctly rental real estate will generate cash flow - the spendable cash at left at the end of every month after your mortgage principal, mortgage interest, taxes, insurance and other expenses are paid.
2.  Depreciation:  Unlike a lot of investments, real estate is powerful because our tax laws allow depreciation (a paper loss) that offsets your cash flow, either greatly reducing the amount of profit on which you will be required to pay a tax - or eliminating the tax altogether.
3.  Equity Capture:  This is a term I had not heard before I joined Lifestyles Unlimited, but it is essentially the unrealized equity (it is not realized until you sell) that you have in a property at the time of purchase.  In other words, you bought the property below market value, which is always the goal of a property purchase.
4.  Principal Paydown:  If you own rental real estate, a tenant helps increase your equity each month.  How?  Their rent pays the mortgage payment, a portion of which is a principal paydown.  As the principal is paid down, your equity in the property increases.
5.  Market Appreciation:  Notice how I left this one for last?  That's for a reason - while market appreciation is great, most people who buy real estate as an investment count on this to the exclusion of the other 4 ways to make money in real estate.  And when real estate values crash, as it recently has, those investors get slaughtered.  Market appreciation is wonderful, but the other 4 reasons are why I'll do a deal.

I'm moving full-bore on finding and purchasing my first single family home rent house.  More on that to come.

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