I mentioned in the introduction to my YouTube channel that I’d be diving into different parts of my life and my family’s life, and this week I want to talk about investing in real estate and why we do it.
In a church sermon a while back, my pastor, challenged our congregation to think about “why you do what you do.” This is an important question in every aspect of your life, because if you don’t have a why, then you run the risk of living life just going through the motions. I know I don’t want that, and I don’t want that for anyone else either!
So when I think about our why for getting into real estate investing, I came up with 7 key reasons that I’d like to share with you.
Before we get started, if you like the content I’m providing, please share it with someone you care about and please check out my YouTube channel where new videos drop every Wednesday! I respond to all my comments on YouTube, and if you comment there, you’ll get a shout out in a future video!
Without further ado, here are the 7 reasons my family invests in real estate:
To Provide a Nice Place to Live
I’ve pretty much seen it all when it comes to rental units because that’s all I knew until I bought my first house 5 years ago.
My parents rented my whole childhood. When I went onto college, I rented rooms in on campus housing, and after college I went from renting an extra room in someone’s house to crashing on a buddy’s couch for a few weeks to renting a room in someone’s apartment. Eventually I rented my own apartment and I can emphatically say that not all rental units are equal. I want to create living options where people can be happy about where they live, they can make memories while they’re living there, and they can feel good about the experience after they’ve moved on. Our family does this with single family houses, but this and the rest of the concepts I’ll talk about carry over to most property types.
At its most basic level, if the rent you charge for your unit covers more than all the expenses associated with that unit, then you have profit left over. This is referred to as cash flow and can be one of the most enticing reasons to invest in real estate. I will make a future video on how I calculate cash flow on potential deals.
Every month that rent is collected, if you have debt on your property like we do, that means you’re also making a mortgage payment or something similar based on what sort of debt you have. Every month, some of that mortgage payment that is not going toward the interest on the debt and some is going toward the principal of the house. This means, you own a larger percentage of the unit each month. Our plan is to hold onto these units into the future when they no longer have debt payments! It’s exciting to think about one day into the future where the house is still there, and the rent still comes in, but there’s no mortgage payment to be made!
Over long stretches of time, houses and real estate in general ought to increase in value. The value is tied on location, condition, and local market forces, but home values increase over long periods of time. For example, let’s say I bought a house and paid $150,000 for it. 30 years later, providing the house has been well maintained, it is fair to assume the house value would be greater than the initial cost.
Diversification for Retirement
When you think about savings or retirement, some options like 401ks and IRAs might come to mind but investing in real estate can also be a way to save for retirement. When I compare investing in the stock market to investing in real estate, both have risks, but I don’t have any control in how the stock market companies make decisions. With rental real estate, I can decide how much to charge for rent, how to market, how good my customer service is, and so on. Continuing, rents may go up and down as the economy changes, but either way, everyone still needs a place to live.
I will start this part by mentioning that I’m neither an accountant nor an attorney, so please consult a professional before trying any of this. There are several aspects to owning rental real estate that make sound tax sense. To dive deeper into this, I feel I’d be doing you a disservice trying to break it down when nearly everything I know has come from one book. This is NOLO’s publication “every landlord’s tax deduction guide”. This book is published annually, so check out the latest version HERE.
This is the most fun part for me. You can see, touch, and feel real estate in a way that you cannot with other types of investing. This is something that I think about more now that I’ve become a dad. It would be tough to explain to my daughter that we own stocks or mutual funds in the stock market. but I’ll be able to explain to my her that we own a house that someone else lives in and in exchange for them paying us money, we keep it nice for them. I hope my daughter and any future kids that we have get in on real estate investing with me. Time will tell on that.
I hope you can take something away from this post. Please engage with me and I’ll respond!
That’s all for this week! Until next time, take care.