Investment Strategy for Building Wealth Through Real Estate

By
Managing Real Estate Broker with LoKation Real Estate

Investment strategy for Building Wealth through Real Estate A few weeks ago I had asked the question to the Activerain brain trust as to what type of investment properties are preferred. The answers were all very helpful and the big answer is - drum roll please........ It Depends! There you have it, a simple answer that really does not do anyone much good. 

But the answers were true to each given investors perspective, It Depends on what you are looking for intime to invest the investment, 

  • Are you looking to accumulate a solid real estate portfolio
  • Are you looking to cash flow
  • Are you looking for easily managed properties
  • Some prefer 4-plexes
  • Some prefer vacation homes
  • Some prefer single family
  •  and some prefer condo 
  • and there were a half dozen other types of properties

The answer really depends on what you are looking for from your investment, obviously ROI is the biggest thing to look for in any real estate investment, whether you are buying your first home or 500th, you want to make sure that what you are buying is going to be a good return on investment.


Why is real estate one of the best investments you will ever make,

  • first of all it is tangible, you can actually live in your investment,
  • second, you can have others pay part or all of your investment, can't do that with the stock market
  • Third, you can actually get appreciation on your asset, but have a fixed rate of payment
  • Fourth, you can write off depreciation of the asset (talk to your tax person)
  • You can buy multiple homes and have others pay you for this investment (renters)

Playing MonopolySO what is the Strategy that I learned from a lender friend last week that I had not heard of before, a strategy he actually uses to buy a home every single year, drum roll please, yes another drum roll..... he will purchase his first home, then after one year (or two) buy another and move into it and so on.

Lets say you are a first time buyer, there are plenty of program out there that you can get assistance in your mortgage and need only 3.5% down payment, and can even get gift funds to purchase where you have $0 of your money in the game. 

There are a couple programs that exist that will count future renters income toward your income to qualify for a loan, lets say you and two college classmates want to buy a house, one of you qualifies for the loan and the other two are tenants with stated rents due (make sure your lender knows about these programs and how they work)

Regardless of how you get into your first home, the strategy to build a real estate portfolio comes from the second and third homes, currently, as long as you live in your first home for one year, (again check with your lender on loan limitations), you can then put that home up for rent and buy a second home (talk with your lender to make sure you qualify, this gets easier believe me). If you are buying your second home as your new home to live in, not an investment home, then you do not need 20% down to qualify for the second home...lather rinse repeat, every year.

Yes there are certain things about this program that most people will not want to do, like move every year, or save enough each year for the down payment on the next house next year, but if you do this for just 5 houses in 10 years and appreciation continues at a modest 5% (about half of the current appreciation the past 5 years) you will be well on your way to building a million dollar real estate portfolio and not give a damn about what happens with social security or the stock market (to some extent).

If you were young and did this starting at age 25, by 35 you (in today's current Denver market) would investing in real estatebuy a house at $300K, then $330K, $363K, $399K then after year ten $440K, (this would be purchase prices for an identical home showing 5% annual appreciation (keep in mind that Denver's current appreciation is around 11%), but all would be worth $440K at the end of the 10th year, or a $2.2M portfolio that someone else is paying the majority of your investment on, more than likely 100% of the investment will be paid with other peoples money.

I am sure that the majority of people reading this could not imagine ever owning a $2.2M home or $2.2M worth of real estate with their current financial situation, but this scenario is exactly what one of my young buyers is looking at doing, she qualifies for a $300K home loan and has lots of student debt, in 10 years she will be financially free just from the opportunity real estate investing offers.

She can continue investing, or just refi and get shorter terms and still have her renters pay off the mortgage for her. She could sell the portfolio in a 1031 exchange and buy an apartment complex, or and office
 building, or storage units and keep growing her portfolio. There really is nothing else like real estate, at least legally, that can bring you the American Dream, whatever that dream looks like to you.

If you do not think most people regret not investing in real estate, just ask your parents. Ask them what they paid for their first house, or their second house or any house that they wished they would have stretched to afford.

Posted by

 

John Marshall -Fore!

Low-Maintenance Golf Course Living

I have been involved in the Golf Communities through-out Colorado for the past several years. As a contributing writer for Colorado Golf Magazine I write articles regarding new course development and their surrounding communities.

720-982-6322

"A good agent will learn to dance to the clients music, but a great agent will write the music that attracts the clients he wants to dance with." John J Marshall

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Comments (3)

Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi John - That's a very good strategy to build wealth - it takes research and commitment, but what investment doesn't? We have several clients who follow this strategy and it's working very well for them.

Sep 15, 2016 03:46 AM
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

Real Estates 4 Annual Returns - Cash Flow,Tax Benefits , Appreciation & Equity Buildup (from the efforts of others ) makes it King of the Hill !!!

Oct 23, 2016 07:27 AM
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • GRI • HAFA • PSC Calabasas CA

Great explanation, John why real estate is the best path for building wealth and the  best long term investment. 

Feb 05, 2018 01:20 PM