Many of your clients may assume that investing in real estate is something only the affluent and market savvy can do. Especially in the current market, skyrocketing residential and commercial property values may scare away potential buyers.
The fact is that almost anyone – including your clients – has the opportunity to invest in real estate. Whether they invest in real estate directly or indirectly, they can enjoy the healthy returns they receive on their investment.
Real Estate vs. Inflation
Real estate is an effective way to build generational wealth, from tax advantages to property appreciation. Real estate is one of the assets that sees renewed interest when the stock market struggles and investing in it is a sound strategy regardless of market conditions.
Real estate can act as an inflation hedge when inflation runs high – like it is now. That’s key because cash can lose purchasing power over time, and real estate can lessen the impact of inflation.
Real estate isn’t like cash; its value doesn’t decline from one year to the next. The condition of the property and local market matter, but the value can increase with inflation or even appreciation.
Before your clients get too excited about the prospects of building wealth through real estate, they should understand the what’s and why’s of doing it in the first place. We’re providing a short FAQ on the topic that you can share with your contacts.
What Does Investing in Real Estate Mean?
Investing in real estate means different things. Generally, it means putting money into real estate by owning the property (equity) or loaning the funds to buy the property (debt).
Regardless of how your client invests in real estate, they may earn monthly cash flow, capital gains from appreciation, or interest on their loan.
Investing in real estate serves as another revenue stream for your client in addition to their regular day job, their low-yielding savings account, or any other investments like ones that rely on the stock market.
Who is Qualified to Invest in Real Estate?
You don’t have to be Donald Bren, the wealthiest real estate professional in the US, or come from family money to build wealth through real estate. You also do not have to be licensed or certified. Any average Joe can make it happen. All they need is a little money and a lot of passion.
Clients who want to own property – instead of financing someone else’s real estate purchase – will need a little cash for a down payment. If they have decent credit and a low debt-to-income ratio, they can borrow the rest of the money. This allows them to leverage their investment much more than any other investment.
If they’d prefer to invest in real estate rather than own it, they just need to have a minimum investment amount, sometimes even as low as $1,000.
How Can I Benefit From Investing in Real Estate?
Whether investing in the stock market or other lower-risk opportunities, there are always pros and cons. But no risk, no reward, right? Here are some of the top benefits of investing in real estate.
This is one of the most significant benefits of investing in real estate. Real estate naturally appreciates – especially in the current market when home values are surging. Even when values fall, the market bounces back. So, if your client invests and stays in it long term, they can build wealth – maybe even enough wealth to help the next generation.
The equity homes provide means they are assets that can be leveraged – even more than if the investor played the stock market.
For example, if your client invested $30,000 in the stock market at the bottom of its dip in March 2020, they could have seen an impressive 95.5 percent rate of return based on the Dow Jones industrial average performance in 19 months.
They could have almost doubled their money if they bought all the right stocks at the right time with a profit of $28,500.
However, if they had taken the same $30,000 and bought a $525,000 house, even a year ago, they would have seen a 20 percent gain on the $525,000, not the $30,000.
The 20 percent gain on the $525,000 is more than $100,000. That means they would have built $105,000 in equity vs. the $28,500 they had made in the stock market.
Buying and holding real estate or investing in a property’s equity can earn the investor cash flow. That revenue can come monthly in the form of rent payments from tenants. After the owner pays the mortgage payment on the property plus any other expenses, the excess is profit.
That income can be used for virtually anything – saving for other investments, an emergency fund, vacation, retirement, etc.
Those investing in real estate to buy, hold, and rent out can write off expenses like a business owner. They’ll lower their tax liability and increase profits by owning property while also leveraging its appreciation and cash flow.
Being in control
When investing in stocks or bonds, the investor has zero control. They can only decide when to buy and sell the asset. All the earnings and investment potential rely on the company invested in.
But if your client is invested in real estate, they control the rents and how long they own the property. They could even force some appreciation by making improvements to the property.
While building wealth through real estate may sound like a pipe dream to your clients, it’s very possible. All it takes to get started is finding that right property with some potential and buying it. You can help them find a key opportunity and then navigate them through the purchase process. It could be life-changing for your client.