Building Wealth in Real Estate
The goal of every investment is to maximize returns for the investor. When investing two factors, that help decide the type of investmnet one might make are, risk and return.
Typically the lower the risk the lower the return. A typical risk versus return continuum ranges on the lower end from bank accounts, cash or money market funds, bonds, and or bond mutual funds, stocks, stock mutual funds, real estate, collectibles, options, and futures, on the higher end. However, our unique "business approach" of using research and analysis to help investors find, analyze and buy high performing properties moves real estate from the middle of the pack into the high return low risk category.
It is interesting to point out that all of these typical investment venues are based on returns of interest, dividends, increases in value, or spreads and that you have little to no control over the returns received. It is very different when investing in real estate.
Real estate continuously builds wealth at four different levels- at the same time. Returns are realized through the properties: Cash Flows; Appreciation; Principle Reduction; and Tax Benefits. Real estate is also very unique becuase YOU have some if not total control over those returns. You control the properties returns through: cash flows (rents and other income streams); Appreciation (updates and continuous increase in income steams [you also build wealth through Market Appreciation but you have little control over that]); Principle Reduction (can pay down mortgage faster using positive cash flows generated from property [buying a property with positive cash flows is critical to building wealth]; and Tax Benefits (manipulate costs and items like maintenance reserves to reduce taxes on income streams).
The Four Pillars for Building Wealth in Real Estate are:
 1. Cash flows- The amount of income generated from rents and other non-rental activities for a property. Note: One can have great cash flows and go bankrupt. What is most important here is Cash Flow After Taxes (CFAT) which is the amount of cash left in your pocket at the end of the year. To find the total wealth building potential of the property, add this figure to values for Appreciation and Principle Reduction.
2. Appreciation- The increase in value of a property over a given period of time. Usually reported in a %. This increase can come from any one or all three types of appreciation: Market Appreciation (the increase in value as market prices escelate; Forced Appreciation (updating the property); or Performance Appreciation (value of property goes up as profits go up.
3. Principle Reduction- The amount of principal that has been paid down due to making timely monthly payments on the debt. This "principal" reduction creates increasing equity in the property (difference between its value and the remaining debt balance) month to month.
4. Tax Benefits- The estimate of tax benefits a property may provide its owner at a given time. A negative number suggests a profit while a positive number suggests an income loss. Note: this loss may be a function of depreciation.
To learn more about how these four pillars, come together to build wealth in real estate, click on the links below to instantly download a copy of the white paper and example:
White paper: The Four Pillars of Building Tremendous Wealth in Real Estate
Example: REIA Report: Investor (see pages 7 & 8)
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- Call us at 724-368-3650 to schedule a convenient time to discuss your needs and learn all the ways we can help find, analyze, and buy only those properties that meet or exceed your wealth building goals.
- Fill out our easy to use on-line inquiry form: How can we help you?
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- Search for investment property in Western PA: Property Search
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