Growing Your Net Worth with Real Estate
RYAN SAJDERA - REALTOR®
Growing your net worth with real estate is one of the FASTEST and most EFFICIENT ways of compounding your net worth. Your net worth is simple; your assets minus your liabilities. For most people this is a pretty basic concept, but for a homeowner looking to grow and expand their net worth, this can be a game changer!
Owning just ONE rental property can be one of the wisest financial decisions you can make… IF you do it correctly. Most first-time homeowners have grand visions of owning multiple properties, but soon realize that the value of a rental property is realized at the time of purchase. There’s a saying in real estate that “you make your money when you buy the home”. To put it simply, you make your money when you align all the factors of price, location, rentability, and expenses BEFORE you buy the property. If these factors don’t line up before you buy, they certainly won’t line up after, and you can lose out on some big gains. Let’s take a look at how rental property ownership makes you money in FOUR different ways.
Rental Income
This one is pretty straight forward. When you rent a home, the tenants pay you money. This income is considered “passive” since you are not actively working to obtain it. If you purchase the property correctly, this rental income will cover ALL of your expenses, including mortgage, taxes and insurance, and even put a little spending money in your pocket.
Appreciation
Appreciation is the increase in value of your asset over time. Is a home that was purchased in 2010 for $100,000 still worth $100,000? Of course not! The value continues to go up with inflation. The values of homes historically go up. This is why some big investment companies often purchase real estate as a hedge against inflation. Does this mean real estate will never go down? Absolutely not. But over time, if you continue to upkeep your property, and there are no major economic shortfalls in your local economy, you should expect values to continue to trend upward.
Depreciation and Tax Benefits
This is your “Silver Tuna” as a rental property owner. Depreciation is a phantom expense that the IRS allows you to claim for 27.5 years on a residential home to help offset your rental income. If you make, for example, $10,000 on a rental property in one year, you will owe Uncle Sam taxes on that extra $10,000 of income. Depreciation helps you offset that income. Let’s look at an example of a $220,000 home with a land value of $20,000.
$220,000 Property value
- $20,000 Land/Lot value
$200,000 Building Value
$200,000 Building Value / 27.5 years = $7,272
This means that EVERY YEAR for 27.5 years, you can claim $7,272 against your rental income to help offset your capital gains. This is just one of the many tax write-offs you can have through real estate. Other expenses can include mortgage interest, property taxes, property management fees, mileage to and from rental properties, utility bills, etc. The list goes on and on! When you understand the tax benefits of real estate, you will quickly understand why the rich own real estate!
Mortgage Paydown
This is one of my favorite principles of real estate. As your tenants are paying you rent, you turn around and pay your mortgage. If your mortgage is $1200 per month, and 400 of that goes to principle pay-down, then your tenants are literally putting $400 dollars into your “piggy bank” each month! That’s on TOP of all of the above income. If you are renting, you are paying someone else’s mortgage. PERIOD.
So… what do you think? Are you ready to start growing your net worth? Maybe you’re just ready for some coaching before you take the big leap? If you want to know more, or are ready to start your journey, then give me a call at 715-558-3245 today!
About Ryan
Ryan Sajdera is an investor-friendly agent that has been investing locally and out-of-state for over 7 years. Ryan has personally bought and sold millions of dollars in investment properties ranging from small multifamily units to mobile home parks and commercial land. He specializes in coaching and training new investors, and he hosts a free monthly investor education group to teach and train investors in the local area. Interested in learning more? Feel free to call or text Ryan any time at 715-558-3245 or email him at ryan@thealmsgroup.com
