Two of the most common methods of building wealth using real estate are:
Your primary residence or vacation home. If purchased the “right” way (buy low and sell high), most people can earn a substantial amount of money from their primary residence upon selling. This increase in value minus the balance owed on the property is called EQUITY.
WARNING: Never buy the biggest or most expensive house in the neighborhood. You will almost certainly lose money when it’s time to sell. Choose from low to middle price of the homes in the neighborhood. Remember, there’s always room to go UP in price! You don’t want to be the one coming down just to sell.
Real estate owned for the purpose of earning passive income. This kind of real estate comes in many forms ranging from a single family unit to a multi-family apartment building. Commercial office buildings and retail strip centers are also very popular for rental properties. The beauty of real estate is that you can own many different forms of it and make a profit from them all.
Like any other investment, real estate has its pro’s and con’s. Below is a quick breakdown of the advantages and disadvantages of owning real estate.
Real estate is a tangible (you can physically touch it).
It’s tax deductible – most expenses can be used as a tax write-off. Consult your tax adviser/accountant on specifics.
You can add value by upgrading certain features in order to increase your profit upon selling.
You can rent the property and make a monthly profit (passive income) while someone else is paying the mortgage off for you.
You can transfer wealth through real estate to the next generation without huge tax penalties.
Real estate usually appreciates (increases in value) over the years.
Real estate can easily become a
nightmare if purchased wrong
(using an interest only loan).
Real estate is not easily liquidated
(you can’t sell it quickly if you
need immediate cash).