5 Reasons why property creates so many millionaires
Lets look at why and how you can do the same...
In this article we examine why property has created vast's amount of wealth and systems that have allowed property to become arguably one of the best investment strategies.
Passive Cash Flow:
Tenants pay rent; after expenses, this creates a monthly, recurring mostly passive cash flow. Time is finite, so by only earning money by trading your time you are limited. What truly builds wealth is creating multiple passive streams of income.
This also differentiates property from investments in stocks. Cash flow does not happen for the vast majority of stock holders, with the exception of dividend paying stocks. Typically, you only make money when you sell the stock after and if the stock value has gone up.
Although property prices may fluctuate, especially during uncertain times e.g. COVID-19, over the long term property prices will nearly always increase in value. The increase is often very linear too, so predictions can be made as to values in the future.
This is why property is often seen as the safest investment strategy, there is far less volatility compared to other strategies.
Leverage is the use of various financial instruments or borrowed capital, e.g., debt, to increase an investment's potential return. In this case, a mortgage.
A 20% down payment on a mortgage, for example, gets you 100% of the house you want to buy—that's leverage. Because real estate is a tangible asset and one that can serve as collateral, financing is readily available in many different forms.
Principle Pay Down:
Principle pay down is a benefit enjoyed by property investors to help build their net worth. As you pay down your mortgage (OPM) with interest, each payment pays back some principle and you come closer to owning the property free and clear.
This allows you to build equity and wealth.The best part is when you have a cash-flowing income property, your tenants are paying this down for you and helping build your wealth and equity at the same time.
*OPM - Other Peoples Money
Refinancing is when you put in a new mortgage on a property. If the property has equity, from appreciation plus principal paid own, a cash-out refinance can be completed to pull out some of the equity gained.
Many property investors use this cash-out refinance to buy more properties and grow wealth in this way. With the correct strategies and team in place, refinancing can really scale investors property portfolios to the millions.
Article written by Miles McAuliffe
Last edited: 28/09/2020
Like any investing strategy, there are risks associated with
property investing. You should take legal and professional advice before entering into any investment and do your own due diligence.
Directly Sourced does not give investment, mortgage or financial advice, and is not authorised to do so. Any opinions expressed are those of Directly Sourced,
although given in good faith, but must not be relied upon.
Capital is at risk.