The supply of homes ("inventory") in the marketplace of all types is low compared to historical trends. In spite of that, property prices have risen extraordinarily over the last several years. This creates upward pressure on rental housing, both rents and income property prices.

As they always say for residential homes, "Now is a great time to buy..." residential income properties!

Most other investments (including your own home) require you to wait until you sell your asset before you actually make any money. The right real estate investment creates money in hand as you own it. Rents come in, expenses are paid, and choosing the right property in the right area will create positive cash flow for you to use as you see fit.

You also have the benefit of appreciation and principle reduction to add to your equity building, but most real estate investors find the monthly cash flow to be the most rewarding benefit.

There are 3 ways to make money in real estate:

1. Cash Flow Accumulation
1. Sum of monthly net cash flow over time, adjusted for increases in rents & expenses
2. Appreciation
1. Average annual increase in home prices in California for the last 50 years is about 6.7%
   (Source: St. Louis Federal Reserve, aka FRED, a well-respected industry data analysis aggregator)
3. Principal Reduction
1. As you pay off your mortgage, your principal balance reduces, and your equity increases.

Your total equity gain is the sum of those 3 over time.

Due to the effect of leveraging, real estate investments typically have higher return on investment than other types.

By our calculations, you can more than double your money with many investments over time, typically in less than 10 years.

You just need to know how to find them.

AKA mailbox money!

You have to know your stuff, but once you've found a great income-producing property and put it in the hands of a professional property manager, now you have passive income rolling in. Let someone else handle the midnight toilet emergencies.

You will likely have infrequent involvement in the decision-making process, like "The fridge went out in Unit A: do you want to replace with a low, medium or high-end model?"

Make it easy on yourself!

Unlike stocks, bonds, derivatives and crypto, real estate is a physical asset with intrinsic value. There is always long-term demand that has inherent utility.

And supplies are limited.

One of the most attractive aspects of residential real estate investing, compared to other types of investments, is its stability. In the stock market, for example, you can instantly buy and sell all or portions of your holdings. This is great if you need to move fast, but it results in massive market shifts just as fast. As recent events have indicated, the stock market can easily go up or down 5% or 10% in a day, and individual stocks can gain or plummet much more.

The real estate market is intentionally designed to reduce volatility. Prices go up and down over time, but the process of purchasing or selling real estate is much more deliberate, and protects the larger investment.

The system has worked for a long time. According to the U.S. Census Bureau, the average home value has increased about 6%/year since the middle of the 20th century. That's pretty stable, and impressive!

There are many reasons to invest in real estate. Foremost is "independence".

You can do it as a side activity to augment your income, or you can become a full-time, professional investor. It can be as small as you want, with 1 or 2 units, or you can grow to apartment buildings, and build your real estate empire.

It's up to you once you get comfortable with it, and what your needs and dreams are. Either way, it's your business!

Every professional financial counselor advises diversification of your investment portfolio. SMART real estate investing should be as strong a component of your holdings as stocks, bonds and mutual funds.

Great leverage and relative stability make it generally more attractive than other types of investment.

Real estate investing is, in our opinion, the best way by far to leverage your investment dollars. With most other types of investments, such as stocks, you have to put up the entire amount, and your fortunes rise and fall directly with the value of the invested amount.

For example, if you buy some stock for $10,000 and it increases in value to $20,000, you have doubled your money, or reaped a 100% return on investment (less administrative costs).

With residential real estate investing, in the 1-4 unit space, you typically put down 25%. So buying a $400,000 property, you would have to put down $100,000. If it doubled in value over, say, 10 years, the property value would have increased 100%. If you sell it then for $800,000, your gross gain is $400,000, which is a 400% return on your original investment of $100,000 (ignoring escrow and other costs for simplification).

Which would you rather have: a 100% return, or a 400% return?

1. Start small: Buy a single family residence or condo, or even a duplex. This should be a straightforward transaction for both the novice or experienced investor, very similar to buying your primary residence. The lending rules are virtually the same as for a primary residence, and the process is easy to understand.


2. Hands on or hands off: You can choose to manage the property yourself, or outsource to a professional Property Manager. Even though it impacts your cash flow, it is probably best for the first-time investor to use a professional Property Manager. Once you get the hang of it, you can start taking some of the management responsibilities on yourself.


3. 5+ Multi-unit: Larger apartment buildings (5 units and up) have different lending rules and property management requirements. These are a great way to leverage your investment, but they need quite a bit more experience, plus a higher tolerance for risk and problem solving ability.


4. Owner Occupied: If you live in one of your units, such as one side of a duplex, you can lower your investment mortgage significantly, and still leverage the full value of the property while it appreciates! With duplexes, for example, you can usually reduce your mortgage by about 1/2.
   
   

Real estate investing is traditionally the best way to leverage your assets, time and involvement. Many smart investors start out with an investment single family residence, condo or duplex, then, after experiencing success with that type, continue to build on their success buying similar types of units.

Start with a single family home to rent, or a duplex. These are easy to obtain and manage, and you can live in one unit in a duplex while you get to understand more about the investing process.

Consider expanding to 3 or 4 units, or even 5+ (apartment buildings). These generally cost more but they better leverage your investment dollars on a per unit basis.

This creates a "money machine" effect, where you build on your strengths and experience by repeating past successes. Other smart investors like to gain traction with smaller units, then work with larger properties, such as triplexes and fourplexes, utilizing the same techniques but leveraging their base investment even more with larger properties.

Essential demand

1. People always need housing, so real estate tends to hold value better than more speculative investments.

Historically stable growth

1. Property values generally appreciate steadily over time, with fewer sharp swings compared to stocks or crypto.

Tangible collateral

1. Unlike paper assets, real estate is a physical asset you can leverage, use, or improve to preserve and grow value.

Multiple income streams

1. Rental income, appreciation, and tax benefits provide built-in diversification within a single investment.

Inflation resilience

1. As costs rise, both property values and rents typically increase, protecting purchasing power.

Property values often rise with inflation

1. As the cost of goods and services increases, home prices typically climb too, preserving your purchasing power.

Rental income tends to keep pace with inflation

1. Rents can be adjusted upward over time, generating cash flow that maintains real value as the dollar weakens.

Fixed-rate debt becomes cheaper

1. When you lock in a mortgage, inflation erodes the real cost of those payments, so you’re paying back tomorrow with “cheaper” dollars.

Tangible asset security

1. Unlike paper assets, real estate is a physical asset with inherent utility and scarcity, which protects against currency devaluation.

Portfolio diversification

1. Real estate provides a counterbalance to inflation-sensitive assets like bonds or cash.

The best thing to do is to start early. That’s usually hard for most people who are many years away from retirement and may not even have a family yet.

But the advantages are enormous. Real estate typically appreciates at a higher rate than most savings plans.

That plus equity growth by positive cash flow accumulation and principle repayment over time can build a great nest egg for your children or grandchildren.

It used to be what everybody looks forward to. Now, many people are working well past traditional retirement age. If you find something that you love, you are successful at, or just need to keep doing for any reason, then go for it!

However, there will come a time when you will want to cut back, and maybe not be active in a work situation. When that happens, wouldn’t it be wonderful to have equity built up that you could tap? Our equity gain models help you figure out where you will be in 5, 10, 15 or 20 years. Residential real estate investing can get you where you want to be, when you want to be there.

What better way to leave something to your heirs, or even just to get family members started in real estate investing?

Share the investment, share the rewards, then let them build their own real estate empire.