It's the fourth installment of the steem leo writing contest and I'm throwing my hat in the ring to talk about my most heavily weighted investment class.
What is yours? Let us know by writing a post and tagging it with #leowritingcontest.
My most heavily weighted investment...
Real Estate
I just don't write about it, I invest in it heavily!
There are many ways to invest in real estate for profit. The method I use is specific because I want to reduce speculation and increase what I can control.
This is why I invest in....Rental Properties
Rental Properties provide four possible ways for me to benefit financially:
- Cash Flow
- Principal Pay down
- Tax Savings
- Appreciation
Let's go through these one by one.
Cash Flow
When purchasing a rental property the whole point is to generate cash flow. Meaning the amount of rent coming in exceeds your cost of doing business.
Generally I use a property calculator to produce my projected numbers and see if cash flow is possible on a deal.
The basic math is rent minus operating costs (mortgage, taxes, insurance, maintenance, vacancy)
Principal Pay Down
This is my favorite because we can use leverage to own real estate and have someone else pay off that loan. I acquire a property with a 25% down payment and then a loan for the other 75%. Then the monthly mortgage payment is made with proceeds from the rents.
The mortgage gets paid down using other people's money and thus creating equity in the property.
So even if the property does not appreciate I'm still generating wealth for myself.
Taxes Savings
The great part about this investment over something like stocks is that you get write offs such as depreciation, operating expenses amongst other things.
So your taxable income is reduced, meaning you keep more money in your pockets compared to other investments.
Appreciation
I like to call this one icing on the cake because as we all know with any investment (crypto, stocks, etc.) there are no guarantees price will go up.
If the value of a property does rise than it sweetens my return that much more as I am already collecting cash flow and getting my mortgage paid down.
Conclusion
Those are just the basics of why the majority of my investment capital is in real estate.
My strategy is a bit more advanced than that as I purchase beat up properties in need of renovation and updates thus adding additional value that way.
About 75% of my investment portfolio is in rental properties while the remaining is in crypto and stocks.
