Why Invest in Real Estate?
“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense…and managed with reasonable care, it is about the safest investment in the world.”
- Franklin D Roosevelt
The power of leverage goes beyond the simple use of financing. We will demonstrate how a professional team can leverage your most precious commodity: time. Through our focused experience in every aspect of the real estate investment process, you, the investor, reaps the benefits of continually collapsing timeframes to rapidly propel you to your ultimate goal: stable, passive income.
This is termed cash-on-cash return or sometimes referred to simply as cash-flow. This is the most direct type of financial return because it is the money our investors can put in their pocket each and every month and provides them with the working capital to live and decide on their next investment opportunities.
These opportunities are positively magnified when financing or leverage is employed. There are few financial instruments available to the average investor that provide the opportunity to leverage, in many instances up to 80%. Leverage allows our investor’s dollar money to work harder, according to the principal of positive interest carry. With every mortgage payment, our investors are using the monthly rentals to pay down their debt and simultaneously build equity, regardless of appreciation rates. And current Tax Incentives encourage and support the use of leverage to maximize returns through Mortgage Interest Relief, no Capital Gains Tax (CGT) until the property is sold, as well as the opportunity to utilize a 1031 exchange program to defer our investor’s CGT indefinitely, as long as he continues to invest in similar investments, within a specified period.
Appreciation is the obvious driver and can be our investors greatest financial return using the leveraged model. Historically real estate has reliably increased in value over time – through inflation and supply and demand. While this rate is not fixed – thereby not allowing the investor a guaranteed rate on an annual basis – it is reasonable to look at an averaged rate of return over a longer period of time. For purposes of this study, we will use an annual appreciation rate of 4.5% which, according to the US Census Bureau and National Association of Realtors, is the median rate between 1970 and 2010, including 3 housing downturns. Depreciation is the hidden driver which, when utilized by a property-wise CPA, can augment our investors returns even further.
An investor’s NOI (Net Operating Income) refers to total income after all operating expenses, not including financing. This is sometimes referred to as the Capitalization Rate or Cap Rate. The higher the rate the greater the potential. The ROI (Return on Investment) is the income after all expenses are accounted for, including finance charges.
Learn to Leverage “The Leverage Habit”
One of the biggest advantages to real estate investing is that you don’t have to do this alone. You can leverage money, people, and time to accelerate your road-map to wealth building.
One don’t know of another investment opportunity that allows investors to buy at 25% down and a fixed interest rate over 15-30 years. While investors can and do borrow money for equities by buying them on margin, this is a niche strategy that is used mainly for short-term investments. In real estate, the opposite is true. As the above analysis demonstrates, the power of leveraging, when done correctly, magnifies our investor’s returns from a very creditable 8.6% (NOI divided by Total Un-leveraged Purchase Price), to an amazing 26.7%. Leveraging allows our investors to increase their wealth creation strategy: imagine what 4 properties would do for their bottom line? This is precisely what this strategy enables.
The longer people try to do this alone, the more they realize that this entire model becomes very difficult, if not impossible without the right team. From Real Estate Agents, Home Builders, Title Agents, Mortgage Brokers, Property Management Teams, CPAs, Attorneys and Investment Mentors, each professional has an important function to serve in the overall success of your wealth building strategy. However, assembling a reputable, top team to coordinate seamlessly is incredibly difficult and time-consuming.
No matter what your current situation or how little money or time you have at the beginning, you can always get to where you need to go as long as you have the right team. The longest journeys are all an accumulation of small, intentional steps. If you are interested in starting your real estate investment journey with us, or have any questions regarding real estate investing please feel free to give us a call: 586-482-8156 or write to us at firstname.lastname@example.org.
We are committed to ensuring a legacy of integrity and value by building quality homes and communities for customers, enriching our investors through long-term wealth building strategies and sharing success with our employees. Greystone is dedicated to offering our customers superior products and services and to adding value for our investors through out expertise, innovation, foresight, and reliability.