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Why Real Estate is the Best Investment

Thursday, August 20, 2020   /   by AJ Shepard

Why Real Estate is the Best Investment



Taylor:

Hello, guys. Thank you so much for joining us. We're talking today about why real estate is one of the best ways to make money out there. So let's not waste any more time. Let's get straight into it.

Taylor:

The first way, obvious way: rental income. I mean, this is almost always the main reason that any real estate is going to be purchasing real estate. If it's income-generating, that is. It's kind of self-explanatory, so let's just go on to the next reason about rental income, a great way to make money from real estate.

Taylor:

Buying low. So you buy low, you can do this ... And I mean, if you do this well and you can turn an instant property into a profit right away. I would certainly recommend consulting your local realtor or even local real estate investors as well. Being a part of groups, such as the Westside Investors Network or places like that, would be a great way to keep an edge on the market and to keep your eye keen so you can get these opportunities for buying low and creating instant profit.

Taylor:

Then on the other side, of course, we have sold high. Then you can sell high a number of ways, a very common way to stage your property when it is for sale. This does wonder for your property. A nice tip for stagers and staging out there is using smaller furniture in rooms in order to create a larger feeling room. I know that the tip has been used often. And when you choose to sell the property, certainly can dictate how much money you can get from it. For example, summer, spring months are typically better months to sell your house or list your house as opposed to those autumn or winter months.

Taylor:

Then implementing minor renovations, the millionaire real estate investor, as well as the millionaire real estate agents has a rule called two Fs, two Ps. This stands for fixtures, furnishings, paint, and plants. If you invest just a little bit of money into any of those four things, you are most likely going to see a higher return when selling your property. And with stocks, you always have to buy and sell at the market value, and that's not always the case with real estate, so selling high is another great way.

Taylor:

Increasing your equity. So if you take a mortgage out to finance a property, you are increasing your equity with every single mortgage payment you make. This is just something that does not happen when you rent. So this is probably the biggest reason to stop renting and start living in a property that you own because you increase your equity over time as you start to make those payments, increasing equity is a great way.

Taylor:

Leveraging makes you profit when you fully sell for a price, so break this down just a little bit. If you were to buy $100,000 property and you put $20,000 down, then you sell that property for $120,000 a few years later, you get your $20,000 back plus principal payments because we've been increasing our equity and that $20,000 profit. So leverage gives you an opportunity to make a larger end income when you help somebody finance that property. Most of the time, that's a bank. So this is a great way and another good reason to invest in real estate.

Taylor:

Renting smaller units. So a lot of times people think that you have to rent a whole house, but that's not the case. House hacking has certainly become a big, big thing on the scene of real estate investing. But if you were to rent out rooms of your home by the room, you can almost always charge a little bit more as a whole than if you were to rent the whole place out.

Taylor:

So then this gives the idea that you can divide your house into a duplex, a triplex, et cetera, and increase your rent. There's just a lot of options when you are investing in real estate and trying to generate an income from this property, like any investment property.

Taylor:

Renting to businesses is also another great way to make money that people typically don't think about. Businesses are certainly a different type of tenant, and typically they have higher rents. They also can be safer tenants if their businesses are more well known. So renting to businesses to just, once again, another option.

Taylor:

There are tax benefits on interest. So in the USA, the beautiful USA, you can deduce or deduct the mortgage interest from your rental income, and this creates a tax-free profit. Any investor out there, they're always trying to create tax-free profits in real estate. There are quite a few ways to do this.

Taylor:

There are also tax benefits on improvements. So you can also deduct the cost of improvements from your rental income while the added value to the property is still yours to keep. So, this is awesome. If you can deduct your mortgage interest and you can improve your property, you can kind of double up on these benefits. It's just, it's pretty awesome. There's no other investment vehicle quite like that.

Taylor:

Then you can profit from a lump sum on your refinance. So let's break it down for a second. If you were to buy a place for about $100,000 and you put $10,000 worth of improvements into it, that the tenants paid back with rents, the property is now worth $125,000, because your contractor is a good guy who does good work, and you can refinance to get $25,000 cash out of it.

Taylor:

Then you can put 25% down on your next $100,000 rental. So your rental is gaining value. It's creating cashflow. It has all these tax benefits and is helping you deposit and create based on refinancing profits to buy other rental property. So, it's kind of like a cascading effect. Very cool.

Taylor:

Then you can profit from extra cash flow on a refinance as well. So if you're able to refinance your property to lower your mortgage bills and the rent stays the same, you're generating more cash flow every month, and this allows you to build up a cushion for maintenance, or maybe save up for a new deposit on a new rental or have more passive income to live off of.

Taylor:

So I mean, those are pretty much all the reasons on a large scale why investing in real estate is one of the best ways to make money. Are there any general comments or questions that anybody has?

Speaker 2:

I got one.

Taylor:

Go for it.

Speaker 2:

I was reading a book by David Green and he mentioned that, and I'm sure Trent or Jacob, all you could attest to this, but he mentions how you make your money on investment when you buy it. And that kind of goes with trying to get an under-market deal. I think it was your second slide or something. Yeah. Buying low, so you make your money when you first buy the property, getting that good deal. Do you find that to be true?

Taylor:

Oh, absolutely. Again, [inaudible 00:07:25] with people who are doing this successfully. So consulting people like your realtor or associates or confidants in the same space is going to help you to spot these types of opportunities, because obviously, these opportunities do not last long. So knowing wholesalers that are grinding the phones, those are good guys to be in touch with, keep them in your back pocket. But absolutely. Yeah, you do make the money on the buy-side.

Speaker 2:

Sweet.

Speaker 3:

Would you recommend staging a fourplex if you're going to sell it?

Taylor:

That's a really great question. I think I would recommend it, but I would not ... I would just break out a decision kind of matrix in a spreadsheet. How I would kind of order that is, the way staging works and the way that stagers make money is they charge an upfront fee, then they charge a fee on typically a per month basis on how much their furniture costs just to live more or less in your property.

Taylor:

So, obviously, the days on market for larger properties like that are typically a little longer, so you might want to estimate a little bit longer holding time of that furniture. And if the money works out to be pretty much net-zero, I would almost always recommend doing it, because at the end of the day, a stage property is going to sell faster than a property that's not staged, and you're selling your property for a reason. You want that money in order to allocate it in other ways.

Speaker 4:

Yeah. My comments on that would be, there are likely at least two tenants that are in the units, so the biggest thing is making their units looking good, so offering incentives to have them clean up their space a bit and tidy it up.

Speaker 5:

Yeah, that's what I was thinking.

Speaker 6:

Alrighty.

Taylor:

Cool.

Speaker 6:

Thanks, Taylor.

Taylor:

Thanks, guys.

Speaker 7:

Thank you.

Uptown Properties
Chris Shepard
3526 SW Troy
Portland, OR 97219
503-941-0276
Fairway Independent Mortgage Corporation
Mike Maier
5410 SW Macadam Ave, Ste 100
Portland, OR 97239
503-545-9879

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