The Secret to Real Estate Investing #1

© 2012, JimPellerin. All rights reserved.

Real Estate Investing – Still The Best Investment

If Real Estate Investing is still the best investment, then why are people still investing in the stock market or other investments. I think a number of reasons: 1) real estate investing is too much work; 2) people don`t want to take responsibility for their investments; 3) real estate investing is boring.

First of all, why is Real Estate Investing still the best investment?

Suppose you buy an investment property for $200,000. You pay $20,000 as a down payment and finance the rest. Over the next year your property grows in value at a rate of 5% (in some areas it’s more and in some areas it’s less). This means your property is now worth $210,000. Your Return on Investment for your $20,000 is $10,000 or 50%. But that’s boring isn’t it? What if you paid less and your appreciation was more?

Remember, this is an income property that you are renting out to make money. So assume your monthly expenses, which includes your mortgage, insurance, taxes, maintenance, management, vacancies, etc. are about $1,300. And let’s assume you can rent this property for $1,500. That’s a cash flow of $200 a month or $2,400 a year. And the good news is that when times are tough in a bad economy, more people are renting so your rental income is even more secure.

You are also paying off your mortgage during that time. At today’s interest rates, you could earn another $4,000 of equity because of your principal pay down.

Total profit on this one $20,000 investment is:

$10,000 Appreciation
$  2,400 Monthly Cash Flow
$  4,000 Principal Pay Down
$16,400 Total

That’s a return of 82% and that’s only in the first year.

So what about property management, unforeseen expenses and cash flow? There are a lot of people getting rich in Real Estate Investing because they know how to deal with these things. It`s a part of Real Estate Investing. It just means that you have to take some responsibility for your investment and learn something about Real Estate Investing. And remember, you don’t have to do everything yourself.

When was the last time you made good consistent returns on your stock market investments? Or what kind of returns are you getting on your mutual funds? What kind of control do you have with these investments?

With your stock investments you have absolutely no control, other than get in and get out. You can’t influence how well your investment performs. You can’t influence changes in the company you are investing in or the demand for their product or service. You can’t ask your broker to talk to the CEO to change his or her strategy so that revenues might increase, which will influence investors to buy more stock and hopefully the price will increase or dividends will go up. In mutual funds there are even more people involved that you can’t influence. I consider the stock market to be pure speculation and another form of legalized gambling.

In Real Estate Investing there are lots of ways to improve the value of your investment so that it appreciates more and so that it rents faster and for a higher rent. You are in control.

With a little more effort, and by taking a bit more responsibility for your investments, you could be earning amazing returns. Diversification within your Real Estate Investment portfolio will also help reduce your risks and give an even higher return than I showed here (e.g. Lease Options).

Don`t have the time? You need to make time or keep getting the returns you have been getting .. . maybe!. Real Estate Investing may not be exciting. You can’t stand around and talk to people about how much money you are going to make in such-and-such a stock or how much money you lost in another stock. Real Estate Investing is a slow proven method to financial success. Boring!

Happy Investing,

Jim Pellerin

Investor, Advisor, Speaker, Coach, Writer

7 STeps to Real Estate Riches

© 2011 – 2012, JimPellerin. All rights reserved.

What is Real Estate Investing anyway?

Everyone has seen the TV shows where somebody buys a house that needs repairs then fixes it up and sells it for a big profit. This is only one type of way to invest in real estate.

1. Buy, Fix and Sell – This is probably the most common real estate investing strategy. You buy a rundown house for dirt cheap. Then you fix it up and sell it for a profit. Your commitment to this strategy is usually a couple of months. The risk with this strategy is that it may cost you more to fix it up then you originally thought. A variation on this strategy is that you could also decide to keep it and rent it out. This would require a longer term commitment.
2. Buy, Rent and Manage – This is another common strategy. Your commitment to this strategy is usually many years. With this strategy you are becoming a landlord and will have tenants that need to be taken care of. There are more risks with this strategy. Most of the risks are associated with tenants. Will they pay their rent on time? Will they take care of the property? There are other risks? Will rent prices change? What if the roof needs replacing? What if you have a fire?
3. Lease Options – This is not as common but there are a lot of people doing it. This is where you buy or lease a property from someone and lease it to a potential buyer. The idea is that you sell it for more than you bought it. The risks are reduced because the tenant buyer will take better care of the property because they hope to buy it someday. Even if the buyers walks away, you could also find another buyer and start the process all over again.

© 2011, JimPellerin. All rights reserved.