Does Your Real Estate Investment have a 5 STAR IDEAL Investment Rating
Today, we have an interesting dynamic paving the way for savvy investors. Housing is in short supply while Housing Formation is at an all-time high. Meanwhile, home ownership is at a 30 year low. This is a perfect storm, creating high demand for rental property and a great opportunity for investors to fulfill people’s housing need.
Seasoned Investors are capitalizing on these benefits and fulfilling the strong need for housing as a means to provide a long term, sustainable investment.
With so many real estate investing vehicles available today, how can you know which is the right investment vehicle for you?
Most people already know that 90% of today’s millionaires made their wealth in real estate. With the perfect storm all aligning and providing investors with so many compelling reasons to invest, how do you insure that you are being purposeful, and creating sustainable Investments that optimize your long term objectives?
We all know that not all investments are created equal. Neither are all real estate investment vehicles. There are 5 wealth building principles that make up a great investment portfolio. The answer to which Investment Vehicle is best for you lies within your top desires for these 5 principles.
The 5 Wealth Building Principles:
1. I = Income / Monthly cash flow
2. D = Deductions / Tax benefits, such as deductions
3. E = Equity / The debt reduction made each month on the mortgage that is essentially being paid for by the tenant
4. A = Appreciation / Value growth from year to year (national average is 6% past 50 yrs)
5. L = Leverage / The ability to have 100% of these above benefits while using as little as 20% of your own money to acquire these wealth building benefits
Yes, only real estate has the ability to capture all 5 of these wealth building principles. It’s becoming pretty easy to see why 90% of millionaires made their wealth in real Estate
5 Star Rated Real Estate Investments
As we discussed earlier, not all investment vehicles are created equal. Even in real estate there are ways to create better investment strategies. While most investments outside of real estate only capture one of the wealth building principles, real estate can capture 2, 3, 4 and even all 5 of these wealth building principles.
You know, for fun, what if we applied a * star rating system for each wealth building principle that each of these investment strategies can capture.
Investment Strategy Examples
*Wholesaling: * Wholesaling provides 1 of the 5 wealth building principles. This strategy does not allow for Income or Cash Flow. Additionally, Deductions are really just limited to deducting all expenses from the total sale price to reduce your profits. Equity Buildup does not occur either. Appreciation is this investment’s strongest attribute, of which comes from finding a buyer to pay you more than you had paid, essentially giving you more money for your hard work and diligence in finding the property. Leverage typically does not exist in Wholesaling, as you are buying distress on more of a short term speculative nature.
**Fix and flips: ** This strategy provides 2 of the 5 wealth building principals. (Appreciation and Leverage)
*Appreciation is this investment’s strongest attribute, which comes from improving the condition of the property. *
*Leverage is another strong attribute, for people will often finance as much as 100% of purchase costs and repairs through a hard money loan.
The Fix and Flip process does not allow for Income or Cash Flow. Deductions are really just limited to deducting all expenses from the total sale price to reduce your profits. Equity Buildup does not occur either, as tenants are not paying down your mortgage
***Buy and Hold (Cash): This strategy provides 3 of the wealth building principles: Income, from rents, Deductions (and depreciation), from holding, and Appreciation. Because you pay with cash, you lose the ability to gain Equity Buildup and Leverage.
*****Buy and Hold (Finance): This strategy provides all 5 of the 5 wealth building principles:
1. *I = Income / Monthly cash flow
2. *D = Deductions / Tax benefits, such as deductions
3. *E = Equity / The debt reduction made each month on the mortgage that is essentially being paid for by the tenant
4. *A = Appreciation / Value growth from year to year (national average is 6% past 50 yrs)
5. *L = Leverage / The ability to have 100% of these above benefits while using as little as 20% of your own money to acquire these wealth building benefits
Indeed, a Financed Buy and Hold property is a 5 star ***** IDEAL investment, as it captures all of the Wealth Building Principles. In fact, a Buy-Fix-Hold captures all 5 stars and even provides for more appreciation if you buy it right and are able to renovate it for a great value play. This is a great tool to maximize a 5 star investment.
Needless to say, the more stars your investment has, the more positive leverage you have to build your wealth.
So next time you consider an investment, ask yourself what rating you could give to the investment. What rating would you give to a Real Estate Note? What rating would you give to a Tax Deed Investment? Is it a 3, 4, or 5 star rated investment? Perhaps this will help you determine if it is the best investment for you.
Real Estate Investing is simply an IDEAL investment. If you would like to find out more about IDEAL Real Estate Investing, Contact us for a complimentary strategy call.