There are several ways to create wealth in real estate. You can go the route of the tortoise or of the hare. On a small scale you can flip properties to quick profits or buy and hold for the long haul. Of course, there is no reason that you can’t do both.
Flipping a property for big profits appeals to a lot of people. There are tons of books, blogs and websites about this topic. Search around in Google and you will see what I mean. It appeals to many because of the limited market risk, the potential for big profits and no tenant headaches.
One problem with flipping is the competition. The market is full of investors looking for deals on a daily basis. Often times, when a good deal does show up the competition gets it before you or there are multiple offers that bid the price up to high.
In Sarasota, Florida where I live there are plenty of investors going to the courthouse auctions and bidding on the foreclosures. Lately, I have heard from several different investors is that the foreclosing banks are bidding up the homes to retail value so an investor cannot buy it, fix it and sell it.
Another way but far less exciting is to buy homes and keep them for the long haul. This is more of the tortoise approach to real estate but can still be very lucrative. One problem with flipping is that you have to keep doing it. You will always have to find homes at wholesale prices and fix them up. When will you ever be able to relax? Wouldn’t it be nice to own a bunch of homes that were paid off? Imagine sitting on the beach relaxing while you have $10,000 -$20,000 a month in rental income.
Time Value of Money – This is a powerful concept. If you have ever taken a finance course or read a finance book then you are probably familiar with time value of money or compound interest. It basically means that money today is worth more than money tomorrow because it can be invested and grown. For example, if you invested $10,000 in a mutual fund today and earned 6% a year for 10 years then your money would be worth $17,908.
Search the internet and find a financial calculator. It is fun to see how money can grow over time. Financial strategist tell you to start investing early in life. For example, assume you invest $10,000 when you are 20 years old and invest $10,000 a year, every year until you are 65. If your money earned 5% a year your account would have grown to over $1.7 million. Now imagine you did the same thing but started at 40 years of age. Your retirement account would be just over $500,000 which is less than a third had you started 20 years earlier.
Now let’s see what how the time value of money works in the real estate world. Say you bought a home for $100,000 with an $80,000 mortgage, 15 year mortgage. Assume the income equals the expenses.
Look below at the following appreciation rates. After 15 years your home would be worth the following:
* 1% – $116,096 * 2% – $134,586 * 3% – $155,796 * 4% – $180,094 * 5% – $207,892 * 6% – $239,655 * 7% – $275,903 * 8% – $317,216
So after 15 years your mortgage is paid off and the home appreciated. Assume real estate prices appreciate 4% a year for the next 15 years. Your $20,000 investment turned into a home that you own free and clear worth $180,094. Not only that but the home can be rented out and generate passive rental income for you.
Now imagine owning a bunch of these paid off rental properties. You would have a nice net worth and nice monthly income. While you are sitting on the beach enjoying life the flippers are out there trying to find homes to paint, repair and sell. Which retirement sounds better?
Marc Rasmussen sells Siesta Key Real Estate
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Rasmussen, Marc "Get Filthy Stinking Rich In Real Estate." Get Filthy Stinking Rich In Real Estate. 22 Jun. 2010. uberarticles.com. 12 Feb 2016 <http://uberarticles.com/real-estate/get-filthy-stinking-rich-in-real-estate/>.
APA Style Citation:
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Chicago Style Citation:
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