Why Invest in Real Estate

Since I’m interested in helping everyone out as much as possible, I have found that one of the best means of producing a huge chunk of change when you retire without a whole lot of work is investing into real estate. What I have done myself is that I own my own house, which I pay $1700 per month on. With that $1700 per month, I know that I’m going to be getting it back once I sell the house. As long as the house doesn’t go down in value, then I will be getting back money that if I had rented I would have just lost… and in all reality, it feels like my money is all lost, so even if I got back $5,000 then it would feel good.

I also have a rental property, not a huge one, just a $200,000 property, which I rent for $1300 per month. On that property I’m actually taking a loss by the time I’m done paying taxes, utilities, etc… but it’s only a loss of $50/month. This doesn’t seem logical to most people, however, you have to remember, it’s like paying $50/month for a $200,000 house… which would be unheard of. So I’m not losing money, I’m not gaining money, I’m gaining equity.

I have owned both of these houses for 2 years. My own house was bought for $280,000, but it is now worth $293,000. I plan on selling both of these properties in 3 years.

So if we do the math… and I’m going to use over simplicated math, just to prove this works… but in reality the number would be much higher. Assuming that of the $1300 from the rental and $1700 from my own house, that would be a total of $3000 per month going towards my mortgage, lets assume that only 50% of that goes towards the house itself and the rest is interest. Obviously much more would go to the house, but for simple math… If I sold the houses for what they were worth when I purchased them, then I would leave the sales with a total of $90,000. With that $90,000 I could either throw it into a new home which would give me an awesome interest rate, and extremely low payments, or I could invest it. But if I was to do this exact same thing every 5 years for 40 years, which is when I plan on retiring, since I’ll be 64, then I will be sitting on $720,000… which means I could have a $400,000 house completely paid for and $320,000 in the bank collecting interest.

Now… what is required to do that? Virtually nothing, most first time home buyers can get a $0 down loan and if you maintain your credit while making those payments, you could get your second home fairly easily. Keep in mind that I had no cosigners for me on my loans. If you are married, you could double this number just by each of you signing on your own loans, rather than cosigning. When you cosign, you might be able to get approved for more, but it also means you will screw yourselves over when trying to get a second or third house, meaning it will be harder to get a rental property.

Remember all of that was very simple math… In the worst case scenario, I realistically should be getting 75-90% of the money back from the money that I put into the house…