SMART Real Estate Investing System

19 SMART Reasons To Invest In Residential Real Estate

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Market

Financial

Lifestyle

Future


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1. Market: Strong Rental Demand






  1. The supply of homes ("inventory") in the marketplace of all types is low compared to historical trends.

  2. Rising interest rates have made it more and more difficult for potential buyers to purchase the homes they desire.

  3. This creates upward pressure on rental housing, both rents and income property prices.


2. Market: Rentals Outperform SFRs




  1. Many people buy a home for the investment value, the future appreciation. This is certainly a good strategy.

  2. However, in the last several years, appreciation on residential income properties has outpaced that of single family homes. And that is just the price of the property.

  3. Income properties also have the cash flow and principal reduction components adding to your equity build.

Makes rental units something to look closely at, right?



3. Financial: Generates Cash Flow




  1. Most other investments (including your own home) require you to wait until you sell your asset before you actually make any money.

  2. 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.

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

4. Financial: Building Your Equity




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 these 3 over time.

5. Financial: Higher Returns




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

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

  3. You just need to know how to find them

6. Financial: Relative Stability




  1. 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.

  2. 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.

  3. 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 is pretty stable, and impressive!

7. Financial: Financial Independence




  1. You can create your financial independence 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, 2, 3 or 4 units, or you can grow to apartment buildings ("commercial" investing and lending), and build your real estate empire.

    2. It is your business!

8. Financial: Portfolio Diversification




  1. 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.

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

9. Financial: Power of Leverage




Finance vs. all cash
  1. 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.
Example 1: Buy stock; pay full amount
  1. If stock doubles in price over time, you get a 100% return on investment
Example 2: Buy income property; 25% down
  1. If property doubles in price over time due to appreciation, you get a 400% return on investment
  2. Typically put down 25%.
  3. $1,000,000 property = $250,000 down
  4. Doubles in value in 10 years = 100% increase
  5. Sell @ $2,000,000 = $1,000,000 equity gain on $250,000 initial investment
  6. ROI = Equity Gain / Initial Investment = 400% ROI
Which would you rather have?
  1. 100% return or 400% return?
Lesson
  1. Use OPM (Other Peoples Money)!

10. Financial: Tax Advantages




As with owning your own home, tax benefits can help turn an apparently unattractive income property into a positive one with appropriate financial management.

Your primary tax benefits include:
  1. Mortgage Interest Deduction
  2. Property Tax Deduction
  3. Depreciation
  4. Operating Expense Deductions
  5. 1031 Exchange
  6. Rollover from 401K to Self-Directed IRA


*** Consult a qualified Tax Professional!

11. Financial: Inflation Hedge




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 value money weakens over the life of the investment.
Fixed-rate debt becomes cheaper
  1. When you lock in a mortgage, inflation erodes the real cost of those payments, so you are 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.

12. Lifestyle: Passive Income




AKA mailbox money!

  1. You have to know your stuff, but once you have 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.

  2. Your likely infrequent involvement in the decision-making process might be as simple as: "The fridge went out in Unit A: do you want to replace with a low, medium or high-end model?"

    3. Make it easy on yourself!

13. Lifestyle: Tangible Asset




Unlike stocks, bonds, mutual funds, 401Ks, IRAs, CDs, savings accounts, derivatives, crypto, or even REITs, real estate is a physical asset with intrinsic value. There is always long-term demand that has inherent utility.

And supplies are limited!.


14. Lifestyle: Easy To Get Into




  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.

15. Lifestyle: Easy To Grow




  1. 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.

  2. 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.

  3. 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.

  4. This creates a "money machine" effect, where you build on your strengths and experience by repeating past successes.

  5. 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.


16. Lifestyle: Multi-Generational




  1. Nationally, and especially in California, there is a growing trend for family members in different stages of life coming together to help share in the common obligations of life.

  2. Having a parent or aunt or uncle who needs frequent attention live with you is both a burden and a blessing. A multi-family property like a duplex, triplex or fourplex, provides that perfect combination of convenience and separation. Each member can have their privacy, yet get together for meals, life celebrations and plain company.

  3. Plus, it is good to have a built-in babysitter, right?

17. Future: College Funding




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

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

  3. 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.

18. Future: Early Retirement




  1. 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!

  2. 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, it would it be wonderful to have equity built up that you could tap, right? 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.

19. Future: Legacy Plan




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

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

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Real Estate Investing Made Easy
www.SMARTreis.com
info@SMARTreis.com
(562) 208-9818
CAL DRE #01870443
Peter Werrenrath, REALTOR®


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