When we enter the land of the mall and we see those perfect shoes in the window, that little voice in our head says, “Yes, I’ve got to have those!” But why do we need them?
You have to answer that same question with everything you buy and, for real estate, this is an easy one. There are so many reasons why you should invest in properties, how do I list them all?
For starters, how about for your kids, for your family, for a tax deduction, for improving your lifestyle, or just to say you own another home? Yes, that’s right, your ego! Lots of people buy real estate for their ego, so it’s alright to be upfront immediately and say that your ego is a reason.
I actually purchased by first rental property while I was having a casual chat with on of my co-workers. He was telling me his story. He had lived up North and he and his wife decided they would retire to sunny Florida. After transitioning to Central Florida – finding jobs, purchasing a home, and even going to school to earn his real estate license, they really started to miss their son who lived in North Carolina. Like many Florida retirees they moved and left their family behind only to realize they missed them, making them wonder what the heck they were doing living so far away.
What does this have to do with rental properties? Well that summer day while talking to my co-worker friend, opportunity came knocking and I was listening, my life changed. My co-worker was ready to move back, but the only hold up was selling this house they just bought. That’s when he looked at me and said, “Hey, you should buy it.”
Now, that’s what got me thinking – I had been a stay-at-home-mom for several years, I was just starting to get my business up and running, and it was my first year of a new real estate career – so I was pretty new to all this. But I wanted it! So, I had to examine and figure out the WHY to see if I really should do it.
Here are my WHY’s behind wanting a rental property. The WHY is important because you need to have a reason to buy to make it worthwhile. And no matter what the reason it needs to be YOUR reason.
5 Great Reasons to Invest in Real Estate:
1) Back-Up Plan
Having a back-up plan offers me a safety net in case I fall into financial hard times. This is always smart to have, but if you own a rental proper and you fall into financial hard times you can sell it and make money that way. Plus, making money in real estate, gives you a greater return on investment than other methods like CDs, money market accounts, or even the stock market. When you invest money in one of those methods, you own what you put in. It might go up or down during the invested time but you still own the amount you put in. But if you invest that money in real estate you may pay the same amount of money as a down payment and then finance the rest and have an investment of the price of the home. If the market increases 10% a year, you’re earning a 10% increase on the price of the home, not just your down payment. Your return is much greater in real estate and can be an excellent back-up plan should you find that you need it.
2) Positive Cash Flow
When you have a certain amount to invest in real estate, you can purchase one home or break it up and use it as multiple down payments, and enjoy a positive cash flow. Positive cash flow is where your mortgage and expenses are less than your monthly income from the property, giving you money in your pocket every month! This works really well if you have a property that is paid for free and clear!
This isn’t a question of whether or not we all want to retire, but how rich do you want to be when that happens? Being the independent women we are, do we really want to rely on Social Security? That’s a scary thought! Social Security likely isn’t going to be enough to provide you with the lifestyle you want.
So, how can you retire with real estate? Buy one property per year for 15 years, put them all on a 15-year mortgage, and once the first is paid off, start paying more on the others so they are paid off quicker too. After 20-25 years, you will have 15 properties, all paid for free and clear by the tenant’s payments. That’s the best part, the tenant pays the mortgage for you!
4) Kid’s College Fund
At the time of making this decision to buy this property from my co-worker, I had little children in my house and I thought another great reason to invest would be for them! If you are one of the responsible parents who have invested in a college fund for your children, good for you! No, great for you! But if you aren’t in the position to financially invest in a college fund for your children — like the position I found myself in — then I have good news for you. There’s another way to offset the costs of college. I’m not talking about scholarships, although those are ideal, but I’m talking about rental properties.
Say, your child is 4 years old, you have 14 years to worry about paying for college. Buy a rental property now, make your payments on a 14-year amortization schedule, and it will be paid for when your child goes to college. Then you have two options: If your child does get scholarships, use the monthly cash flow to pay for books, food, and living expenses. Or if you have to pay for education also, sell the house and walk away with enough to pay for a decent 4-year degree.
So why not buy a house for each kid? Now, that’s what I call a responsible mom!
5) Uncle Sam
Have I convinced you yet? Or do you want more? Okay, one more. So maybe you don’t have kids. Instead, you have a nest egg set aside for a rainy day and are supporting yourself quite nicely. Even more the reason to buy a rental property! Why? Uncle Sam. No matter how much you make in this country, Uncle Sam wants his cut. How do you keep as much as you can in your pocket instead of sending it to the Internal Revenue Service? One word – Deductions.
Here’s where you will also want to invest in a good accountant. The more deductions you have, the less you pay in taxes. So, if you’re lucky enough to be financially secure, then keep as much as you can in your pocket by having a rental property.
Well, there you have it – my 5 reasons for investing in real estate. Not just because I wanted to help a co-worker or because I really wanted it, but 5 sound reasons that ultimately would help my family and support the lifestyle we wanted.