Why Does Investing In Real Estate Create Wealth

by : Kris Koonar

Investing in real estate is just like doing any other business. The main goal is to earn money. By buying and selling properties or even renting it out you are creating wealth. The aim is to create a regular positive cash flow.

The trick here is to use as less of your own money as possible. Pay only the down payment when buying a property. Take a long-term loan with the least amount of interest. Once you have purchased a property, then you can put it up on rent. Now your cash flow begins. Once you deduct your maintenance charges, your taxes and the interest payments on your loan and your other running costs from the rentals you have received, you can reach a conclusion as to exactly how much you are earning. If the earning is substantial, then you have made a good decision and you can now replicate it again. This is wealth being created and multiplied.

Once you have started receiving regular income from your property, then you could also think about getting a re-finance on it. This will give you an additional loan to purchase a new property and put it again on rent. This method will also be helpful in avoiding any payment of capital gains tax since you have not sold any property.

When you decide to buy any property, you should also conduct proper research before buying it. Consult an experienced real estate broker if you are new in this field. His experience and contacts can be useful in getting a wide range of properties to choose from. Also hire the services of a good real estate attorney who can read between the lines before signing up any documents. All these services cost money but these are necessary expenses, which will help you stay out of trouble and save you even more money in the future. Also, learn to identify properties, which have good potential and sellers who are serious about doing business with you. This can save a lot of time and effort while hunting for a good deal.

You could also go in for an interest only loan, where the loan period is only between 5 to 10 years. In this type of loan you only have to pay interest, but you will have to sell the property after the loan period or re-finance it. This is also a good way to build up wealth in a short period. Anyway, in theory, your property would also have appreciated within the loan period. The important thing to remember is that some activity should be taken up once you have purchased a property. If it is lying idle, then it is not creating wealth. If you are not getting good rental offers, then it is better to sell it or re-finance it and move elsewhere. A cash flow has to be maintained for wealth to be created.

It is these dim times of foreclosures, which are ideal for you to jump in and make some good real estate investments. You can get properties at very low prices, and by using the above tips you could start creating real wealth in real estate.