A Closer Look at Creating Wealth Through Real Estate Investing

In Part 1 of this series, I discussed the benefits of owning residential investment property. 
In Part 2, lets explore the benefits of owning rentals in more detail by meeting my friend, Jack.

How can owning rental properties create wealth for you? Lets take a look over the shoulder of one investor, Mr. Jack B. Rich,(or "Jack" as he prefers; as he's a guy who likes to keep things simple) as he answers this question for himself.

One day Jack got an idea in his head. He was driving through a neighborhood and saw a "For Rent" sign in front of a charming little home. His thoughts quickly turned to what it would be like to own a rental property. He didn't know why, exactly. He just knew it sounded interesting. But he was skeptical also. "It is worth owning just one measly property?", he asked himself. So Jack decided to do some research... and off he went.

Jack discovered that there were many properties in the Des Moines area that could be potential rentals. Many suitable homes were priced around $90,000. And they were homes that folks would eagerly pay rent to live in. He discovered these folks needed a place to call home, but many were not ready, or did not desire, to purchase a home of their own right then. Jack realized the rent these folks would pay was enough to cover his mortgage, the property taxes, the insurance. Jack would even have a little left over he could tuck away for future repairs and profit!

Jack was excited, but wondered what his initial investment would need to be. Talking to his banker, Jack soon learned he could purchase one of these properties for around 10% down. Including closing costs, Jack needed about $11,500.

"I can do that!" Jack said. "But wait. Why would I go through the work of finding a property, renting it out, and maintaining it over time, all for just a few dollars a month?" he asked himself.

So he went about looking at the numbers in more detail. Jack knew most loans were for 30 years. So he decided to focus on what his investment of $11,500 would be worth then, when the property was paid off.

He carefully calculated the numbers. Four percent average appreciation was fair, he estimated. And 30 Years..... Yes, and the value of the property today is about $90,000..... Pushing the compute button, he could not believe his eyes!!

He double checked his work. Sure enough, the $11,500 he spent today would be worth almost $292,000!! "Wow" he said to himself. "That's a $280,000 return, before I factor in any of the other benefits of owning rentals, like the extra monthly income he made along the way. (He wasn't quite sure what all these benefits were, but he knew they were important , somehow.)

Wow! Jack realized in that moment that owning just one rental could put a serious amount of money in his pocket in retirement!

Now I know what you are thinking. 30 Years is a long way off. And Jack thought the same thing, too. He is 42 now, and that would make him 72 by the time the property was paid for. That was way past the time he planned to retire! So again he dug deeper.

And there it was. As Jack thought about it, he asked himself how much he really needed the extra little bit of monthly income he would make on the property. Sure, he decided he needed enough to pay for repairs and updates. But beyond that, what would he do with the extra $50.00 a month he would earn. "That's hardly a night on the town" he thought.

That's when Jack realized the power of that "little bit" of money. Calling it "accelerated payoff", Jack carefully calculated what would happen if he paid the equivalent of one extra principal payment toward his mortgage balance each year. Suddenly he realized he would have the property paid for in only 21 years!

Hmmmmm... "It won't be worth the full $290,000 in 21 years" he told himself, "But it will be paid for, and I could even live on the rents I receive as I wouldn't have a mortgage payment any longer!!" "That would be when I am... let's see, 63", he reminded himself!

Now Jack was excited. He suddenly felt as if someone hard turned on a light switch and he could see something that had been there all along. He just never had seen it!!

Jack B Ritch was asking himself questions he never before thought about. "Could I buy more than one property?" He pondered "What would it take for me to have $1 million for retirement in say 20 or 25 years?" So he did the math. "4 properties" he thought to himself, "That manageable. All around $90,000... buy them over a few years... Let's see".

Pushing the compute button brought excitement. The $45,000 investment he would make over a period of a few years would be worth almost $1,176,000 in 30 years, when the 4 rentals were paid for. Again his accelerated payoff idea would accomplish the goal of having the properties paid for in only 21 years!

Jack was elated! He learned that there was a 7 digit number involved in his decision to own residential investment properties. And his retirement could be paid for by someone else, who just needed a place to call home!

Jack's story is fortunately not uncommon! You too, can follow in his footsteps, and we can help. For many, owning investment real estate can be a significant source of wealth building over time. But taking that first step is the key to getting started. So do what Jack did!

Contact us today to discuss how owning investment property in the Des Moines, Iowa area can benefit you too!

See also: 
How To Find Foreclosed Homes in Des Moines & Central Iowa
Des Moines Real Estate: Foreclosure Homes For Sale, January 1st, 2007

Brian Wentz & Beth Ernst
Burnett Realty
515-334-4994
www.BrianWentzRealtor.com

Specializing in homes for sale in and around  Des Moines Iowa, including Urbandale, Clive, Beaverdale, West Des Moines, Johnston, Ankeny and Waukee.