Can you build wealth through real estate? Absolutely! I aim to reach Financial and Time Independence by 40 years of age (sooner if God allows) and plan on involving Real Estate in my investing. In particular, I aim to use sales, stocks, this blog and real estate to build wealth. Just last year, after discovering the FIRE (Financial Independence Retire Early; read more on FI here) community, I was off to the races for figuring out ways to optimize my income and wealth building. I met a financially independent blogger, Tim Kim, who shared publicly how he got to where he was and tips along the way. Through Tim, I discovered Bigger Pockets, where I found credible information on Real Estate investing.
Why Real Estate?
Diversification! It’s been said by Ray Dalio, Founder of Bridgewaters (world’s largest hedge fund) that portfolio of investments are at its optimal state at 15 streams of income. The wealthiest people in the world own Real Estate. Real Estate is a great retirement vehicle because it provides 1 of 6 of basic human needs for survival: shelter. We all need a place to live. When was the last time you paid for rent? Who does that money go to? For those who own homes, you understand this idea. Paying off your home is building your wealth (equity), which you could then use to invest in more properties.
3 basic ways to build Wealth through Real Estate
1. Own it. Even if you have a loan on your property, a portion of your mortgage payments each month is going straight to your equity. In other words, your home can be thought of as a piggy bank. If there is an appreciation or depreciation in your home value, you benefit even more. The concept of appreciation is clear; your home increases in value over time. On the other hand, depreciation can be written off on your taxes.
2. Rent it. If you own property, PITI (Principal, Interest, Taxes, Insurance), and other necessary expenses may amount to a sizable cut off your pay. Consider renting out a room either through Craigslist or Airbnb (this is an affiliate code that will give you a discount for your next reservation).
3. Keep it. Owning property should be a selective process. Therefore, choosing the right location is key to Real Estate investing. Consider buying a home in areas with low Capitalization Rates and hold on to your property, tend to it either on your own or through a property manager. If you chose a location near a college, an area with potential economic growth, and/ or you choose a place experiencing gentrification, you can benefit from property value increase.