Yes, it is possible to make money and build wealth through homeownership. However, most people do not understand how this works and therefore never take advantage of it. Look at homes for sale before and after reading this, and you might see the opportunity that is being presented. In this article, we will reveal a straightforward strategy for building lasting wealth through homeownership.
If you consider buying a house, then there’s no time like the present to put this idea into motion. Don’t wait because if real estate prices go up as much as recently, future buyers might be priced out of the market altogether. And if interest rates increase in response to inflation, then houses may become even more expensive than they are now, so this would be the best time to take advantage of record-low interest rates.
The strategy we’re about to reveal can also be used by landlords who purchase rental properties. It will help if you view buying a house as an investment vehicle rather than shelter for our purposes here. If you look at your home as just where you live, you may not appreciate that there is more than meets the eye with homeownership.
To begin, let’s assume that you have cash savings and are ready to invest your money in some real estate. The first thing that comes into most people’s minds when they hear “real estate” is residential homes like single-family houses (this does not apply to commercial real estate, most people are familiar with that, though). This is not the only type of real estate you can buy. However, there are many other types. If you invest in something like raw land (land without any structures on it), then your return will likely be much higher than if you purchased a residential home or apartment complex.
Here Is How the Strategy Works
You will need to find an undervalued property currently available at a low enough price to provide significant positive cash flow (also known as “rental yield”). Negative cash flow properties typically end up being money-losers over time and should thus be avoided unless they are considered short-term investments (less than two years). Even so, we would recommend against buying anything with negative cash flow because that means you will be putting money into the deal, and it should not take very long before your money starts working for you.
Property valuation (i.e., deriving a reasonable price for something) is a highly subjective process. There are many different valuation methods; use discounted cash flow, which looks at the potential future net income (cash flow) of property and discounts those future income streams back to their present value using what is known as a “risk-free interest rate.” The risk-free interest rate is used as a proxy for the return on investment that an investor would expect from a risk-free investment opportunity such as similar low-risk investments. In other words, if you had a risk-free investment with the same level of return as the property you’re looking at, then you would not be willing to accept additional non-risky investments that may have offered higher returns because it is unnecessary due to your very safe investment already producing sufficient income.
So How Do I Know When to Buy?
I need to wait until undervalued properties are available at prices below our calculated value, right? Well, no. Being willing to pay more than something’s worth may also indicate what type of yield one can expect to receive. In other words, it’s not just a matter of finding properties with positive cash flow to determine whether or not to buy, but instead considering further what will be done with that property once purchased and thus the expected returns.
Many factors should go into determining whether or not a real estate purchase makes sense from an investment perspective beyond simply looking at the numbers. It is wise to consider market conditions (such as supply and demand) and potential uses for the property before making any decision about investing in real estate.
One must also consider their personal preferences when deciding how much risk they want to take on and what type of return they expect and hope to receive. Even though your personal preferences may differ from those of someone else, it is still often possible for the average investor to compare property value with expected returns by comparing risk-free interest rates with yields on real estate investments.
Please keep in mind that this article does not provide any guarantees about future outcomes. Before investing in any real estate, it is wise to do extensive research, including but not limited to: to talk with professional realtors and other industry experts and to watch market conditions; seeking advice from a reputable financial adviser; and perhaps most importantly, calculating an appropriate purchase price.