When it comes to acquiring wealth, achieving financial independence is a key component. How do you achieve financial independence? We all probably have a different definition or dream in our heads, but to keep it simple, it’s when your passive income and your income from your portfolio are greater than your expenses. The key to reaching this point is to start investing wisely.
Many people choose to invest their money in the stock market. And while stocks can be a lucrative way to improving your financial situation, there is a better method. Stability is key, and stocks just can’t hang with real estate. When you purchase real estate as an investment you can easily get more for your money. In many cases, you will find a property and purchase it for much less than market value. For example, buying a property for $250,000 when the after repaired value is actually $400,000.
One of the best reasons to invest in real estate is leverage. With stocks, $200,000 will buy you exactly $200,000 worth of stocks, no more, no less. However with real estate, that same $200,000 can easily buy you as much as $1,000,000 worth of property, leveraged and putting 20% down. If both of these investments increase in value by 10% you will have only a 10% return on your stock money and a 50% return on the money you invested in real estate.
If you are the type of person who likes to take charge of your financial future, you can improve your real estate investment to add value. Renovating, making physical improvements or adding additions are all ways to increase the value of your property. You can even subdivide the property, raise the rents or convert the original usage to its highest and best use and increase the value of your investment. When it comes to stocks, there is nothing that you can do that will affect whether the price goes up or down.
To find a “good buy” with real estate, you need to watch for motivated sellers. If you can purchase a property from a seller who really wants to unload the property, you can many times get a great deal. Work on your negotiation skills as well to get an even better deal!
It is important to remember not to get emotionally involved with a property. Remember, this is an investment, not the home where you are going to raise your family. Fall in love with the deal, not the property! Remember that! It will serve you well!
Finally, one of the best perks to investing in real estate is enjoying your profits without paying taxes, (or at least deferring them!) You can simply refinance the property or use a 1031 Tax Deferred Exchange in order to acquire more real estate investments and further build your portfolio. Remember, the profits from loan proceeds are not taxable.
Everyone wants to achieve financial independence and true wealth and real estate is one of the best ways to build your financial portfolio and be in control of your own financial future!