How can I build wealth in real estate?
Updated: Aug 16, 2020
If you’ve been watching my videos or have attended one of my real estate workshops, you will already know that property ownership is one of the most solid ways to build wealth.
The most important thing to understand is that just as the cost of buying a home increases, so does the cost of renting. The speed of these increases in price are impacted by the local, national and even the global economy. While we can never fully forecast exactly what is going to happen next, we can however make inferences based on historical data. The one thing we consistently see is that despite market fluctuations within the economic cycles, the cycle continues to repeat the pattern of moving up, moving down and flattening out before repeating the cycle again.
Consider, you buy your first home and want to live in it. Coupled on top of the natural equity being built, that you also rented out a portion of your property while you lived there. Or, if this wasn’t your primary residence and you used the property as an investment only, you would have also been able to make an additional income from renting the entire property out. This rental amount would have increased over time while your mortgage repayments would have decreased over time. This means that if you kept up with your annual rental increases as a landlord, you would have gotten to the point at some stage (if not in the beginning), that the rent paid by your tenants is now covering the expenses of owing the home and in turn is even producing a profit on a monthly basis!
Now, imagine, you bought a home in 2008 at age 22, then rented it out while you stayed living at home with your family. The rental income was paying the majority of the mortgage off and perhaps you had to contribute an additional $100 per week to cover the outgoings. Simultaneously, you are increasing your income and saving more and more money as you progress in your career. You get to the point where you have saved enough money for a down payment on a second investment property..then you repeat the cycle. You rent it out, adding a little extra each month to begin with until the rental payments are covering the outgoings associated with your property, where you are now making a third monthly income at the same as building equity in two homes.
Even if you are purchasing to live in the property, you can rent out a portion of your home or you can just settle for the gross equity being built over time.
The main thing is that if you continue this pattern of buying property and renting it out, you are building massive wealth over time. Imagine you did this with a number of properties…where you got to the point that you didn’t even have to work anymore? You had complete financial freedom and were able to travel the world, spend time with the people you love hanging out with and basically live the dream!
Getting the first property is the one where you need to be the most frugal with your money, in order to save that down-payment. You also want to plan ahead to build your credit to a good level that will help you to get a loan at a lower interest rate. The good news is, that when purchasing a property for an investment rather than to live in it, the income you will make by renting the property out, will help you to get the loan amount easier, because it will not only be based on your income from your day job.
Also, once you have the first property, things become easier because you can use this property as security to get future loans. You have also proven to the banks that you are able to manage the property, have great credit by keeping up with all outgoings and have in the meantime, increased both your personal day job income as well as the rental income on your first property. In turn, the amount you owe on the initial mortgage will have decreased. So…you see how this works!
It may sound like magic but I’m not going to lie, you have to WORK for this wealth…but in the end, it’s really clear to see how this will impact your life in the long term.
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Youtube: Kate Barnes Realtor | Dre 02092777