- There are a number of ways to calculate returns on investments over time. One of the best when it comes to real estate is the monthly deposits that you get for possibly doing absolutely no work that month. Residual income and the strategy for cashflow is essential for debt management and helps in the planning for your own financial freedom!
- Cashflow is the remainder of monthly income once you have all, and I mean all, your expenses.
- Monthly income = $3,000; Monthly expenses (taxes, property management, mortgage, city fees, repair & maintenance, insurance, vacancy, strata, utilities, other debts) = $2,400; Positive Cashflow = $600
Appreciation (Fact: Real estate values go up over time)
- Those new to this field can think that real estate investing is only about timing the market right so they capitalize on appreciation. But you know better. Appreciation is great because it is very reliable and real estate is a long term game. Values of properties in the right markets are pretty well guaranteed to rise over time. It’s not timing the market, its time in the market!
Better returns with not as much volatility (plus tax benefits)
- Real estate investing doesn’t offer just one up or down return. In fact there are 4 ways that we calculate returns on our books
- Cash on Cash return (cashflow)
- Active appreciation
- Spending money on the proper renovations can have double and even triple the return on investment
- Principal paydown
- In the rental investment game your tenants are paying down your loan/debt. This is money that you’re not having to spend and thus is like a free return on investment!
- Let’s assume briefly that each of these categories of ROI are producing a 4.5% ROI. Well together that equates to a 18% total ROI! There are not many other investments that we can think of that can generate that significance.
- Above and beyond the above, there are many tax benefits too, such as depreciation, capital gains exemption, tax free borrowing, self-directed IRAs, and more which all add up to bonuses for you!
- I’m in favour of having something that I can actually go drive by and see it exists, compared to just a red or black number on a computer screen. Also, I’m pretty sure there’s no insurance on stock purchases incase they go up in flames.
- This is by far the most important and could very well be the most underutilized. I came up with the name “REINVESTORS”, yes because we invest in R.E. (real estate), but also because we believe that ‘RE’-financing or ‘RE’-using your equity to further invest in more properties is an excellent strategy to build for financial freedom. Not only will a bank or institution loan you up to 95% of cash needed to purchase a property, but they will also exchange cash for equity you already have in the form of a HELOC.