Not all real estate investing strategies are created equal
2 Proven Ways to Double Your Money – Not all real estate investing strategies are created equal. Here are two of the best and one to avoid.
It’s easier than you might think to double your money through investing. According to the rule of 72, you can double your money in 10 years by earning around 7.2% per year. Real estate investing makes it even easier because you don’t have to rely on capital appreciation alone.
Let’s talk about how you can double your money with rental property investing and real estate investment trusts (REITs), as well as whether house flipping would work for you.
With stocks, the majority of returns come from capital appreciation. You can juice returns a little with dividend stocks (see the next section), but for the most part, you’re dependent on capital appreciation. If you use leverage to buy real estate, you earn in four ways: capital appreciation, rent, tax shields, and debt paydown.
Let’s say you buy a rental for $500,000 with 25% down and a 20-year, 5%-rate mortgage. Here’s what returns look like after 5, 10, and 20 years, assuming you net $200 a month from rent (after all expenses) and the property appreciates 3% per year.
In the example, it took less than five years to double the initial investment of $125,000. By year five, the investment had turned into $281,817 despite just 3% annual capital appreciation and net cash flow of 0.48% of the purchase price.
The investment took off because the tenant is paying down the mortgage. Real estate prices tend to stay consistent over time and retain value, so investors are able to use a lot more leverage than they can with stocks. In the example, the net from rent each month of $200 doesn’t seem like much, but the tenant is also covering a $2,531 monthly mortgage payment.
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