Using Real Estate to Grow Your Net Worth

Using Real Estate to Grow Your Net Worth

There is a reason real estate is one of the most widely stated source of income relied upon by the world’s wealthiest individuals. Real estate provides opportunities for anyone to grow their net worth in a variety of ways. Methods can range from simple to complex, but if utilized correctly, anyone can use real estate to enhance their wealth. Here are a few ways that real estate can be leveraged to grow your wealth and improve your financial situation.

Personal Property

Buying your own home has served as a financial cornerstone for decades. Eliminating the lost money resulting from monthly rent payments is a great step to keeping more of your paycheck. Paying down the principle on your mortgage serves as a forced savings account that can be accessed down the road when selling your property, or by pulling out the equity in your home to use for other investments that can earn you more interest than you are paying in monthly interest payments. Owning your own property has its limitations regarding the ability to move or the increased responsibility of home maintenance, but this trade-off is worth it when you factor in the appreciation and equity of your home that is building your wealth without much effort.

Rental Properties

A personal favorite, creating a rental property portfolio provides the benefits of owning a personal property without additional payments coming from your personal bankroll. After submitting your down payment and purchasing your property, you simply put the property on the market and find rental tenants. The amount your tenants pay in rent should cover the price of the mortgage and, if purchased at the proper price, even provide a monthly cashflow with the excess amount above the mortgage price. With this method, you are generating an income stream with the excess money that you can save, invest, or put toward another property, and you are also gaining equity in your property since the tenant payments are covering your mortgage payments. Combine this with possible appreciation and tax benefits for owning the property and you can see how this can quickly build your net worth.

Fix and Flip

The fix and flip technique is the most complicated method on this list and should only be used once you’ve gained experience with other forms of real estate investing. The concept of flipping a house breaks down to finding a property below market value so that it can be fixed up and sold for a profit. These properties usually have major renovation needs that need time and experienced workers to repair to the point of being livable again. The ability to put up little to no capital by utilizing outside lenders in exchange for a percentage of profits is one of the main reasons this method has become popular. When done properly, this method can be used for quick and often large profits to build your personal wealth. However, do keep in mind that these profits are subject to the short-term capital gains taxes, so be sure to factor this in to your decision-making when looking for potential properties.

Elie Hirschfeld is a NY real estate developer.