Successful real estate investment

In order to become a successful real estate investor, there are 5 key areas to master.

1) Become an expert in real estate acquisition

2) Understand the Rule of 7

3) Use leverage to your advantage

4) Maintain strong cash flows

5) Tax Benefits

While there are many other factors that need to be considered by the real estate investor, these are 5 critical aspects to increasing wealth.

1) When looking for the right property to buy, DO NOT expect to find the perfect investment property within the first few days. It takes hours of sorting through properties to find the best property to maximize returns. DO NOT expect to find the perfect property around the corner from you or in the neighborhood next door. You need to be flexible and look abroad, even interstate or overseas. When looking for an investment property, you need to focus on the return on investment. In other words, how much money will I make from what I have invested. For example, when I invest in real estate, I measure the return as a percentage, if I deposit $10,000 and make $10,000 the first year, that’s a 100% return; not a bad result. How do you achieve these results and how can you replicate them many times to create wealth? Read on to learn.

2) The rule of 7 is simple. It states that the value of real estate doubles every seven years on average. This has historically proven true for the past 50 years, so there is no reason why it shouldn’t continue into the future. This underlying rule has been relied upon by so many investors to create multiples of wealth. Understand this and you will be on your way.

3) Leverage is a wonderful tool for the investor. It allows us to put down a small deposit on a property and reap the full capital gains. For example, if I put a $20,000 down payment on a $200,000 house and the house goes up 10% in the first year, that’s a 100% profit. On average, the property has increased by 10% per year, so you would effectively be earning 100% on the property each year. All rental income would be used to service the $180,000 debt. Now if you did this for 10 properties spending $200,000 you would be earning 100% per year. In comparison, if you spent the entire $200,000 on a property, you would only make a 10% profit per year since the property would only increase by 10%. Sure you would get some rental income as well, but that would be relatively insignificant.

Once the property goes up in value, you can use that equity to buy more properties, so it just builds up like a pyramid, creating more and more wealth. The problem is that most people are afraid of debt and avoid it at all costs. Just be afraid of bad debts, which are loans secured by debt. Loans secured by asset appreciation are good debt.

4) Maintain a strong cash flow and ensure at all times that you can service the debt with the rental income received. If this is not possible, continue to the next property in your search list.

5) Don’t overlook the tax benefits you can use to improve your liquidity. Claim everything you can, expenses, repairs, loan costs, management costs, administrative costs and most importantly DEPRECIATION. If something is not claimed, it is usually an impairment. You can claim this deduction without spending a penny (except perhaps for a depreciation plan report). If your investment property is relatively new, you can add thousands to your bottom line. Don’t forget this one.

Real estate investing isn’t difficult, it just requires a little research and a solid plan of attack. If you master these 5 key points, you are well on your way to success. Much luck

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