The Four Wealth Generators of Real Estate Investing (4 Ways to Make Money in Real Estate)

The Four Wealth Generators of Real Estate Investing (4 Ways to Make Money in Real Estate)


How’s it going guys? My name is Nick – and if you’re new to my
channel, welcome to Investing Engineered! I’m here to talk to you today about the four
wealth generators of real estate and how you can utilize these to your advantage to build
long lasting wealth long into the future. No joke, it is possible to make money in four
different ways through real estate investing! Which is why so many people have become millionaires
through real estate alone. Some of these ways to generate income through
real estate are actually very easy while others actually require a little bit more work. But you need to realize that it’s totally
possible for all of you out there to utilize these methods and eventually get rich through
real estate investing. So if you do enjoy this video, be sure to
smash the like button for me, and don’t forget to subscribe for more great content coming
in the near future! So with that said, let’s jump into these great
avenues of making more money through real estate investing. Alright so the first way to generate more
wealth through real estate investing is through capital appreciation. Now appreciation simply means that the value
of something has increased over time. Thus, an item that you bought a long time
ago might be worth more today than you originally bought it for. A simple example would be an old coin – in
1920, a Canadian penny might only be worth one cent, but today it’s likely worth several
dollars just because it’s really old and rare! So it appreciated in value over time – pretty
simple concept. However, for real estate, this concept of
appreciation can be divided even further into two subcategories – these being natural appreciation
and forced appreciation. First of all, natural appreciation occurs
through the natural tendency for prices of homes, apartments, commercial real estate,
etc. to rise over time. Now this natural appreciation of property
values can be caused by several factors including inflation, population growth, and supply and
demand among others. The one thing you need to know though is that
this natural appreciation is totally out of your control – meaning you cannot influence
how much a property will or will not naturally appreciate over time! So as a real estate investor, this is not
something that you want to rely on, especially in the short term. This is because property values can fluctuate
up and down quite a bit due to smaller economic factors. However, we do know that over the long term,
like 10, 20 or 30+ years, property values will appreciate due to those larger economic
factors, like the ones I just mentioned. Alright so the second form of appreciation
in real estate is that known as forced appreciation. Now in this scenario, you as the investor
have full control to force the appreciation of the property value. But you might be wondering – how can you increase
the value of a property? Well there are many different ways, but it
generally requires some form of work. For example, if you buy an old property with
holes in the wall, stained carpets, and nasty bathrooms, it’s probably not going to be worth
that much relative to its peers on the market. But if you put in work and make some repairs
to the house to make it livable again, you can actually increase the value of this property
no problem! And in some cases, this can result in a profit,
meaning that you created more value in the home than you paid for the improvements. So this is the essence of forced appreciation
– and people who flip houses rely on this type of forced appreciation to actually make
money. But again, as long term investors, we should
not be relying on this type of forced appreciation because the market can change the value of
a home in a very short period of time. And the price of the property can still drop
even though you’re trying to add value through improvements. So in the rest of the video, I’ll be discussing
even better ways to generate wealth through real estate. So this next method of making money in real
estate is through cash flow. Basically, this cash flow is the monthly rental
income that you can receive by renting out a space within your investment property. Some might even call it “the dividends of
real estate” because it’s generally a very sustainable form of income that rises over
time. And you’re being paid consistently regardless
of the fluctuations in the value of the property. So this means you won’t have to speculate
or rely on the value of the property appreciating over time because you know that every single
month, you’re going to be getting a fat paycheck from your tenants. Best of all, this cash flow can offset the
cost of your mortgage or even provide a profit on top of all of the expenses that you have
every single month. So essentially, in the best case scenario,
you’d be able to live for free if you’re living in the residence that you’re renting out. And finally, rental rates generally increase
over time at about the rate of inflation or higher – so just like dividends increase over
time, your rental rates can increase at about a 2 to 3% rate every single year. This will effectively increase your rate of
return on the investment every single year because your rental rate is increasing while
the value of the property that you paid for stays constant! In my opinion, this would be the best way
to generate wealth through real estate because it’s both a secure and lucrative long term
option to make more money! Alright so the third way to generate money
through real estate is through principle paydown or equity generation. Now if you own a property and you got a loan
on this property, you might not have known but the mortgage payments actually consist
of two different parts. So the first part is the interest that you’re
paying the bank for them loaning you the money, while the second part is the principle payment,
and this is paying down the value of the home in a small fraction. Principle paydown is a form of wealth generation
because you’re gaining more equity in the property as you’re paying down that loan and
owe the bank less money on the property. So every month, you’ll be slightly more rich
just by making those mortgage payments and paying down the principle on your loan. It should also be noted that whenever you’re
paying down a loan, the first few payments within your loan will always be focused more
on the interest portion than the principle portion. So for example, if you have a mortgage payment
of about $2000 per month, your interest portion might be $1200 per month, while the principle
paydown might only be $800 per month in the first few years. But over time, the principle portion of your
mortgage payment will slowly start increasing even though your total mortgage payment stays
the same over time. And this means that as your loan matures,
you’re gonna be making a lot more in equity than when you initially started paying the
loan payments. Which is great news for long term real estate
investors! To illustrate this more clearly in your mind,
you might wanna check out an amortization calculator online just to be able to visualize
how your equity portion becomes more dominant as the loan matures. Finally, the last way to generate wealth through
real estate is through tax savings. You need to realize that real estate is taxed
significantly less than your 9 to 5 job paycheck, which makes it such a great way to generate
additional income on the side. So there are two major tax benefits to investing
in real estate, and the first is through capital gains tax. So you might be wondering – what is capital
gains tax? For example, if your property value appreciates
above the value that you bought it for, you can sell it for a profit and that profit is
only going to be taxed at half the rate of your normal income tax here in Canada. If you’re living in the United States, you
also gain a benefit, but I’m not sure about the specific rules. Now the second way to save on taxes is through
tax deductions. Now if you own a rental property here in Canada,
you can benefit by claiming tax deductions on many of your rental property expenses. Some examples of these expenses that you can
claim is your property tax, your cost of heat, your cost of water, or even your mortgage
interest payments every month – just to name a few. Overall, it’s a really solid deal because
if you were making the same amount of income from your rental properties as from your 9
to 5 job income, you would be saving a lot more after tax from your rental property income. Now it should be added that the tax savings
alone are not going to make you rich through real estate, but they will be the icing on
top of all of the other ways that you can make money through real estate that I mentioned. Anyways, I hope you gathered a lot of valuable
information on the many benefits of real estate investing through this video. So if you did enjoy or gained value from this
video, be sure to smash the like button for me. And if you haven’t already, you’ll definitely
want to subscribe for more content on personal finance, business, and investing in the future. Until next time!

12 Comments

  1. Investing Engineered says:

    Let me know if you guys like the music! And do you own real estate?

  2. Passive Income Tom says:

    Very good information Nick! πŸ‘ I have bought and rented a few homes and don't think you missed anything.

  3. Joe Berarducci says:

    Love love love real estate! Great video.

  4. RicoSuave Investing says:

    Awesome Nick. Yes! Natural appreciation is the best πŸ™‚

  5. Escaping to Freedom says:

    Thanks for the wisdom πŸ™‚ Some of these aren't immediate obvious, yet very true.

  6. Mike Moore says:

    Your a smart guy you know that ! Great job man! Love real estate investing.

  7. Naam Wynn - Personal Finance & Investing says:

    Great examples and tips here man! I like the flow of the video. Getting better man!

  8. Keith Jeske says:

    Good information. Good flow to the video. May I suggest a different background. It feels like you’re having a mug shot taken. Maybe something like Graham Stephan does, sitting at the same desk each time. It gives a little bit of character to the video. Keep up the good content. You’ll get there

  9. Chris Invests - Personal Finance Videos says:

    Real estate really is amazing. The competition is so annoying in this market cycle though.

  10. The People's Bookkeeper says:

    Great video/explanation my friend, thanks for sharing your tips and amazing job passing 300! keep it up! πŸ˜€

  11. School of Personal Finance - Rich McCormack, CFP says:

    Good stuff! I am a single family home investor. Best way to build wealth and passive income hands down.

  12. Investing Teacher says:

    Love the cash flow investing in REITs

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