1) Control of a HARD ASSET
When you make the decision to invest in real estate, your investing in a hard asset and you become your own boss. Thus, allowing you to choose what property, tenant, price of rent, and how you will manage and maintain the property in its entirety.
2) Mortgage Pay Down
When you buy a rental property usually they have a mortgage on them using your own money and the banks money to fund. The Tenants rent pays this mortgage for you. And the interest is a tax write off because itâ€™s a business. Over time as your mortgage becomes less your equity and net worth are growing each month.
3) Cash Flow
Cash flow is the extra money that is left over after all expenses of the unit are paid. Cash Flow can give you passive income which allows you to spend time with family, travel, or continue investing in real estate. Cash flow from real estate is stable and far more predictable than other businesses.
Example mortgage (P/I) $1,000
Cash flow $400 (passive income)
Many people say â€śMoney is made on the buy of the homeâ€ť It may be hard to find discounted deals but they are out there some even on MLS. When these deals can be found instant equity is gained in the property. Simply put, the definition of equity in real estate is the difference between the fair market value of the property and the amount of money you owe on the mortgage. We gain equity every month by mortgage pay down.
5) Appreciation (2 types)
Market Appreciation: Investing in real estate is a fantastic long-term investment because while values do go up and down, over time the values will climb higher and higher. Properties will continue to climb in value and years from now, that value will be more than what you pay today.
Forced Appreciation: Buying under valued properties and performing repairs. Adding value to a property by renovating a new kitchen or bathroom or legal apartment. Buy doing so we increase the value and make the house more appealing to the market.
Leverage is a powerful tool in building wealth when done right in real estate it can help you grow and gain financial freedom. In Canada we require 20% to purchase a rental property. This down payment can be Cash or borrowed money using existing equity in a house like a HELOC. we are able to get a mortgage for the remainder 80% from the Bank. This is what makes Real estate such a power investment. See example below of a stock vs Real estate
In stocks if you buy $100,000 and you get 3% appreciation you would make $3,000
$100,000 + 3% appreciation = $103,000
If you applied that $100,000 to a rental property valued at $500,000 that appreciated 3% your gains would be $15,000 in growth.
$100,000 20% down (cash or borrowed money)
$400,000 Bank mortgage
$500,000 house value + 3% appreciation $515,000
You make money by using the banks money.