I came across a blog post from REIN (Real Estate Investment Network) a few months ago that I thought would help my readers understand why real estate investing is one of the most powerful investment vehicles in the market. Here is what REIN Property Analyst, Ray Reuter saids about investment real estate.
Here’s some super simple math showing exactly why residential real estate is so cool.
Let’s say you go out and buy a single property TODAY for $300,000 (call it a suited house) and based on your conservative numbers, this property does nothing more than break even every month (and we’re buying in a stable, well-performing market based on the fundamentals).
No cash flow, just break even.
Then we’re going to assume that the market will stay flat forever. We both know the market will go up, it will go down, but assume that over the next 20 years those ups and downs equate to a FLAT market…it’s still worth $300,000 in 2033.
Still with me?
Now over that 20 years the property just breaks even, nothing more, nothing less. Sure we’ve been up some months, but we’ve had some repairs & maintenance, some vacancy…so, over those 20 years we just break even.
Some would call this a boring piece of real estate…even a ‘non-performing’ piece of real estate.
Call me crazy, but guess what, I call that a $900 a month savings plan that someone else (called my tenants) paid for .
That’s right, after 20 years of holding this ‘non-performing’ piece of real estate I’m left with the equivalent of someone giving me $900 every single month for 20 years…I call that one heck of a savings plan.
Tell me, do you put $900 away every month right now? Maybe…but that’s still YOUR money, money you had to work hard for!
I’m talking about $900/month that someone gave me for the last 20 years, and it’s mine…all from an unexciting, ‘non-performing’, piece of residential real estate.
Want the math?
OK. So I bought for $300,000, I put 20% down plus closing costs, so roughly $65,000.
In 2033, 20 years from now, I sell it for the exact same price…$300,000.
I get my $65,000 investment back.
I pay the Realtor and closing costs and I’m left with roughly $215,000.
That’s no cash flow, that’s no appreciation, that’s simply my tenants paying down my mortgage (both principle and interest) for the last 20 years and leaving me with a free and clear property.
So $215,000 divided by 20 years = $10,750 per year
Divide that by 12 months = $896/month…that someone else gave me.
Sure we can calculate opportunity cost for your $65,000 investment, but tell me, would you be even mildly happy if someone, some stranger, was contributing even $500 a month into a savings plan for YOU & YOUR FAMILY for the next 20 years????
That’s like someone else contributing to your RSP fund every month. You OK with that??
Go ahead, poke holes in it if you want…
“Ray, no one gets a 20 year mortgage!” OK, do you think with some strategic planning you can have this property paid off after 20 years…especially if you bank on no cash flow? I say of course!
“Ray, what about a the roof, the furnace, etc???”
You’re absolutely right.
But let’s be serious, over the next 20 years do you think my rent is going to go up or down? Do you think my property will be worth more or less in 20 years buying in a fundamentally strong area?
Heck, even WHEN interest rates go up, guess what? So will my rent!
This is a no-brainer.
You can spend the next hour tearing this apart, telling people this Reuter guy is full of #$%…
OR maybe…just maybe, this makes sense.
Bottom line – real estate is simple…it’s just not easy!
And we’re not talking get rich quick, we’re not talking some ‘sexy’ investment strategy that 0.1% of investors ever pull off, just a simple old piece of real estate that you rent out and maintain for 20 years that YOU have 100% control over!
IT’S SIMPLE – I invest $65,000 to make $215,000 (before tax)…I’ll take that all day long, and that’s ONE PROPERTY.
Now imagine if you bought 10 properties just like that over the next few years (which isn’t rocket surgery).
It’s the power of leverage, the power of having control of your investments, and the power of being in the business of putting a roof over someone’s head (a business that ain’t going anywhere any time soon!!!)
Think about it, read this note a few times, this stuff works.
– Ray Reutor, Real Estate Investment Network
My Recommendation: It’s never too late to start investing in real estate. Start small with a condo and build up to a townhouse and then a single family home with multiple suites. Real estate investing is the ONLY investment that can utilize tenants to finance your monthly income and your future retirement. Start investing today. You will be happy you started, and your family will thank you for it.
– Teresa Leung
I am a licensed realtor dedicated to securing you wealth through strategic real estate investment. My mission is to help you achieve financial freedom by creating enough passive income to eventually replace your working income, so that you can spend more time doing what you love with the people you care about. For more information, go to www.pointbinvestment.ca.